<PAGE> 1
As filed with the Securities and Exchange Commission on December 15, 1997
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. 31 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 32 [x]
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 LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
(Name and Address of Agent for Service)
Copy to:
Jylanne Dunne, 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)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[x] 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 amendment.
Title of Securities Being Registered: Class A, Class A-Special
Series 1, Class A-Special Series 2, Class B, Class B-Special Series 1, Class C,
Class C-Special Series 1, Class C-Special Series 2, Class D, Class D-Special
Series 1, Class E, Class E-Special Series 1, Class F, Class F-Special Series 1,
Class G-Series 1, Class G-Series 2, Class H-Series 1, Class H-Series 2, Class
H-Series 3, Class I-Series 1, Class I-Series 2, Class J-Series 1, Class J-Series
2, Class J-Series 3, Class K-Series 1, Class K-Series 2, Class K-Series 3, Class
L-Series 1, Class L-Series 2, Class L-Series 3, Class M-Series 1, Class M-Series
2, Class M-Series 3, Class N-Series 1, Class N-Series 2, Class N-Series 3, Class
O-Series 1, Class O-Series 2, Class P-Series 1, Class P-Series 2, Class Q-Series
1, Class Q-Series 2, Class R-Series 1, Class R-Series 2, Class S, Class T-Series
1, Class T-Series 2, Class U-Series 1, Class U-Series 2, Class U-Series 3, Class
V, Class W, Class X-Series 1, Class X-Series 2, Class Y-Series 1, Class Y-Series
2, Class Z-Series 1, Class Z-Series 2, Class Z-Series 3, Class AA-Series 1,
Class AA-Series 2 and Class AA-Series 3 shares of beneficial interest.
<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 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 Reporting;
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>
<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 Jersey Municipal 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, MidCap Equity Fund, Asset Allocation Fund, Special
Equity 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, MidCap Equity Fund, Asset Allocation Fund,
Special Equity 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 Reporting; 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 and/or Shares of the Money Market Fund,
Government Fund, U.S. Treasury Fund,
Tax-Exempt Fund, Institutional Government Money Market Fund,
Short-Term Bond Fund,
Intermediate Government Income Fund,
High Quality Bond Fund, Tax-Exempt Bond Fund,
New Jersey Municipal 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, MidCap Equity Fund, Asset Allocation
Fund, Special Equity 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 Reporting; 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 Reporting;
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 Government 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 Reporting
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 Reporting
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, MidCap Equity Fund, Asset
Allocation Fund and Special Equity 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 Reporting
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 Jersey Municipal 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 Reporting
23. Financial Statements........ Auditors
</TABLE>
-11-
<PAGE> 13
TRUST
THE GALAXY FUND
Money Market Fund
Prospectus
February __, 1998
<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 FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
EXPENSE SUMMARY............................................................ 1
FINANCIAL HIGHLIGHTS....................................................... 2
INVESTMENT OBJECTIVE AND POLICIES.......................................... 4
In General........................................................... 4
Quality Requirements................................................. 4
INVESTMENTS, STRATEGIES AND RISKS.......................................... 5
U.S. Government Obligations.......................................... 5
Money Market Instruments............................................. 6
Variable and Floating Rate Instruments............................... 7
Repurchase and Reverse Repurchase Agreements......................... 7
When-Issued and Delayed Settlement Transactions...................... 8
Securities Lending................................................... 8
Guaranteed Investment Contracts...................................... 8
Asset-Backed Securities.............................................. 9
INVESTMENT LIMITATIONS..................................................... 9
PRICING OF SHARES.......................................................... 12
HOW TO PURCHASE AND REDEEM SHARES.......................................... 12
Distributor.......................................................... 12
Purchase of Shares................................................... 12
Redemption of Shares................................................. 14
DIVIDENDS AND DISTRIBUTIONS................................................ 14
TAXES ..................................................................... 15
Federal.............................................................. 15
State and Local...................................................... 16
Miscellaneous........................................................ 16
MANAGEMENT OF THE FUND..................................................... 16
Investment Adviser................................................... 16
Authority to Act as Investment Adviser............................... 17
Administrator........................................................ 17
DESCRIPTION OF GALAXY AND ITS SHARES....................................... 18
Shareholder Services Plan............................................ 19
Agreements for Sub-Account Services.................................. 20
CUSTODIAN AND TRANSFER AGENT............................................... 20
EXPENSES................................................................... 21
PERFORMANCE REPORTING...................................................... 21
MISCELLANEOUS.............................................................. 22
</TABLE>
<PAGE> 15
THE GALAXY FUND
4400 Computer Drive For an application and
Westboro, Massachusetts information regarding
01581-5180 purchases, redemptions, exchanges
and other shareholder services or
current performance, call
1-800-628-0414.
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 397 days or
less, such as domestic and foreign bank certificates of deposit, bankers'
acceptances, commercial paper (including variable and floating rate
obligations) and corporate bonds 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 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. 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. See "Financial Highlights," "Management of
the Fund" and "Description of Galaxy and Its Shares" herein.
The Fund is advised by Fleet Investment Advisors Inc.("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is
unaffiliated with Fleet and its parent, Fleet Financial Group, Inc., and
affiliates.
<PAGE> 16
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. 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 __, 1998
<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.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES MONEY
(AS A PERCENTAGE OF AVERAGE NET ASSETS) MARKET FUND
- --------------------------------------- -----------
<S> <C>
Advisory Fees ................................... %
----
12b-1 Fees....................................... None
Other Expenses ................................. %
----
Total Fund Operating Expenses.................... %
====
</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........................... $ $ $ $
-- -- -- --
</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. 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
[_________________________] into the Statement of Additional Information
relating to the Fund. Any fees 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.
<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 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, 1997 (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
number or address provided above.
-2-
<PAGE> 19
MONEY MARKET FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996 1995 YEARS ENDED OCTOBER 31,(1)
------------------------------------- ----------------------------------------------
TRUST SHARES 1994 1993 1992
------------ ---- ---- ----
<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(2)(3) ..... 0.05 0.05 0.03 0.03 0.04
Net realized and unrealized gain
(loss) on investments .......... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total from Investment
Operations: 0.05 0.05 0.03 0.03 0.04
----------- ----------- ----------- ----------- -----------
Less Dividends:
Dividends from net investment
income ......................... (0.05) (0.05) (0.03) (0.03) (0.04)
Dividends from net realized
capital gains(4)................ -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Dividends: .......... (0.05) (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 $ 1.00
=========== =========== =========== =========== ===========
Total Return(5)..................... 5.00% 5.43% 3.35% 2.78% 4.07%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .. $ 924,222 $ 334,054 $ 797,399 $ 577,558 $ 590,911
Ratios to average net assets:
Net investment income
including reimbursement/waiver .. 4.89% 5.30% 3.38% 2.74% 3.74%
Operating expenses
including reimbursement/waiver .. 0.55% 0.55% 0.64% 0.63% 0.58%
Operating expenses
excluding reimbursement/waiver .. 0.58% 0.56% 0.64% 0.63% 0.58%
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,(1)
--------------------------------------------------------------
1991 1990 1989 1988
---- ---- ---- ----
<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(2)(3)....... 0.06 0.08 0.09 0.07
Net realized and unrealized gain
(loss) on investments .......... -- -- -- --
----------- ----------- ----------- -----------
Total from Investment
Operations: 0.06 0.08 0.09 0.07
----------- ----------- ----------- -----------
Less Dividends:
Dividends from net investment
income ......................... (0.06) (0.08) (0.09) (0.07)
Dividends from net realized
capital gains(4) ............... -- -- -- --
----------- ----------- ----------- -----------
Total Dividends: .......... (0.06) (0.08) (0.09) (0.07)
----------- ----------- ----------- -----------
Net increase (decrease) in net asset
value ............................ -- -- -- --
----------- ----------- ----------- -----------
Net Asset Value, End of Period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== ===========
Total Return(5)..................... 6.40% 8.11% 9.09% 7.08%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .. $ 415,541 $ 444,303 $ 410,121 $ 210,712
Ratios to average net assets:
Net investment income
including reimbursement/waiver .. 6.24% 7.82% 8.73% 6.92%
Operating expenses
including reimbursement/waiver .. 0.59% 0.59% 0.58% 0.59%
Operating expenses excluding
reimbursement/waiver ............ 0.59% 0.59% 0.59% 0.59%
</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) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the year ended October 31, 1989
and the period ended October 31, 1987 was $0.09 and $0.06, respectively.
(3) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996 and 1995 was $_____, $0.05 and
$0.05, respectively.
(4) Represents less than $0.01 per share for years 1992 and 1987.
(5) Total Return for 1994 includes the effect of the voluntary capital
contribution of $1.6 million from Fleet 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%.
-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.("Fleet"), the Fund's 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); corporate bonds; obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities;
and repurchase agreements with financial institutions such as banks and
broker/dealers. These instruments have remaining maturities of 397 days 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.
Fleet 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 securities, (ii) is rated by the only Rating Agency that has
-4-
<PAGE> 21
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, Fleet will acquire the security if it
determines that the security is of comparable quality to securities that have
received the requisite ratings. Fleet 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 corporate
obligations, including commercial paper and corporate bonds with remaining
maturities of 397 days or less.
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
("FDIC"), or by a savings and loan association or savings bank that is insured
by the FDIC. 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 Fleet 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
-6-
<PAGE> 23
with the assistance of investment dealers which make a market in Section 4(2)
Paper, thus providing liquidity. 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, 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 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 issued or
guaranteed by the U.S. Government or its agencies or instrumentalities are
similar in form but may have a more active secondary market. 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 Fleet 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. 4 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.
-7-
<PAGE> 24
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 decline below the
repurchase price. The Fund would pay interest on amounts obtained pursuant to a
reverse repurchase agreement.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase securities on a "when-issued" or "delayed
settlement" 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. 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 the Fund's
investment objective.
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
Fleet to be of good standing and only when, in Fleet'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
-8-
<PAGE> 25
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.
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 (i) may purchase or hold debt
instruments in accordance with its investment objective and policies, (ii)
may enter into repurchase agreements with respect to portfolio securities,
and (iii) 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. Purchase securities of any one issuer 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
-9-
<PAGE> 26
total assets may be invested without regard to the 5% limitation;
notwithstanding the foregoing restriction, the Fund may invest without
regard to the 5% limitation in U.S. Government obligations and as
otherwise permitted in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), or any successor rule.
3. Borrow money or issue senior securities, except that the Fund may
borrow 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.
4. 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.
In addition to the foregoing limitations, the Fund may not purchase
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 (a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, by
domestic banks, or by U.S. branches of foreign banks that are subject to the
same regulation as domestic 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. 2 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. 3 above, the Fund intends to
limit borrowings, including reverse repurchase
-10-
<PAGE> 27
agreements, to not more than 10% of the value of its total assets at time of
such borrowings.
With respect to Investment Limitation No. 4 above, the Fund intends to
limit its investments in illiquid securities to not more than 10% of the value
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.
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 1940 Act. In particular the Fund will comply with the
various requirements of Rule 2a-7 under the 1940 Act, which regulates money
market funds. In accordance with Rule 2a-7, the Fund is subject to the 5%
limitation contained in Investment Limitation No. 2 above as to all of its
assets; 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. 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. 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 Fleet has determined, in accordance
with guidelines established by the Board of Trustees, that an adequate trading
market exists for such securities.
-11-
<PAGE> 28
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. 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,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors 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 primarily 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 FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors 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
-12-
<PAGE> 29
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 FD
Distributors, Galaxy's custodian and the purchasing Institution are open for
business ("Business Days").
A purchase order for Trust Shares received by FD Distributors 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 per
share 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 FD Distributors 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.
-13-
<PAGE> 30
On a Business Day when the Exchange closes early due to a partial holiday
or otherwise, Galaxy will advance the time at which purchase orders must be
received in order to be processed on that Business Day.
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 FD
Distributors and 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 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 FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors 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 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 is determined separately for each series of shares of the 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. The Fund does not expect to realize net capital
gains.
-14-
<PAGE> 31
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.
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 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 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 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.
-15-
<PAGE> 32
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.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, 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, 1997 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 Government, U.S. Treasury, Tax-Exempt, Connecticut
Municipal Money Market, Massachusetts Municipal Money Market, Institutional
Government Money Market, Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity, MidCap Equity, Asset Allocation,
Small Cap Value, Growth and Income, Special Equity, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New Jersey Municipal 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.
-16-
<PAGE> 33
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 Bank or other subsidiaries of Fleet
Financial Group, Inc. in consideration for administrative and/or 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, 1997, 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 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. Fleet, the
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.
-17-
<PAGE> 34
FDISG generally assists the Fund in its administration and operation.
FDISG also serves as administrator to the other portfolios of Galaxy. 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 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. In addition, FDISG also receives a separate
annual fee from each Portfolio for certain fund accounting services. From time
to time, FDISG may waive voluntarily all or a portion of the administration fee
payable to it by the Fund. For the fiscal year ended October 31, 1997, 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 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 Shares and Retail B Shares
and these other portfolios, which are offered through separate prospectuses,
contact FD Distributors 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.
-18-
<PAGE> 35
Retail A Shares of the Fund are sold without any sales charge. Retail B
Shares of the Money Market Fund 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. 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 investment
portfolio 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
investment portfolio 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 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 FD
Distributors; 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
-19-
<PAGE> 36
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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities agree to perform 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.
Such entities are 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 One 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.
-20-
<PAGE> 37
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 fees and commissions in connection with the purchase
of portfolio securities.
PERFORMANCE REPORTING
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 that 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. Yield data
will be calculated separately for Trust Shares, Retail A Shares and Retail B
Shares of the Fund.
The yield of the Fund refers 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.
-21-
<PAGE> 38
The Fund's yield will fluctuate and any quotation of yield should not be
considered as representative of the 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 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 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 the Fund, or (b) 67% or more of the shares
of the Fund present at a meeting if more than 50% of the outstanding shares of
the Fund are represented at the meeting in person or by proxy.
-22-
<PAGE> 39
TRUST
THE GALAXY FUND
Government Fund
Prospectus
February __, 1998
<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 FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
EXPENSE SUMMARY............................................................ 3
FINANCIAL HIGHLIGHTS....................................................... 4
INVESTMENT OBJECTIVE AND POLICIES.......................................... 7
In General........................................................... 7
INVESTMENTS, STRATEGIES AND RISKS.......................................... 7
U.S. Government Obligations.......................................... 7
Repurchase and Reverse Repurchase Agreements......................... 8
When-Issued and Delayed Settlement Transactions...................... 9
Securities Lending................................................... 9
INVESTMENT LIMITATIONS..................................................... 9
PRICING OF SHARES.......................................................... 11
HOW TO PURCHASE AND REDEEM SHARES.......................................... 12
Distributor.......................................................... 12
Purchase of Shares................................................... 12
Redemption of Shares................................................. 13
DIVIDENDS AND DISTRIBUTIONS................................................ 14
TAXES ..................................................................... 15
Federal.............................................................. 15
State and Local...................................................... 15
Miscellaneous........................................................ 15
MANAGEMENT OF THE FUND..................................................... 16
Investment Adviser................................................... 16
Authority to Act as Investment Adviser............................... 17
Administrator........................................................ 17
DESCRIPTION OF GALAXY AND ITS SHARES....................................... 18
Shareholder Services Plan............................................ 19
Agreements for Sub-Account Services.................................. 19
CUSTODIAN AND TRANSFER AGENT............................................... 20
EXPENSES................................................................... 20
PERFORMANCE REPORTING...................................................... 20
MISCELLANEOUS.............................................................. 22
</TABLE>
<PAGE> 41
THE GALAXY FUND
For an application and
4400 Computer Drive information regarding
Westboro, Massachusetts purchases, redemptions,
01581-5108 exchanges and other shareholder
services or for current
performance, call 1-800-628-0414.
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 397 days 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 primarily 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. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is
unaffiliated with Fleet and its parent, Fleet Financial Group, Inc., and
affiliates.
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
<PAGE> 42
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.
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, 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.
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 __, 1998
-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 U.S. TREASURY
(AS A PERCENTAGE OF AVERAGE NET ASSETS) FUND
<S> <C>
Advisory Fees.................................. %
----
12b-1 Fees..................................... None
Other Expenses................................. %
----
Total Fund Operating Expenses.................. %
====
</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. 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
[_______________________] into the Statement of Additional Information relating
to the Fund. Any fees that may be 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> 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, 1997 (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 number 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,
1997 1996 1995 1994 1993 1992 1991
-------------------------- ----------- ----------- ----------- -----------
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(2,3) 0.05 0.05 0.03 0.03 0.04 0.06
Net realized and
unrealized gain (loss)
on investments -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment
Operations: 0.05 0.05 0.03 0.03 0.04 0.06
----------- ----------- ----------- ----------- ----------- -----------
Less Dividends:
Dividends from net
investment income (0.05) (0.05) (0.03) (0.03) (0.04) (0.06)
Dividends from net
realized capital gains(4) -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total Dividends: (0.05) (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 $ 1.00
=========== =========== =========== =========== =========== ===========
Total Return(5) 4.95% 5.39% 3.49% 2.83% 4.19% 6.25%
Ratios/Supplemental Data:
Net Assets, End of
Period (000's) $ 733,759 $ 678,679 $ 759,106 $ 685,304 $ 636,338 $ 436,232
Ratios to average net assets:
Net investment income including
reimbursement/waiver 4.85% 5.27% 3.36% 2.79% 3.67% 6.05%
Operating expenses including
reimbursement/waiver 0.52% 0.53% 0.54% 0.55% 0.53% 0.56%
Operating expenses excluding
reimbursement/waiver 0.53% 0.54% 0.54% 0.55% 0.53% 0.56%
<CAPTION>
YEARS ENDED OCTOBER 31,(1)
-----------------------------------------
1990 1989 1988
----------- ----------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period $ 1.00 $ 1.00 $ 1.00
----------- ----------- -----------
Income from Investment
Operations:
Net investment income(2,3) 0.08 0.09 0.07
Net realized and
unrealized gain (loss)
on investments -- -- --
----------- ----------- -----------
Total from Investment
Operations: 0.08 0.09 0.07
----------- ----------- -----------
Less Dividends:
Dividends from net
investment income (0.08) (0.09) (0.07)
Dividends from net
realized capital gains(4) -- -- --
----------- ----------- -----------
Total Dividends: (0.08) (0.09) (0.07)
----------- ----------- -----------
Net increase (decrease)
in net asset value -- -- --
----------- ----------- -----------
Net Asset Value, End
of Period $ 1.00 $ 1.00 $ 1.00
=========== =========== ===========
Total Return(5) 8.10% 8.82% 6.91%
Ratios/Supplemental Data:
Net Assets, End of
Period (000's) $ 335,443 $ 303,181 $ 141,545
Ratios to average net assets:
Net investment income including
reimbursement/waiver 7.80% 8.59% 6.73%
Operating expenses including
reimbursement/waiver 0.56% 0.60% 0.60%
Operating expenses excluding
reimbursement/waiver 0.57% 0.61% 0.60%
</TABLE>
-5-
<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) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's 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.
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Trust Shares for the years ended
October 31, 1997, 1996 and 1995 was $ , $0.05 and $0.05, respectively.
(4) Represents less than $0.01 per share for years 1992, 1990, 1989, 1988 and
1987.
(5) Total return for 1994 includes the effect of the voluntary capital
contribution of $2.3 million from Fleet 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%.
-6-
<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 397 days 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. ("Fleet"), the Fund's 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
instrumentality. No assurance can be given that the U.S.
-7-
<PAGE> 48
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 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 Fleet 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. 4 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.
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
-8-
<PAGE> 49
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.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase securities on a "when-issued" or "delayed
settlement" 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. 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 the Fund's
investment objective.
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
Fleet to be of good standing and only when, in Fleet'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 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
-9-
<PAGE> 50
Additional Information under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that the Fund (i) may purchase or hold debt
instruments in accordance with its investment objective and policies, (ii)
may enter into repurchase agreements with respect to portfolio securities,
and (iii) 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. Purchase securities of any one issuer 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;
notwithstanding the foregoing restriction, the Fund may invest without
regard to the 5% limitation in U.S. Government obligations and as
otherwise permitted in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), or any successor rule.
3. Borrow money or issue senior securities, except that the Fund may
borrow 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.
4. 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.
In addition to the foregoing limitations, the Fund may not purchase
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 obligations issued or
-10-
<PAGE> 51
guaranteed by the U.S. Government, its agencies or instrumentalities.
With respect to Investment Limitation No. 2 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. 3 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.
With respect to Investment Limitation No. 4 above, the Fund intends to
limit its investments in illiquid securities to not more than 10% of the value
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.
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 1940 Act. In particular, the
Fund will comply with the various requirements of Rule 2a-7 under the 1940 Act,
which regulates money market funds. The Fund will determine the effective
maturity of its investments according to Rule 2a-7. 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
-11-
<PAGE> 52
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 amortization of premium or accretion of
discount. 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,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors 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 FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors 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 FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors 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 per
share determined on that day, provided that the Fund's custodian receives the
purchase price in federal funds or other immediately available
-12-
<PAGE> 53
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 FD Distributors 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.
On a Business Day when the Exchange closes early due to a partial holiday
or otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day.
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 FD
Distributors 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
-13-
<PAGE> 54
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 FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors 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
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 is determined separately for each series of shares of the 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
shares of 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 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.
-14-
<PAGE> 55
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 the sum of 90% of its investment
company taxable income and 90% of its 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 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 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.
-15-
<PAGE> 56
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 75 State Street, Boston, Massachusetts
02109, 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, 1997 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, U.S. Treasury, Tax-Exempt, Connecticut
Municipal Money Market, Massachusetts Municipal Money Market, Institutional
Government Money Market, Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity, MidCap Equity, Asset Allocation,
Small Cap Value, Growth and Income, Special Equity, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New Jersey Municipal 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 Bank or other subsidiaries of Fleet
Financial Group, Inc. in consideration for administrative and/or 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, 1997, Fleet received advisory fees (after fee waivers) at the
effective annual rate of ___% of the Fund's average daily net assets.
-16-
<PAGE> 57
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. Fleet, the
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. 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 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. In addition, FDISG also receives a separate
annual fee from each Portfolio for certain fund accounting services. From time
to time, FDISG may waive voluntarily all or a portion of the administration fee
payable to it by the Fund. For the fiscal year ended October 31, 1997, the Fund
paid FDISG administration fees at the effective annual 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 FD Distributors 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 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 investment
portfolio 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
investment portfolio 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 FD
Distributors; 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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities agree to perform 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-
-19-
<PAGE> 60
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. Such entities are
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 One 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 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.
PERFORMANCE REPORTING
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 that 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. Yield data will be
calculated separately for Trust Shares and Retail A Shares of the Fund.
The yield of the Fund refers 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 the 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 capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
-21-
<PAGE> 62
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 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 the Fund, or (b) 67% or more of the shares
of the Fund present at a meeting if more than 50% of the outstanding shares of
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 __, 1998
<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 FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
EXPENSE SUMMARY............................................................ 3
FINANCIAL HIGHLIGHTS....................................................... 4
INVESTMENT OBJECTIVE AND POLICIES.......................................... 6
In General........................................................... 6
INVESTMENTS, STRATEGIES AND RISKS.......................................... 7
U.S. Government Obligations.......................................... 7
When-Issued and Delayed Settlement Transactions...................... 7
INVESTMENT LIMITATIONS..................................................... 8
PRICING OF SHARES.......................................................... 9
HOW TO PURCHASE AND REDEEM SHARES.......................................... 10
Distributor.......................................................... 10
Purchase of Shares................................................... 10
Redemption of Shares................................................. 11
DIVIDENDS AND DISTRIBUTIONS................................................ 12
TAXES ..................................................................... 13
Federal.............................................................. 13
State and Local...................................................... 13
Miscellaneous........................................................ 14
MANAGEMENT OF THE FUND..................................................... 14
Investment Adviser................................................... 14
Authority to Act as Investment Adviser............................... 15
Administrator........................................................ 15
DESCRIPTION OF GALAXY AND ITS SHARES....................................... 16
Shareholder Services Plan............................................ 17
Agreements for Sub-Account Services.................................. 17
CUSTODIAN AND TRANSFER AGENT............................................... 18
EXPENSES................................................................... 18
PERFORMANCE REPORTING...................................................... 19
MISCELLANEOUS.............................................................. 20
</TABLE>
<PAGE> 65
THE GALAXY FUND
For an application and
4400 Computer Drive information regarding
Westboro, Massachusetts purchases, redemptions,
01581-5108 exchanges and other
shareholder services or
for current performance
call 1-800-628-0414.
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 397 days 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 primarily 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. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is
unaffiliated with Fleet and its parent, Fleet Financial Group Inc., and
affiliates.
<PAGE> 66
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. 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 __, 1998
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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......................................... %
12b-1 Fees............................................ None
Other Expenses........................................ %
Total Fund Operating Expenses......................... %
====
</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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
U.S. Treasury 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. 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 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, 1997 (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 number 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,
1997 1996 1995 1994 1993 1992 1991(1,2)
----------------------- ------------------------------- ---------
Trust Shares
------------
<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
----- ----- ----- ----- ----- -----
Income from Investment Operations
Net Investment Income(3) ........... 0.05 0.05 0.03 0.03 0.04 0.04
Net realized and unrealized gain
(loss) on investments.............. -- -- -- -- -- --
====== ====== ====== ====== ====== ======
Total from Investment Operations: 0.05 0.05 0.03 0.03 0.04 0.04
----- ----- ----- ----- ----- -----
Less Dividends:
Dividends from net investment income (0.05) (0.05) (0.03) (0.03) (0.04) (0.04)
Dividends from net realized
capital gains...................... -- -- -- -- -- --
----- ----- ----- ----- ----- -----
Total Dividends ................. (0.05) (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 $1.00
===== ===== ===== ===== ===== =====
Total Return(4)........................ 4.80% 5.18% 3.30% 2.75% 3.69% 4.51%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)...... $354,331 $271,036 $466,993 $447,960 $482,416 $170,177
Ratios to average net assets:
Net investment income
including reimbursement/waiver..... 4.69% 5.06% 3.24% 2.71% 3.51% 4.26%(6)
Operating expenses
including reimbursement/waiver..... 0.53% 0.55% 0.56% 0.55% 0.49% 0.27%(6)
Operating expenses
excluding reimbursement/waiver..... 0.53% 0.55% 0.56% 0.55% 0.55% 0.65%(6)
</TABLE>
- ----------------
(1) Prior to November 1, 1994, the Fund offered a single 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 Fleet and/or the
Fund's 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 Fleet 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 397 days 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.
Portfolio securities held by the Fund have remaining maturities of 397
days 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. ("Fleet"), the Fund's 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 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 AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase securities on a "when-issued" or "delayed
settlement" 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. 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
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<PAGE> 72
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 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. Purchase securities of any one issuer, 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;
notwithstanding the foregoing restriction, the Fund may invest without
regard to the 5% limitation in U.S. Government obligations and as
otherwise permitted in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), or any successor rule.
3. Borrow money or issue senior securities, except that the Fund may
borrow 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 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.
4. 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, 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
-8-
<PAGE> 73
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
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
With respect to Investment Limitation No. 2 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 its investments in illiquid securities to not more than 10% of the value
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.
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 funds. The Fund will determine the effective maturity of its investments
according to Rule 2a-7. 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
-9-
<PAGE> 74
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 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,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors 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 FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors 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 FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors 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 per
share determined on that day, provided that the Fund's custodian receives the
purchase price in federal funds or other immediately available
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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-Business Day, the order will not be executed until it is received and
accepted by FD Distributors 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.
On a Business Day when the Exchange closes early due to a partial holiday
or otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day.
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 FD
Distributors 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
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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 FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors 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
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 is determined separately for each series of shares of the 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. 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.
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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 the sum of 90% of its investment
company taxable income and 90% of its 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 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 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.
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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. 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 75 State Street, Boston, Massachusetts
02109, 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, 1997 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, Connecticut
Municipal Money Market, Massachusetts Municipal Money Market, Institutional
Government Money Market, Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity, MidCap Equity, Asset Allocation,
Small Cap Value, Growth and Income, Special Equity, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New Jersey Municipal 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
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<PAGE> 79
expense ratio, and may from time to time allocate a portion of its advisory fees
to Fleet Bank or other subsidiaries of Fleet Financial Group, Inc. in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders. For the fiscal year ended October 31, 1997,
Fleet received advisory fees 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 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. Fleet, the
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. 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 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. In addition, FDISG also receives a separate
annual fee from each Portfolio for certain fund accounting services. From time
to time, FDISG may waive voluntarily all or
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<PAGE> 80
a portion of the administration fee payable to it by the Fund. For the fiscal
year ended October 31, 1997, 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 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 FD Distributors 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 investment
portfolio 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
investment portfolio 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 requests
and placing net purchase and redemption orders with FD Distributors; 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.
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<PAGE> 82
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities including
affiliates of Fleet, 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. Such entities are 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 One 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, 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 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
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<PAGE> 83
expenses. The Fund also pays for any brokerage fees and commissions in
connection with the purchase of portfolio securities.
PERFORMANCE REPORTING
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 that 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. Yield data will be
calculated separately for Trust Shares and Retail A Shares of the Fund.
The yield of the Fund refers 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.
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%.
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The Fund's yield will fluctuate and any quotation of yield should not be
considered as representative of the 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 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 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 the Fund, or (b) 67% or more of the shares
of the Fund present at a meeting if more than 50% of the outstanding shares of
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 __, 1998
<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 FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
-------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
EXPENSE SUMMARY .......................................................... 4
FINANCIAL HIGHLIGHTS ..................................................... 5
INVESTMENT OBJECTIVES AND POLICIES ....................................... 10
In General ...................................................... 10
Quality Requirements ............................................ 10
Money Market Fund ............................................... 11
Government Fund ................................................. 11
U.S. Treasury Fund .............................................. 11
Tax-Exempt Fund ................................................. 12
INVESTMENTS, STRATEGIES AND RISKS ........................................ 13
U.S. Government Obligations ..................................... 13
Money Market Instruments ........................................ 14
Municipal Securities ............................................ 15
Tender Option Bonds ............................................. 16
Variable and Floating Rate Instruments .......................... 17
Repurchase and Reverse Repurchase Agreements .................... 17
When-Issued and Delayed Settlement Transactions.................. 18
Securities Lending -- Money Market and Government
Funds .................................................. 18
Guaranteed Investment Contracts -- Money Market Fund ............ 19
Asset-Backed Securities -- Money Market Fund .................... 19
Investment Company Securities -- Tax-Exempt Fund ................ 19
Other Investment Policies of the Tax-Exempt Fund ................ 20
INVESTMENT LIMITATIONS ................................................... 20
PRICING OF SHARES ........................................................ 24
HOW TO PURCHASE AND REDEEM SHARES ........................................ 24
Distributor ..................................................... 24
Purchase of Shares .............................................. 24
Redemption of Shares ............................................ 26
</TABLE>
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<PAGE> 87
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DIVIDENDS AND DISTRIBUTIONS .............................................. 26
TAXES .................................................................... 27
Federal ......................................................... 28
State and Local ................................................. 29
Miscellaneous ................................................... 29
MANAGEMENT OF THE FUNDS .................................................. 29
Investment Adviser .............................................. 29
Authority to Act as Investment Adviser .......................... 30
Administrator ................................................... 31
DESCRIPTION OF GALAXY AND ITS SHARES ..................................... 31
Shareholder Services Plan ....................................... 32
Agreements for Sub-Account Services ............................. 33
CUSTODIAN AND TRANSFER AGENT ............................................. 34
EXPENSES ................................................................. 34
PERFORMANCE REPORTING .................................................... 34
MISCELLANEOUS ............................................................ 36
</TABLE>
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<PAGE> 88
THE GALAXY FUND
For an application and
4400 Computer Drive information regarding
Westboro, Massachusetts purchases, redemptions,
01581-5108 exchanges and other shareholder
services, call 1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment
company. This Prospectus describes four series of Galaxy shares (collectively,
"Trust 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 397
days or less, such as domestic and foreign bank certificates of deposit,
bankers' acceptances, commercial paper (including variable and floating rate
obligations) and corporate bonds 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 397 days 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 397 days 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
possessions of the United States, the District of Columbia, and their
authorities, agencies, instrumentalities and political
<PAGE> 89
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 397 days
or less.
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 and Retail
B 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."
Each of the Funds is advised by Fleet Investment Advisors Inc.
("Fleet") and sponsored and distributed by First Data Distributors, Inc., which
is unaffiliated with Fleet and its parent, Fleet Financial Group, Inc., and
affiliates.
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
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.
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.
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 __, 1998
-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................................................. --% --% --% --%
12b-1 Fees.................................................... None None None None
Other Expenses................................................ % % % %
---- ---- ---- ----
Total Fund Operating Expenses................................. % % % %
==== ==== ==== ====
</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 which each Fund expects to incur during the
current fiscal year on its Trust Shares. 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
[_______________________] into the Statement of Additional Information relating
to the Funds. Any fees that are charged by affiliates of Fleet or 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.
-4-
<PAGE> 92
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, 1997 (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 number or
address provided above.
-5-
<PAGE> 93
MONEY MARKET FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended
October 31,
1997 1996 1995 Years Ended October 31,(1)
----------------------------------------------- -------------------------------
Trust Shares 1994 1993
----------------------------------------------- ----------- -----------
<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(2,3) ...... 0.05 0.05 0.03 0.03
Net realized and unrealized
gain (loss) on investments ..... -- -- -- --
----------- ----------- ----------- -----------
Total from Investment
Operations: .................. 0.05 0.05 0.03 0.03
----------- ----------- ----------- -----------
Less Dividends:
Dividends from net
investment income .............. (0.05) (0.05) (0.03) (0.03)
Dividends from net
realized capital
gains(4) ....................... -- -- -- --
----------- ----------- ----------- -----------
Total Dividends: .............. (0.05) (0.05) (0.03) (0.03)
----------- ----------- ----------- -----------
Net increase (decrease)
in net asset value .............. -- -- -- --
----------- ----------- ----------- -----------
Net Asset Value,
End of Period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== ===========
Total Return(5) .................. 5.00% 5.43% 3.35% 2.78%
Ratios/Supplemental Data:
Net Assets,
End of Period (000's) ........... $ 924,222 $ 334,054 $ 797,399 $ 577,558
Ratios to average net assets:
Net investment income
including reimbursement/waiver . 4.89% 5.30% 3.38% 2.74%
Operating expenses including
reimbursement/waiver ........... 0.55% 0.55% 0.64% 0.63%
Operating expenses excluding
reimbursement/waiver ........... 0.58% 0.56% 0.64% 0.63%
</TABLE>
<TABLE>
<CAPTION>
Years Ended October 31,(1)
-------------------------------------------------------------------------------------------
1992 1991 1990 1989 1988
----------- ----------- ----------- ----------- -----------
<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(2,3) ...... 0.04 0.06 0.08 0.09 0.07
Net realized and unrealized
gain (loss) on investments ..... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total from Investment
Operations: .................. 0.04 0.06 0.08 0.09 0.07
----------- ----------- ----------- ----------- -----------
Less Dividends:
Dividends from net
investment income .............. (0.04) (0.06) (0.08) (0.09) (0.07)
Dividends from net
realized capital
gains(4) ....................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Dividends: .............. (0.04) (0.06) (0.08) (0.09) (0.07)
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in net asset value .............. -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net Asset Value,
End of Period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== ===========
Total Return(5) .................. 4.07% 6.40% 8.11% 9.09% 7.08%
Ratios/Supplemental Data:
Net Assets,
End of Period (000's) ........... $ 590,911 $ 415,541 $ 444,303 $ 410,121 $ 210,712
Ratios to average net assets:
Net investment income
including reimbursement/waiver . 3.74% 6.24% 7.82% 8.73% 6.92%
Operating expenses including
reimbursement/waiver ........... 0.58% 0.59% 0.59% 0.58% 0.59%
Operating expenses excluding
reimbursement/waiver ........... 0.58% 0.59% 0.59% 0.59% 0.59%
</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) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the year ended October 31, 1989
was $0.09.
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Trust Shares for the years ended
October 31, 1997, 1996 and 1995 was $_____, $0.05 and $0.05, respectively.
(4) Represents less than $0.01 per share for years 1992 and 1987.
(5) Total return for 1994 includes the effect of the voluntary capital
contribution of $1.6 million from Fleet 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%.
-6-
<PAGE> 94
GOVERNMENT FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996 1995 YEARS ENDED OCTOBER 31,(1)
-------------------------------------------- -------------------------------
TRUST SHARES 1994 1993
------------ ----------- ----------- -----------
<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(2,3) ... 0.05 0.05 0.03 0.03
Net realized and
unrealized gain (loss)
on investments ............. -- -- -- --
----------- ----------- ----------- -----------
Total from Investment
Operations: ............. 0.05 0.05 0.03 0.03
----------- ----------- ----------- -----------
Less Dividends:
Dividends from net
investment income .......... (0.05) (0.05) (0.03) (0.03)
Dividends from net
realized capital gains(4) .. -- -- -- --
----------- ----------- ----------- -----------
Total Dividends ........... (0.05) (0.05) (0.03) (0.03)
----------- ----------- ----------- -----------
Net increase (decrease)
in net asset value ........... -- -- -- --
----------- ----------- ----------- -----------
Net Asset Value, End
of Period .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== ===========
Total Return(5) ................ 4.95% 5.39% 3.49% 2.83%
Ratios/Supplemental Data:
Net Assets, End of
Period (000's) ............... $ 733,759 $ 678,679 $ 759,106 $ 685,304
Ratios to average net assets:
Net investment income
including reimbursement/
waiver ..................... 4.85% 5.27% 3.36% 2.79%
Operating expenses
including reimbursement/waiver 0.52% 0.53% 0.54% .55%
Operating expenses
excluding reimbursement/waiver 0.53% 0.54% 0.54% .55%
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,(1)
------------------------------------------------------------------------------
1992 1991 1990 1989 1988
----------- ----------- ----------- ----------- -----------
<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(2,3) ... 0.04 0.06 0.08 0.09 0.07
Net realized and
unrealized gain (loss)
on investments ............. -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total from Investment
Operations: ............. 0.04 0.06 0.08 0.09 0.07
----------- ----------- ----------- ----------- -----------
Less Dividends:
Dividends from net
investment income .......... (0.04) (0.06) (0.08) (0.09) (0.07)
Dividends from net
realized capital gains(4) .. -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Dividends ........... (0.04) (0.06) (0.08) (0.09) (0.07)
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in net asset value ........... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net Asset Value, End
of Period .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== ===========
Total Return(5) ................ 4.19% 6.25% 8.10% 8.82% 6.91%
Ratios/Supplemental Data:
Net Assets, End of
Period (000's) ............... $ 636,338 $ 436,232 $ 335,443 $ 303,181 $ 141,545
Ratios to average net assets:
Net investment income
including reimbursement/
waiver ..................... 3.67% 6.05% 7.80% 8.59% 6.73%
Operating expenses
including reimbursement/waiver 0.53% 0.56% 0.56% 0.60% 0.60%
Operating expenses
excluding reimbursement/waiver 0.53% 0.56% 0.57% 0.61% 0.60%
</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) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1990
and 1989 was $0.08 and $0.09, respectively.
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Trust Shares for the years ended
October 31, 1997, 1996 and 1995 was $ , $0.05 and $0.05, respectively.
(4) Represents less than $0.01 per share for years 1992, 1990, 1989, 1988 and
1987.
(5) Total return for 1994 includes the effect of the voluntary capital
contribution of $2.3 million from Fleet 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-
<PAGE> 95
U.S. TREASURY FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, PERIOD ENDED
1997 1996 1995 YEAR ENDED OCTOBER 31,(1) OCTOBER 31,
--------------------------- ----------------------------- -------------
TRUST SHARES 1994 1993 1992 1991(1,2)
------------ ---- ---- ---- -------
<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
----- ----- ----- ----- ----- -----
Income from Investment Operations:
Net investment income(3)....................... 0.05 0.05 0.03 0.03 0.04 0.04
Net realized and unrealized gain (loss)
on investments............................... -- -- -- -- -- --
----- ----- ----- ----- ----- ----
Total from Investment Operations:.......... 0.05 0.05 0.03 0.03 0.04 0.04
----- ----- ----- ----- ----- -----
Less Dividends:..................................
Dividends from net investment income........... (0.05) (0.05) (0.03) (0.03) (0.04) (0.04)
Dividends from net realized capital gains...... -- -- -- -- -- --
----- ----- ----- ----- ----- ----
Total Dividends............................ (0.05) (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 $1.00
===== ===== ===== ===== ===== =====
Total Return(4).................................. 4.80% 5.18% 3.30% 2.75% 3.69% 4.51%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)................ $354,331 $271,036 $466,993 $447,960 $482,416 $170,177
Ratios to average net assets:
Net investment income including
reimbursement/waiver......................... 4.69% 5.06% 3.24% 2.71% 3.51% 4.26%(6)
Operating expenses including
reimbursement/waiver......................... 0.53% 0.55% 0.56% 0.55% 0.49% 0.27%(6)
Operating expenses excluding
reimbursement/waiver......................... 0.53% 0.55% 0.56% 0.55% 0.55% 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 Fleet and/or the
Fund's 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 Fleet 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> 96
TAX-EXEMPT FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996 1995 YEARS ENDED OCTOBER 31,(1)
----------------------------------- ----------------------------------
TRUST SHARES 1994 1993 1992
------------ ---- ---- ----
<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 0.03 0.02 0.02 0.03
Net realized and unrealized gain
(loss) on investments............ -- -- -- -- --
----- ----- ----- ----- -----
Total from Investment Operations: 0.03 0.03 0.02 0.02 0.03
----- ----- ----- ----- -----
Less Dividends:
Dividends from net investment
income ........................ (0.03) (0.03) (0.02) (0.02) (0.03)
Dividends from net realized
capital gains.................. -- -- -- -- --
----- ----- ----- ---- ----
Total Dividends:................ (0.03) (0.03) (0.02) (0.02) (0.03)
------ ------- ------- ------- -------
Net increase (decrease) in net asset
value............................... -- -- -- -- --
------ ------ ------ ------ ------
Net Asset Value, End of Period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total Return......................... 2.97% 3.29% 2.24% 1.93% 2.71%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $184,307 $180,706 $271,050 $301,399 $223,173
Ratios to average net assets:......
Net investment income including
reimbursement/waiver ........... 2.92% 3.24% 2.12% 1.92% 2.64%
Operating expenses including
reimbursement/waiver ........... 0.54% 0.55% 0.58% 0.59% 0.57%
Operating expenses excluding
reimbursement/waiver............ 0.54% 0.56% 0.58% 0.59% 0.57%
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,(1) PERIOD ENDED
---------------------------------- OCTOBER 31,
1991 1990 1989 1988(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)......... 0.04 0.05 0.06 0.02
Net realized and unrealized gain
(loss) on investments............ -- -- -- --
----- ----- ----- ------
Total from Investment Operations: 0.04 0.05 0.06 0.02
----- ----- ----- -----
Less Dividends:
Dividends from net investment
income ........................ (0.04) (0.05) (0.06) (0.02)
Dividends from net realized
capital gains.................. -- -- -- --
---- ---- ---- ----
Total Dividends:................ (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
====== ====== ====== ======
Total Return......................... 4.51% 5.51% 5.96% 1.90%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $194,098 $119,377 $131,358 $41,319
Ratios to average net assets:.....
Net investment income including
reimbursement/waiver .......... 4.37% 5.37% 5.82% 5.42%(6)
Operating expenses including
reimbursement/waiver .......... 0.60% 0.60% 0.58% 0.32%(6)
Operating expenses excluding
reimbursement/waiver............ 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
Fleet and/or the Fund's administrator for the 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 Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996 and 1995 was $ , $0.03, and
$0.03, respectively.
(5) Not Annualized.
(6) Annualized.
-9-
<PAGE> 97
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
Fleet Investment Advisors Inc. ("Fleet"), the Funds' 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" 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 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.
-10-
<PAGE> 98
Generally, if a security has not been rated by a Rating Agency, Fleet will
acquire the security if it determines that the security is of comparable quality
to securities that have received the requisite ratings. Fleet 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 Fleet 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); corporate bonds; 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 397 days 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 397 days 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
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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."
Portfolio securities held by the Fund have remaining maturities of 397
days 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 net 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 Fleet, 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
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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 net assets when added together with any taxable investments
held by the Fund.
The Fund's portfolio securities will generally have remaining
maturities of 397 days or less (except for certain variable and floating rate
notes and securities underlying certain repurchase agreements). See
"Investments, Strategies and Risks" below.
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
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interest rates, the market value of such securities may vary during the period a
shareholder owns shares of the Funds.
MONEY MARKET INSTRUMENTS
"Money market" instruments include bank obligations and corporate
obligations, including commercial paper and corporate bonds with remaining
maturities of 397 days or less.
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
("FDIC"), or by a savings and loan association or savings bank that is insured
by the FDIC. 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 Fleet
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)
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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
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 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. 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
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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 or 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 of 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 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.
Fleet will monitor, on an ongoing basis, the creditworthiness of the issuer of
the tender option bond, the financial institution
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providing the option, and any custodian holding the underlying long-term bond.
The bankruptcy, receivership or default of any of the parties to a 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 issued
or guaranteed by the U.S. Government or its agencies or instrumentalities are
similar in form but 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 Fleet 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. 4 and 7 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
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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.
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.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase securities on a "when-issued" or "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 a 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.
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 Fleet to be of good standing and
only when, in Fleet's judgment, the income to be earned from the loan justifies
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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.
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 relating to the Fund.
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, 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
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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 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 Fleet
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.
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 each 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. Purchase securities of any one issuer, 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 the 5% limitation; notwithstanding the foregoing restriction,
each Fund may invest without regard to the 5% limitation in U.S.
Government obligations and as otherwise permitted in accordance with
Rule 2a-7 under the 1940 Act or any successor rule.
In addition, the Tax-Exempt Fund may not:
3. Borrow money or issue senior securities, except that the
Fund may borrow 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.
4. 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.
5. 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.
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In addition, the Money Market, Government and U.S. Treasury Funds may not:
6. Borrow money or issue senior securities, except that each Fund
may borrow 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.
7. 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, Government
and U.S. Treasury Funds 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, with respect to the Money
Market Fund, by domestic banks or U.S. branches of foreign banks that are
subject to the same regulation as domestic banks; (b) with respect to the Money
Market Fund, 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) with respect to the Money
Market Fund, 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) 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. 6 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.
With respect to Investment Limitations Nos. 4 and 7 above, each Fund
intends to limit its investments in illiquid securities to not more than 10% of
the value 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 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 funds. In accordance with Rule 2a-7, the Money Market Fund is subject to
the 5% limitation contained in Investment Limitation No. 2 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. 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. 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. Investment by the Money
Market Fund or Tax-Exempt Fund in Rule 144A securities could have the effect of
increasing the level of illiquidity of
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the Fund during any period that qualified institutional buyers were no longer
interested in purchasing these securities. For purposes of the Funds' 10%
limitation on purchases of illiquid instruments, Rule 144A securities will not
be considered to be illiquid if Fleet 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. 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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors 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. Each Institution is responsible for transmitting to
FD Distributors orders for purchases of Trust Shares and for wiring required
funds in payment to Galaxy's custodian on a timely basis. FD Distributors 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 FD Distributors, Galaxy's custodian and the purchasing
Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors 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 per
share 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 FD Distributors 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 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 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.
On a Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which purchase orders must
be received in order to be processed on that Business Day.
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 FD
Distributors 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 FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors 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
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 is determined separately for each series of shares of the 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 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
In General. 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 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 a 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 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
exempt-interest income each year. Such dividends will be taxable as ordinary
income to each
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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 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 applicable to corporations.
Corporate shareholders must also take all exempt-interest dividends into account
in determining certain adjustments for federal alternative minimum 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
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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 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 75 State Street, Boston, Massachusetts
02109, 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, 1997 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 Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Small Company Equity, MidCap
Equity, Asset Allocation, Small Cap Value, Growth
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and Income, Special Equity, Short-Term Bond, Intermediate Government Income,
High Quality Bond, Corporate Bond, Tax-Exempt Bond, New Jersey Municipal 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 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 competitive expense ratios,
and may from time to time allocate a portion of its advisory fees to Fleet Bank
or other subsidiaries of Fleet Financial Group, Inc. in consideration for
administrative and/or 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, it 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, 1997, 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.
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. Fleet, the
custodian and Institutions that are banks or bank affiliates are subject to such
banking laws and regulations. Should
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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.
For the services provided to the Funds, 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. In addition, FDISG also receives a
separate annual fee from each Portfolio for certain fund accounting services.
From time to time, FDISG may waive voluntarily all or a portion of the
administration fee payable to it by the Funds. For the fiscal year ended October
31, 1997, 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 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
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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 FD Distributors 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 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. 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
investment portfolio 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 investment portfolio 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 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 FD Distributors; 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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities agree to perform 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 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
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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. Such entities are 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 One 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 fees;
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to shareholders; advisory, administration, shareholder servicing,
Rule 12b-1 distributions (if applicable), 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.
PERFORMANCE REPORTING
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
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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 performance of the Money Market,
Government and U.S. Treasury Funds 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. Yield data will be calculated separately for
Trust Shares, Retail A Shares and/or Retail B Shares of the Funds.
The yield of a Fund refers 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 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. 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 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 the future
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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 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 such Fund, or (b) 67% or more
of the shares of such Fund present at a meeting if more than 50% of the
outstanding shares of such Fund 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 __, 1998
<PAGE> 125
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 FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. 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...................................................
Variable and Floating Rate Instruments................................
Repurchase and Reverse Repurchase Agreements..........................
When-Issued and Delayed Settlement
Transactions........................................................
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..................................................
Connecticut Investment Risks..........................................
Massachusetts Investment Risks........................................
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Page
INVESTMENT LIMITATIONS.........................................................
PRICING OF SHARES..............................................................
HOW TO PURCHASE AND REDEEM SHARES..............................................
Distributor...........................................................
Purchase of Shares....................................................
Purchase Procedures -- Customers of
Institutions........................................................
Purchase Procedures -- Direct Investors...............................
Other Purchase Information............................................
Applicable Sales Charges - Retail B Shares............................
Redemption of Shares..................................................
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.....................................................
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........................................
Agreements for Sub-Account Services...................................
CUSTODIAN AND TRANSFER AGENT...................................................
-ii-
<PAGE> 127
Page
EXPENSES .....................................................................
PERFORMANCE REPORTING.........................................................
MISCELLANEOUS.................................................................
-iii-
<PAGE> 128
THE GALAXY FUND
For an application and
4400 Computer Drive information regarding
Westboro, Massachusetts purchases, redemptions,
01581-5108 exchanges and other share-
holder services or for
current performance, call
1-800-628-0414.
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 397
days or less, such as domestic and foreign bank certificates of deposit,
bankers' acceptances, commercial paper (including variable and floating rate
obligations) and corporate bonds 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 397 days 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 397 days 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
possessions of the United States, the District of Columbia, and their
authorities, agencies, instrumentalities, and political
<PAGE> 129
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 397 days
or less.
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 397 days. 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 397 days. The Fund is a non-diversified investment
portfolio under the 1940 Act.
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 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 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
-2-
<PAGE> 130
accounts or for the accounts of others ("Direct Investors"). Retail B Shares in
the Money Market Fund 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 First Data 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 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 number 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> 131
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.
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 IS NO ASSURANCE THAT THE FUNDS 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 __, 1997
-4-
<PAGE> 132
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 GOVERNMENT MONEY MARKET, EQUITY VALUE, EQUITY GROWTH,
EQUITY INCOME, INTERNATIONAL EQUITY, SMALL COMPANY EQUITY, MIDCAP EQUITY, ASSET
ALLOCATION, SMALL CAP VALUE, GROWTH AND INCOME, SPECIAL EQUITY, SHORT-TERM BOND,
INTERMEDIATE GOVERNMENT INCOME, HIGH QUALITY BOND, CORPORATE BOND, TAX-EXEMPT
BOND, NEW JERSEY MUNICIPAL 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"),
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, 1997 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-seven mutual funds should your investment goals change.
Q: How to buy and redeem shares?
A: The Funds are distributed by First Data Distributors, Inc. Retail
Shares 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> 133
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 of the Money Market
Fund carry higher operating expenses than other Retail Shares and may not be
appropriate for investors that do not plan to exchange into Retail B Shares of
certain of Galaxy's non-money market portfolios. Retail B Shares are also
subject to a contingent deferred sales charge. Six years after the date of
purchase, 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 may purchase
eligible securities on a "when-issued" or "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
Municipal Securities held in their portfolios. The value of a Fund's portfolio
securities will
-2-
<PAGE> 134
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 certain of Galaxy's non-money market portfolios. 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> 135
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 (Shares with
respect to the Connecticut Municipal Money Market and Massachusetts Municipal
Money Market Funds) and/or Retail B Shares, and (ii) the operating expenses for
Retail A Shares (Shares with respect to the Connecticut Municipal Money Market
and Massachusetts Municipal Money Market Funds) 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>
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)
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Front-End Sales Charge
Imposed on Purchases (as a
percentage of offering
price).................................... None None None None None None None
Maximum Deferred Sales Charge
(as a percentage of offering
price).................................... None 5.00%(1) None None None None None
Sales Charge Imposed on
Reinvested Dividends...................... None None None None None None None
Redemption Fees(2).......................... None None None None None None None
Exchange Fees............................... None None None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory Fees............................... ___% ___% ___% ___% ___% ___% ___%
12b-1 Fees.................................. None ___%(3) 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) 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 though 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."
(2) Direct Investors are charged a $5.00 fee if redemption proceeds are
paid by wire.
(3) 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:
-4-
<PAGE> 136
<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)
Assuming complete redemption at
end of period(1)............................................. $__ $__ $__ $__2
Assuming no redemption......................................... $__ $__ $__ $__2
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>
- -----------
(1) Assumes the deduction of the maximum applicable contingent deferred
sales charge.
(2) Based on the 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 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 which each Fund expects to incur during the
current fiscal year on its Retail Shares. Without voluntary fee waivers and/or
expense reimbursements by Fleet, 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 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 [_______________________] into the respective Statements of
Additional Information relating to the Funds. 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 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.
-5-
<PAGE> 137
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 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, 1997 (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. 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 number or address
provided above.
-6-
<PAGE> 138
MONEY MARKET FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended October 31,(1)
--------------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
RETAIL A RETAIL A RETAIL
SHARES SHARES SHARES 1994 1993 1992 1991 1990
--------- ---------- -------- -------- -------- -------- -------- --------
<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
---------- -------- -------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income(3)(4)(5) .... 0.05 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 0.05 0.03 0.03 0.04 0.06 0.08
---------- -------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment
income .......................... (0.05) (0.05) (0.03) (0.03) (0.04) (0.06) (0.08)
Dividends from net realized capital
gains(6) ........................ -- -- -- -- -- -- --
---------- -------- -------- -------- -------- -------- --------
Total Dividends ............ (0.05) (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 $ 1.00
========== ======== ======== ======== ======== ======== ========
Total Return(7) ..................... 4.78% 5.23% 3.35% 2.78% 4.07% 6.40% 8.11%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ... $1,592,312 $580,762 $797,399 $577,558 $590,911 $415,541 $444,303
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............ 4.67% 5.12% 3.38% 2.74% 3.74% 6.24% 7.82%
Operating expenses including
reimbursement/waiver ............ 0.77% 0.74% 0.64% 0.63% 0.58% 0.59% 0.59%
Operating expenses excluding
reimbursement/waiver ............ 0.80% 0.76% 0.64% 0.63% 0.58% 0.59% 0.59%
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
OCTOBER 31
1997(2)
Year Ended October 31,(1) -----
------------------------- RETAIL B
1989 1988 SHARES
-------- --------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00
-------- --------
Income from Investment Operations:
Net investment income(3)(4)(5) .... 0.09 0.07
Net realized and unrealized gain
(loss) on investments ......... -- --
-------- --------
Total from Investment
Operations: 0.09 0.07
-------- --------
Less Dividends:
Dividends from net investment
income .......................... (0.09) (0.07)
Dividends from net realized capital
gains(6) ........................ -- --
-------- --------
Total Dividends ............ (0.09) (0.07)
-------- --------
Net increase (decrease) in net asset
value ............................. -- --
-------- --------
Net Asset Value, End of Period ...... $ 1.00 $ 1.00
======== ========
Total Return(7) ..................... 9.09% 7.08% (8)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ... $410,121 $210,712
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............ 8.73% 6.92% (9)
Operating expenses including
reimbursement/waiver ............ 0.58% 0.59% (9)
Operating expenses excluding
reimbursement/waiver ............ 0.59% 0.59% (9)
</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 began offering Retail B Shares on March 6, 1997.
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's 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 A Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator
for the years ended October 31, 1997, 1996 and 1995 was $____, $0.05
and $0.05, respectively.
-7-
<PAGE> 139
(5) Net investment income per share for Retail B Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator
for the period ended October 31, 1997 was $ .
(6) Represents less than $0.01 per share for the years 1992 and 1987.
(7) Total return for 1994 includes the effect of the voluntary capital
contribution of $1.6 million from Fleet 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%.
(8) Not Annualized.
(9) Annualized.
-8-
<PAGE> 140
GOVERNMENT FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
----------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
RETAIL A RETAIL A RETAIL
SHARES SHARES SHARES 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<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
-------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income(2)(3)................ 0.05 0.05 0.03 0.03 0.04 0.06
Net realized and
unrealized gain (loss)
on investments............................. -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total from Investment
Operations:............................. 0.05 0.05 0.03 0.03 0.04 0.06
-------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net
investment income.......................... (0.05) (0.05) (0.03) (0.03) (0.04) (0.06)
Dividends from net
realized capital gains(4).................. -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Dividends......................... (0.05) (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 $1.00
======== ======== ======== ======== ======== ========
Total Return(5).............................. 4.72% 5.20% 3.49% 2.83% 4.19% 6.25%
Ratios/Supplemental Data:
Net Assets, End of
Period (000's)............................. $326,411 $320,795 $759,106 $685,304 $636,338 $436,232
Ratios to average net assets:
Net investment income
including reimbursement/
waiver................................... 4.62% 5.11% 3.36% 2.79% 3.67% 6.05%
Operating expenses
including reimbursement/
waiver..................................... 0.75% 0.73% 0.54% 0.55% 0.53% 0.56%
Operating expenses
excluding reimbursement/
waiver................................. 0.76% 0.74% 0.54% 0.55% 0.53% 0.56%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
-----------------------------------
1990 1989 1988
-------- -------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period.................................. $1.00 $1.00 $1.00
-------- -------- --------
Income from Investment
Operations:
Net investment income(2)(3)................ 0.08 0.09 0.07
Net realized and
unrealized gain (loss)
on investments............................. -- -- --
-------- -------- --------
Total from Investment
Operations:............................. 0.08 0.09 0.07
-------- -------- --------
Less Dividends:
Dividends from net
investment income.......................... (0.08) (0.09) (0.07)
Dividends from net
realized capital gains(4).................. -- -- --
-------- -------- --------
Total Dividends......................... (0.08) (0.09) (0.07)
-------- -------- --------
Net increase (decrease)
in net asset value......................... -- -- --
-------- -------- --------
Net Asset Value, End
of Period.................................. $1.00 $1.00 $1.00
======== ======== ========
8.10% 8.82% 6.91%
Total Return(5)..............................
Ratios/Supplemental Data:
Net Assets, End of $335,443 $303,181 $141,545
Period (000's).............................
Ratios to average net assets:
Net investment income
including reimbursement/
waiver................................... 7.80% 8.59% 6.73%
Operating expenses
including reimbursement/
waiver..................................... 0.56% 0.60% 0.60%
Operating expenses
excluding reimbursement/
waiver................................. 0.57% 0.61% 0.60%
</TABLE>
-9-
<PAGE> 141
- --------------------
(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) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's 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.
(3) Net investment income per share for Retail Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator
for the years ended October 31, 1997, 1996 and 1995 was $____, $0.05
and $0.05, respectively.
(4) Represents less than $0.01 per share for years 1992, 1990, 1989, 1988
and 1987.
(5) Total return for 1994 includes the effect of the voluntary capital
contribution of $2.3 million from Fleet 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%.
-10-
<PAGE> 142
U.S. TREASURY FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
---------------------------------------------------------------------------------------------
1997 1996 1995
RETAIL A RETAIL A RETAIL
SHARES SHARES SHARES 1994 1993 1992
---------- ----------- ----------- ----------- ----------- -----------
<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).......... 0.05 0.05 0.03 0.03 0.04
Net realized and unrealized
gain (loss) on investments ..... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total from Investment
Operations: 0.05 0.05 0.03 0.03 0.04
Less Dividends: ----------- ----------- ----------- ----------- -----------
Dividends from net
investment income .............. (0.05) (0.05) (0.03) (0.03) (0.04)
Dividends from net realized
capital gains .................. -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Dividends ................ (0.05) (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 $ 1.00
=========== =========== =========== =========== ===========
Total Return(4) .................... 4.63% 4.99% 3.30% 2.75% 3.69%
----------- ----------- ----------- ----------- -----------
Ratios/Supplemental Data:
Net Assets, End of
Period (000's) ................... $ 443,230 $ 318,621 $ 466,993 $ 447,960 $ 482,416
Ratios to average net assets:
Net investment income
including reimbursement/
waiver ......................... 4.53% 4.90% 3.24% 2.71% 3.51%
Operating expenses including
reimbursement/waiver ........... 0.69% 0.73% 0.56% 0.55% 0.49%
Operating expenses excluding
reimbursement/waiver ........... 0.69% 0.73% 0.56% 0.55% 0.57%
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1991(1,2)
-----------
<S> <C>
Net Asset Value, Beginning of
Period ............................. $ 1.00
-----------
Income from Investment
Operations:
Net investment income(3) ......... 0.04
Net realized and unrealized
gain (loss) on investments ..... --
-----------
Total from Investment
Operations: 0.04
-----------
Less Dividends:
Dividends from net
investment income .............. (0.04)
Dividends from net realized
capital gains .................. --
-----------
Total Dividends ................ (0.04)
-----------
Net increase (decrease) in net
asset value ...................... --
-----------
Net Asset Value, End of Period.. $ 1.00
===========
Total Return(4)..................... 4.51%(5)
-----------
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .. $ 170,177
Ratios to average net assets:
Net investment income
including reimbursement/
waiver ......................... 4.26%(6)
Operating expenses including
reimbursement/waiver ........... 0.27%(6)
Operating expenses excluding
reimbursement/waiver ........... 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 Fleet and/or the
Fund's 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 Fleet 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> 143
TAX-EXEMPT FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
------------------------------------------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
RETAIL A RETAIL A RETAIL
SHARES SHARES SHARES 1994 1993
-------------- -------------- -------------- -------------- --------------
<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) ........ 0.03 0.03 0.02 0.02
Net realized and unrealized gain
(loss) on investments ......... -- -- -- --
-------------- -------------- -------------- --------------
Total from Investment Operations: 0.03 0.03 0.02 0.02
-------------- -------------- -------------- --------------
Less Dividends:
Dividends from net investment
income ........................ (0.03) (0.03) (0.02) (0.02)
Dividends from net realized
capital gains ................. -- -- -- --
-------------- -------------- -------------- --------------
Total Dividends: ............... (0.03) (0.03) (0.02) (0.02)
-------------- -------------- -------------- --------------
Net increase (decrease) in net asset
value .............................. -- -- -- --
-------------- -------------- -------------- --------------
Net Asset Value, End of Period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ============== ============== ==============
Total Return ........................ 2.82% 3.16% 2.24% 1.93%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) . $ 117,548 $ 127,056 $ 271,050 $ 301,399
Ratios to average net assets:
Net investment income
including reimbursement/waiver . 2.78% 3.12% 2.12% 1.92%
Operating expenses
including reimbursement/waiver . 0.68% 0.68% 0.58% 0.59%
Operating expenses excluding
reimbursement/waiver ........... 0.69% 0.71% 0.58% 0.59%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
-----------------------------------------------------------------
PERIOD
ENDED
OCTOBER 31,
1992 1991 1990 1989 1988(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) ........ 0.03 0.04 0.05 0.06 0.02
Net realized and unrealized gain
(loss) on investments ......... -- -- -- -- --
-------------- -------------- -------------- -------------- -------------
Total from Investment Operations: 0.03 0.04 0.05 0.06 0.02
-------------- -------------- -------------- -------------- -------------
Less Dividends:
Dividends from net investment
income ........................ (0.03) (0.04) (0.05) (0.06) (0.02)
Dividends from net realized
capital gains ................. -- -- -- -- --
-------------- -------------- -------------- -------------- -------------
Total Dividends: ............... (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
============== ============== ============== ============== =============
Total Return ........................ 2.71% 4.51% 5.51% 5.96% 1.90%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) . $ 223,173 $ 194,098 $ 119,377 $ 131,358 $ 41,319
Ratios to average net assets:
Net investment income
including reimbursement/waiver . 2.64% 4.37% 5.37% 5.82% 5.42%(6)
Operating expenses
including reimbursement/waiver . 0.57% 0.60% 0.60% 0.58% 0.32%(6)
Operating expenses excluding
reimbursement/waiver ........... 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
Fleet and/or the Fund's administrator for the 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 Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996 and 1995 was $____, $0.03, and
$0.03, respectively.
(5) Not Annualized.
(6) Annualized.
-12-
<PAGE> 144
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 years
ended October 31, 1997 and 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 years ended October 31, 1997 and 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, 1997 (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
-13-
<PAGE> 145
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.
-14-
<PAGE> 146
CONNECTICUT MUNICIPAL MONEY MARKET FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1997 1996(2) 1995 1994 1993(1)
---------------------------------------------------------------- ----------
<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(3,4,5) ........ 0.03 0.03 0.02 --
Net realized and unrealized gain
(loss) on investments ............. -- -- -- --
-------------- ------------- ------------- ---------
Total from Investment
Operations:(3) .................. 0.03 0.03 0.02 --
-------------- ------------- ------------- ---------
Less Dividends:
Dividends from net investment
income(3) ......................... (0.03) (0.03) (0.02) --
Dividends from net realized
gains ............................. -- -- -- --
-------------- ------------- ------------- ---------
Total Dividends:(3) ............... (0.03) (0.03) (0.02) --
-------------- ------------- ------------- ---------
Net increase (decrease) in
net asset value ..................... -- -- -- --
-------------- ------------- ------------- ---------
Net Asset Value, End of Period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ============= ============= =========
Total Return(6) ....................... 2.83% 2.94% 1.83% 0.14%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ... $ 110,544 $ 71,472 $ 80,663 $ 6,582
Ratios to average net assets:
Net investment income
including reimbursement/waiver .... 2.79% 2.88% 1.99% 2.12%(8)
Operating expenses including
reimbursement/waiver .............. 0.64% 0.82% 0.78% 0.36%(8)
Operating expenses excluding
reimbursement/waiver .............. 0.73% 1.29% 1.50% 5.82%(8)
</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 shareholders of the Predecessor Fund exchanged
shares of each series for Shares in the Fund.
(3) Represents less than $0.01 per share for year 1993.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or other parties for the fiscal years ended October 31, 1997
and 1996 was $0.03 and $____, respectively.
(5) Net investment income per share before reimbursement/waiver of fees by
other parties for the fiscal years ended October 31, 1995 and 1994 and
the period ended October 31, 1993 was $0.03, $0.01 and $0.00,
respectively (unaudited).
(6) Calculation does not include sales charge for Investment Shares of the
Predecessor Fund.
(7) Not Annualized.
(8) Annualized.
-15-
<PAGE> 147
MASSACHUSETTS MUNICIPAL MONEY MARKET FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1997 1996(3) 1995(2) 1994(2) 1993(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(4),(5),(6) ............ 0.03 0.03 0.02 --
Net realized gain and unrealized
(loss) on investments ..................... -- -- -- --
----------- ---------- ---------- ---------
Total from Investment
Operations:(4) .......................... 0.03 0.03 0.02 --
----------- ---------- ---------- ---------
Less Dividends:
Dividends from net investment
income(4) ................................. (0.03) (0.03) (0.02) --
Dividends from net realized
gains ..................................... -- -- -- --
----------- ---------- ---------- ---------
Total Dividends:(4) ....................... (0.03) (0.03) (0.02) --
----------- ---------- ---------- ---------
Net increase (decrease) in
net asset value ............................. -- -- -- --
----------- ---------- ---------- ---------
Net Asset Value, End of Period ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== ========== ========== =========
Total Return .................................. 2.83% 3.21% 1.99% 0.12%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........... $ 47,066 $ 40,326 $ 31,516 $ 1,237
Ratios to average net assets:
Net investment income
including reimbursement/waiver ............ 2.78% 3.16% 2.00% 2.75%(8)
Operating expenses including
reimbursement/waiver ...................... 0.62% 0.57% 0.53% 0.11%(8)
Operating expenses excluding
reimbursement/waiver ...................... 0.83% 1.06% 1.21% 35.42%(8)
</TABLE>
(1) The Fund commenced operations on October 5, 1993 as a separate
investment portfolio (the "Predecessor Fund") of The Shawmut Funds.
(2) The Predecessor 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 shareholders of the Predecessor Fund exchanged
shares for Shares in the Fund.
(4) Represents less than $0.01 per share for year 1993.
(5) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or other parties for the fiscal years ended October 31, 1997
and 1996 was $____ and $0.03, respectively.
(6) Net investment income per share before reimbursement/waiver of fees by
other parties for the fiscal years ended October 31, 1995 and 1994 and
period ended October 31, 1993 was $0.03, $0.01 and ($0.01),
respectively (unaudited).
(7) Not Annualized.
(8) Annualized.
-16-
<PAGE> 148
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
Fleet 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> 149
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, Fleet 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, Fleet
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. Fleet 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 Fleet 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); corporate bonds; 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 397 days 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 397 days or less
(except for certain variable and floating rate notes and securities underlying
certain repurchase agreements). See "Investments, Strategies and Risks" below.
-18-
<PAGE> 150
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 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."
Portfolio securities held by the Fund have remaining maturities of
397 days 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,
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hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in Fleet's opinion, 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 net assets when added together with any taxable investments
held by the Fund.
The Fund's portfolio securities will generally have remaining
maturities of 397 days or less (except for certain variable and floating rate
notes and securities underlying certain repurchase agreements). See
"Investments, Strategies and Risks" below.
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 397 days 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
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authorities, districts or similar public entities created under Connecticut law,
and obligations of territories and possessions of the United States and any
political sub-division 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 397 days without demand features); and tender option bonds. See
"Investments, Strategies and Risks" below.
From time to time on a temporary basis, when Fleet 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 397 days 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,
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including the District of Columbia, 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 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 397 days without demand features); and
tender option bonds. See "Investments, Strategies and Risks" below.
From time to time on a temporary basis, when Fleet 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
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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
Funds.
MONEY MARKET INSTRUMENTS
"Money market" instruments include bank obligations and corporate
obligations, including commercial paper and corporate bonds with remaining
maturities of 397 days or less.
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 ("FDIC"), or by a savings and loan association or savings bank that
is insured by the FDIC. 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
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branches of U.S. banks will be made only when Fleet 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. The Money Market Fund
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 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 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
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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 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
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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. Fleet 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 a 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 issued
or guaranteed by the U.S. Government or its agencies or instrumentalities are
similar in form but 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 Fleet under
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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. 4 and 7 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 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.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase securities on a "when-issued" or "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
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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 a 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.
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 Fleet to be of good standing and
only when, in Fleet'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 relating to the Fund.
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 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 Tax-Exempt Money Market 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 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
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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
Fleet 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 Funds 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.
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, entails 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.
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
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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.
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 relating to the Fund.
Manufacturing has historically been of prime economic importance to
Connecticut. However, as a result of a rise in employment in service-related
industries and a decline in manufacturing employment, manufacturing accounted
for only 17.39% of total non-agricultural employment in Connecticut in 1996.
The average unemployment rate in Connecticut was reported to be 5.7% in 1996,
and the average per capita personal income of Connecticut residents was
reported to be $33,189 in 1996. However, pockets of significant unemployment
and poverty exist in some Connecticut cities and towns.
For the four fiscal years ended June 30, 1991, the General Fund
experienced operating deficits but, for the six fiscal years ended June 30,
1997, the General Fund recorded operation surpluses, based on Connecticut's
budgetary method of accounting. General Fund expenditures and revenues are
budgeted to be approximately $9,550,000,000 and $9,700,000,000 for the 1997-98
and 1998-99 fiscal years, respectively. The State's budgeted expenditures have
more than doubled from approximately $4,300,000,000 for the 1986-87 fiscal year
to approximately $9,700,000,000 for the 1998- 99 fiscal year. In 1991,
legislation was enacted by the State authorizing the State Treasurer to issue
Economic Recovery Notes to fund the General Fund's accumulated deficit. The
notes were to be payable no later than June 30, 1996, but payment of the notes
scheduled to be paid during the 1995-96 fiscal year was rescheduled to be made
over the four fiscal years ending June 30, 1999. Connecticut's general
obligation bonds are rated AA- by S&P and Aa3 by Moody's. On March 17, 1995,
Fitch reduced its ratings of Connecticut's general obligations bonds from AA+ to
AA.
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.
State legislation enacted in 1993 prohibits municipal bankruptcy filings without
the prior written consent of the Governor. 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
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in their future borrowings, 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 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."
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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 each 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. Purchase securities of any one issuer, 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 the 5% limitation; notwithstanding the foregoing restriction,
each Fund may invest without regard to the 5% limitation in U.S.
Government obligations and as otherwise permitted in accordance with
Rule 2a-7 under the 1940 Act or any successor rule.
In addition, the Tax-Exempt Fund may not:
3. Borrow money or issue senior securities, except that the
Fund may borrow 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.
4. 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.
5. 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.
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In addition, the Money Market, Government and U.S. Treasury Funds may
not:
6. Borrow money or issue senior securities, except that each
Fund may borrow 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.
7. 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.
In addition, the Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds may not:
8. 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):
9. 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,
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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.
In addition to the foregoing limitations, (a) the Money Market,
Government and U.S. Treasury Funds 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 (i) there is
no limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, or, with respect to the Money
Market Fund, by domestic banks or by U.S. branches of foreign banks that are
subject to the same regulation as domestic banks; (ii) with respect to the Money
Market Fund, 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 (iii) with respect to the Money
Market Fund, 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); and (b) the Connecticut Municipal Money
Market and Massachusetts Municipal Money Market Funds 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 there is no limitation with respect to obligations 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.
With respect to Investment Limitation No. 2 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.
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With respect to Investment Limitation No. 6 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.
With respect to Investment Limitation Nos. 4 and 7 above, each of the
Money Market, Government, U.S. Treasury and Tax-Exempt Funds intends to limit
its investments in illiquid securities to not more than 10% of the value of its
total 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 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 funds. In accordance with Rule 2a-7, the Money Market Fund is subject to
the 5% limitation contained in Investment Limitation No. 2 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. 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. 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. Investment by the Money
Market Fund or any Tax-Exempt Money Market Fund 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 Fleet has determined, in accordance with
guidelines established
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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 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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors is a
registered broker/dealer with principal offices located at 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
Investments in Retail Shares of the Funds (other than Retail B Shares
of the Money Market Fund) are not subject to any sales charge. Investments in
Retail B Shares of the Money Market 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." See "Applicable Sales Charge -- Retail B Shares" below.
Retail B Shares of the Money Market Fund have higher
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operating expenses than Retail A Shares of the Fund and may not be appropriate
for investors that do not plan to exchange into Retail B Shares of certain of
Galaxy's non-money market portfolios.
FD Distributors has established several procedures to enable different
types of investors to purchase Retail Shares of the Funds. Retail 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"). Retail Shares 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 FD Distributors,
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 FD Distributors on a Business Day in accordance with FD
Distributors' 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 FD Distributors and for wiring required
funds in payment to Galaxy's custodian on a timely basis. FD Distributors 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 particular Institution
should contact such entity directly for appropriate purchase instructions.
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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 FD Distributors 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 FD Distributors, 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 FD Distributors at 1-800-628-0414 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, Westboro, Massachusetts 01581-5108. Applications may
be obtained by calling FD Distributors at 1-800-628-0414. Redemptions will not
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be processed until the application in proper form has been received by FD
Distributors. Direct Investors making subsequent investments by wire should
follow the instructions above.
OTHER PURCHASE INFORMATION
Investment Minimums. Except as provided under "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 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 FD Distributors 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 FD Distributors on a Business Day in accordance with the above
procedures. On a Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy
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will advance the time at which purchase orders must be received in order to be
processed on that Business Day.
APPLICABLE SALES CHARGES - RETAIL B SHARES
The public offering price for Retail B Shares of the Money Market 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 FD Distributors 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 of Galaxy's non-money market portfolios. 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 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. The contingent deferred sales
charge on Retail B Shares is based on the lesser of the offering price or the
net asset value of the Shares on the redemption date. 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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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 FD Distributors, 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 the
Money Market 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 Money
Market 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 Money Market Fund (or any of the other
portfolios offered by Galaxy or otherwise advised by Fleet or its affiliates)
before December 1, 1995. In addition to the foregoing exemptions, no contingent
deferred sales charge will be imposed on redemptions
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made pursuant to the Systematic Withdrawal Plan, subject to the limitations set
forth under "Investor Programs - Automatic Investment Program and Systematic
Withdrawal Plan" below.
Six years after purchase, Retail B Shares of the Money Market 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. 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 Retail B Shares are purchased. Upon
conversion, an investor would hold Retail A Shares subject to the operating
expenses for Retail A Shares.
Retail B Shares of the Money Market Fund acquired through a
reinvestment of dividends or distributions 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 the 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.
REDEMPTION OF SHARES
Redemption orders are effected at the net asset per share next
determined after receipt of the order by FD Distributors, except that proceeds
from the redemption of Retail B Shares of the Money Market Fund will be reduced
by the amount of any applicable contingent deferred sales charge. On a Business
Day when the Exchange closes early due to a partial holiday or otherwise, Galaxy
will advance the time at which redemption orders must be received in order to be
processed on that Business Day. 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 of the Fund. If a Customer
or Direct Investor owns both Retail A Shares and Retail B Shares of 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 FD
Distributors 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
Westboro, 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. FD Distributors will not accept guarantees from notaries public. FD
Distributors 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 FD Distributors
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 FD Distributors of the redemption request. Questions with
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respect to the proper form for redemption requests should be directed to FD
Distributors at 1-800-628-0414.
Redemption by Telephone. Direct Investors may redeem Retail Shares by
calling 1-800-628-0414 and instructing FD Distributors 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 FD Distributors 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. FD Distributors 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 FD
Distributors.
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 FD Distributors 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 FD
Distributors at 1-800-628-0414.
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 FD
Distributors. 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 FD Distributors 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
Money Market and Massachusetts Municipal Money Market Funds" for examples of
when such redemptions might be appropriate.
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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) of 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 of the Money Market Fund for Retail B Shares of
Galaxy's Short-Term Bond, High Quality Bond, Tax Exempt Bond, Equity Value,
Equity Growth, Small Company Equity, MidCap Equity, Asset Allocation, Growth and
Income, and Special Equity 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 Government 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 Government
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 FD Distributors at 1-800-628-0414. Customers of
Institutions should call their Institution for such information. Customers
exercising the exchange privilege into other portfolios should request and
review the prospectuses for these portfolios prior to making an exchange.
Telephone 1-800-628-0414 for a prospectus or to make an exchange. 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 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 FD Distributors (call
1-800-628-0414) 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 Galaxy's transfer agent (but
not less than five days before a payment date). No contingent deferred sales
charge will be assessed on redemptions of Retail B Shares of the Money Market
Fund made through the Systematic Withdrawal Plan that do not exceed 12% of an
account's net asset value on an annualized basis. For example, monthly,
quarterly and semi-annual Systematic Withdrawal Plan redemptions of Retail B
Shares will not be subject to the contingent deferred sales charge if they do
not exceed 1%, 3% and 6%, respectively, of an account's net asset value on the
redemption date. Systematic Withdrawal Plan redemptions of Retail B Shares in
excess of this limit are still subject to the applicable 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 FD Distributors (call
1-800-628-0414).
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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 FD
Distributors by telephone (1-800-628- 0414) or mail to obtain a signature card.
A signature guarantee 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 Galaxy's 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 FD Distributors at 1-800-628-0414. 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
redemptions and exchanges. These transactions are subject to the terms and
conditions described under "How to Purchase and Redeem Shares" and "Investor
Programs" below. To access the Voice Response System, just call 1-800-FOR-
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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 1-800-628-0414.
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 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
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distributions in additional Retail Shares of the same series of a Fund. 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
generally 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 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
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 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.
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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 the 26% to 28% alternative
minimum tax for individuals and the 20% alternative minimum tax applicable to
corporations. Corporate shareholders must also take all exempt-interest
dividends into account in determining certain adjustments for federal
alternative minimum 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 to the extent that they are derived from
Municipal Securities (as defined below). Other Fund dividends and distributions,
whether received in cash or additional shares, are subject to this tax, except
that capital gain dividends are not subject to the tax to the extent they are
derived from obligations issued by or on behalf of the State of
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Connecticut, its political subdivisions, or public instrumentalities, state or
local authorities, districts or similar public entities created under
Connecticut. 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
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 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.
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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. Shareholders of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds will also be advised as to the Connecticut personal income tax and
Massachusetts 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 Funds' Statements of Additional Information
contain the names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, 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, 1997 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.
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 competitive expense ratios,
and may from time to time
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allocate a portion of its advisory fees to Fleet Bank or other subsidiaries of
Fleet Financial Group, Inc. in consideration for administrative and/or
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, it 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, 1997, 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, U.S. Treasury Fund, Connecticut Municipal Money Market Fund and
Massachusetts Municipal Market 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 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. Fleet, the
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. For the services provided to the Funds, 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. In
addition, FDISG also receives a separate annual fee from each Portfolio for
certain fund accounting services. From time to time, FDISG may waive voluntarily
all or a portion of the administration fee payable to it by the Funds. For the
fiscal year ended October 31, 1997, the Money Market, Government, Tax-Exempt,
U.S. Treasury, 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.
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 (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 FD
Distributors 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
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<PAGE> 190
operating expenses paid by a particular 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 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 investment
portfolio 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
investment portfolio 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.
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/Shares of a Fund 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 FD Distributors; processing dividend payments from a
Fund; providing Customers with information as to their positions in Retail A
Shares/Shares; providing sub-accounting with respect to Retail A Shares/Shares
or the information necessary for sub-accounting; and providing periodic mailings
to Customers. Such services are
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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/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/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/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 Money Market Fund.
Under the Distribution and Services Plan, Galaxy may pay (a) FD Distributors 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,
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<PAGE> 192
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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities agree to perform certain
sub-account and administrative 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.
Such entities are 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 One 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
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<PAGE> 193
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 Statements 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; costs 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.
PERFORMANCE REPORTING
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
performance of the Money Market, Government and U.S. Treasury Funds 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. Yield data 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.
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<PAGE> 194
The yield of a Fund refers 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 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. Also, each Tax-Exempt
Money Market 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 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 "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 the 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
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<PAGE> 195
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 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 such Fund or such series of shares, or (b) 67% or more of
the shares of such Fund or such series of shares present at a meeting if more
than 50% of the outstanding shares of such Fund or such series of shares are
represented at the meeting in person or by proxy.
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<PAGE> 196
THE GALAXY FUND
Institutional Government Money Market Fund
Prospectus
February __, 1998
<PAGE> 197
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 FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
HIGHLIGHTS.................................................................. 1
EXPENSE SUMMARY............................................................. 3
FINANCIAL HIGHLIGHTS........................................................ 4
INVESTMENT OBJECTIVE AND POLICIES........................................... 5
TYPES OF OBLIGATIONS AND OTHER INVESTMENT INFORMATION....................... 5
U.S. Government Obligations........................................ 5
Repurchase Agreements...............................................6
When-Issued and Delayed Settlement Transactions.................... 6
Investment Company Securities ..................................... 7
INVESTMENT LIMITATIONS...................................................... 7
PRICING OF SHARES........................................................... 8
HOW TO PURCHASE AND REDEEM SHARES........................................... 8
Distributor........................................................ 8
Purchase of Shares................................................. 8
Purchase Procedures................................................ 9
Other Purchase Information......................................... 9
Redemption Procedures .............................................10
Other Redemption Information.......................................10
EXCHANGE PRIVILEGE..........................................................11
DIVIDENDS AND DISTRIBUTIONS.................................................12
TAXES ...................................................................12
Federal ..........................................................12
State and Local....................................................13
Miscellaneous......................................................13
MANAGEMENT OF THE FUND......................................................13
Investment Adviser.................................................13
Authority to Act as Investment Adviser.............................14
Administrator......................................................15
DESCRIPTION OF GALAXY AND ITS SHARES........................................15
CUSTODIAN AND TRANSFER AGENT................................................16
EXPENSES ...................................................................16
PERFORMANCE REPORTING.......................................................16
MISCELLANEOUS...............................................................17
</TABLE>
<PAGE> 198
THE GALAXY FUND
4400 Computer Drive For an application and
Westboro, Massachusetts information regarding
01581-5108 purchases, redemptions,
exchanges and other
shareholder services or
for current performance,
call 1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment
company. This Prospectus describes the INSTITUTIONAL GOVERNMENT 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. Government, its agencies or instrumentalities, and repurchase agreements
relating to such obligations. The Fund was formerly known as the Institutional
Treasury Money Market Fund.
The Fund is advised by Fleet Investment Advisors Inc. and sponsored and
distributed by First Data 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
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.
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
<PAGE> 199
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 __, 1998
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<PAGE> 200
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 Government Money Market Fund. See
"Investment Objective and Policies" and "Types of Obligations and Other
Investment Information." Galaxy also offers twenty-six other investment
portfolios: the 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, MidCap
Equity, Asset Allocation, Small Cap Value, Growth and Income, Special Equity,
Short-Term Bond, Intermediate Government Income, High Quality Bond, Corporate
Bond, Tax-Exempt Bond, New Jersey Municipal 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"), 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,
1997 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-seven mutual funds should your
investment goals change.
Q: How to buy and redeem shares?
A: The Fund is distributed by First Data Distributors, Inc., a
subsidiary of First Data Investor Services Group, Inc. ("FDISG"). Shares 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"). Share purchase and redemption information is provided below
under "How to Purchase and Redeem
<PAGE> 201
Shares." The minimum initial investment for Institutions purchasing on behalf of
their Customers is $2,000,000. There is no minimum investment for subsequent
purchases. Institutions may require Customers to maintain certain minimum
investments in shares of the Fund.
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.
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<PAGE> 202
EXPENSE SUMMARY
Set forth below is a summary of the Fund's operating expenses. Examples
based on the summary are also shown.
<TABLE>
<CAPTION>
INSTITUTIONAL
ANNUAL FUND OPERATING EXPENSES GOVERNMENT
(AS A PERCENTAGE OF AVERAGE NET ASSETS) MONEY MARKET 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>
Institutional Government Money Market 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 the Fund expects to incur during the current fiscal year.
Without voluntary fee waivers and expense reimbursements by Fleet and/or FDISG,
Advisory Fees would be ___%, 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 [____________] 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.
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> 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, 1997
(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
GOVERNMENT MONEY MARKET FUND(1)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, OCTOBER 31,
--------------------------------------------------- PERIOD ENDED
1997 1996 1995 1994 1993(2)
---- ---- ---- ---- -----------
<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)............................ 0.05 0.05 0.04 0.02
Net realized and unrealized
gain(loss) on investments.................... -- -- -- --
----- ----- ----- -----
Total From Investment
Operations........................................ 0.05 0.05 0.04 0.02
----- ----- ----- -----
Less Dividends:
Dividends from net
investment income............................ (0.05) (0.05) (0.04) (0.02)
Dividends from net realized
capital gains................................ -- -- -- --
----- ----- ----- ---
Total Dividends................................... (0.05) (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 $1.00
===== ===== ===== =====
Total Return ........................................... 5.12% 5.53% 3.56% 1.59%(4)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's) ........................................... $500,927 $506,692 $326,225 158,890
Ratio to average net assets:
Net investment income including
reimbursement/waiver....................... 5.00% 5.38% 3.63% 2.85%(5)
Operating expenses including reimbursement
/waiver.................................... 0.19% 0.17% 0.17% 0.14%(5)
Operating expenses excluding reimbursement
/waiver.................................... 0.33% 0.33% 0.39% 0.46%(5)
</TABLE>
- -------------------------------------
(1) The Fund was formerly known as the Institutional Treasury Money Market
Fund.
(2) The Fund commenced operations on April 15, 1993.
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31,
1997, 1996, 1995 and 1994 and for the period ended October 31, 1993 was
$____, $0.05, $0.05, $0.04 and $0.01, respectively.
(4) Not Annualized.
(5) Annualized.
-4-
<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. Government, its agencies or instrumentalities, and
repurchase agreements relating to such obligations. These instruments have
remaining maturities of 397 days or less (except for certain variable and
floating rate notes and securities underlying certain repurchase agreements).
See "Types of Obligations and Other Investment Information" below.
Fleet 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
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.
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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 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 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 Fleet 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. 4 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.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
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 payments and delivery taking place at a future time (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.
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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 and 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 securities transactions
will not be endured into for speculative purposes, but only in furtherance of
the Fund's investment objective.
INVESTMENT COMPANY SECURITIES
The Fund may invest up to 5% of its total assets in securities issued
by other open-end investment companies that invest in the types of obligations
in which the Fund may invest 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 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 investments.
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 (i) may purchase or hold
debt instruments in accordance with its investment objective and
policies, and (ii) may enter into repurchase agreements with respect to
portfolio securities.
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 that the
Fund may borrow 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 its 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.
In addition to the foregoing limitations, the Fund may not purchase
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 obligations issued or
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guaranteed by the U.S. Government, its agencies or instrumentalities.
With respect to Investment Limitation No. 4 above, the Fund intends to
limit investments in illiquid securities to not more than 10% of the value 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 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. 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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors 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,
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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 on days on which FD Distributors,
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 FD Distributors on a Business Day in accordance with FD
Distributors' procedures.
PURCHASE PROCEDURES
Purchase orders for shares of the Fund are placed by Customers of
Institutions through their Institutions. Each Institution is responsible for
transmitting Customer purchase orders to FD Distributors and for wiring required
funds in payment to Galaxy's custodian on a timely basis. FD Distributors 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 FD
Distributors 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
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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. 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 FD Distributors
on a Business Day in accordance with the above procedures. On a Business Day
when the Exchange closes early due to a partial holiday or otherwise, Galaxy
will advance the time at which purchase orders must be received in order to be
processed on that Business Day.
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 FD Distributors 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. On a Business Day when the
Exchange closes early due to a partial holiday or otherwise, Galaxy will advance
the time at which redemption orders must be received in order to be processed on
that Business Day. 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
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Additional Information under "Net Asset Value" for examples of when such
redemptions might be appropriate.
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 particular Institution. Customers exercising the
exchange privilege into other portfolios should request and review the
prospectuses for these portfolios prior to making an exchange. Telephone
1-800-628-0414 for a prospectus or to make an exchange.
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
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not required under the regulations of the Securities and Exchange Commission
("SEC").
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 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 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 the 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
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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 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
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 Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, 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
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total assets at December 31, 1997 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.
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 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 Bank or other subsidiaries of
Fleet Financial Group, Inc. in consideration for administrative and/or
shareholder support services which they provide to beneficial shareholders. For
the fiscal year ended October 31, 1997, 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 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. Fleet, the 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.
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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. For
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 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. In addition, FDISG also receives a separate
annual fee from each Portfolio for certain fund accounting services. From time
to time, FDISG may waive voluntarily all or a portion of the administration fee
payable to it by the Fund. For the fiscal year ended October 31, 1997, FDISG
received administration fees (after fee waivers) 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 Class S shares representing interests in the
Institutional Government 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 FD
Distributors 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
investment portfolio 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 investment portfolio 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
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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 One 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); SEC fees; state securities 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
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.
PERFORMANCE REPORTING
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 that 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
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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 refers 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 the 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 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 the Fund, or (b) 67% or more of the shares
of the Fund present at a meeting if more than 50%
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of the outstanding shares of the Fund 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 Government Money Market Fund
February __, 1998
<PAGE> 219
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 Government Money
Market Funds, each dated February __, 1998, 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 Distributors, Inc., 4400 Computer Drive, Westboro, Massachusetts
01581-5180 or by calling Galaxy at 1-800-628-0414.
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. THERE IS NO ASSURANCE THAT THE FUNDS WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 220
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<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 and Delayed Settlement Transactions............................................... 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......................................................... 10
DESCRIPTION OF SHARES.................................................................................. 11
ADDITIONAL INFORMATION CONCERNING TAXES................................................................ 14
In General.................................................................................... 14
Tax-Exempt Fund............................................................................... 16
State Taxation................................................................................ 17
TRUSTEES AND OFFICERS.................................................................................. 17
Shareholder and Trustee Liability............................................................. 22
ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER AGENCY AGREEMENTS..................................... 22
Custodian and Transfer Agent.................................................................. 25
PORTFOLIO TRANSACTIONS................................................................................. 26
SHAREHOLDER SERVICES PLAN.............................................................................. 27
DISTRIBUTION AND SERVICES PLAN......................................................................... 28
DISTRIBUTOR............................................................................................ 30
AUDITORS............................................................................................... 31
COUNSEL................................................................................................ 31
PERFORMANCE AND YIELD INFORMATION...................................................................... 32
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MISCELLANEOUS.......................................................................................... 33
FINANCIAL STATEMENTS................................................................................... 34
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-seven 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 Government 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"), 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 397 days, 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 the 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
Agencies' 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.
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 of interest on and principal of
its Municipal Securities may be materially adversely affected by litigation or
other conditions.
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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 review the proceedings relating to the issuance
of Municipal Securities or the bases for such opinions.
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WHEN-ISSUED 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. 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 securities on a when-issued or delayed settlement basis
exceeded 25% of the value of its assets.
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 securities
purchased on a when-issued or delayed settlement basis 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.
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, Fleet will review
periodically the issuer's assets,
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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 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 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 Fund and Institutional Government
Money Market Fund, 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 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
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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 Fund 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 Fleet, 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 Fleet may determine that it is appropriate for the Fund to 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
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.
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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
Government Money Market Funds may acquire such
securities in accordance with the 1940 Act; and
provided, further, that the Institutional Government
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.
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.
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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.
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
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 397 days 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
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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 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 First Data
Distributors, Inc. ("FD Distributors"), and FD Distributors 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, Retail B Shares of the Money Market Fund and
shares of the Institutional Government 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 and Retail B Shares of the Money Market Fund
may also be sold to
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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 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.
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-seven classes of shares, each representing interests in one of
twenty-seven separate investment portfolios: Money Market Fund, Government Fund,
U.S. Treasury Fund, Tax-Exempt Fund, Connecticut
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Municipal Money Market Fund, Massachusetts Municipal Money Market Fund,
Institutional Government Money Market Fund, Equity Value Fund, Equity Growth
Fund, Equity Income Fund, International Equity Fund, Small Company Equity Fund,
MidCap Equity Fund, Asset Allocation Fund, Small Cap Value Fund, Growth and
Income Fund, Special Equity Fund, Short-Term Bond Fund, Intermediate Government
Income Fund, High Quality Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund,
New Jersey Municipal 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 Government
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 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 FD Distributors 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
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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 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% in 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
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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 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 exempt-interest income, if any, net of
certain deductions for such year (the "Distribution Requirement"). In addition,
each Fund must satisfy certain requirements with
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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 "Income Requirement"). 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.
Substantially all of each Fund's net realized long-term capital gains,
if any, will be distributed at least annually to Fund shareholders. A Fund will
generally have no tax liability with respect to such gains and the distributions
will be taxable to Fund shareholders who are not currently exempt from federal
income taxes as long-term or mid-term capital gains, regardless of how long the
shareholders have held Fund shares and whether such gains are received in cash
or reinvested in additional shares.
Each Fund will designate the tax status of any distributions in a
written notice
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<PAGE> 237
mailed to shareholders within 60 days after the close of its 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 on
stocks and securities are taxable at a maximum nominal rate of 20%, except that
mid-term gains (i.e., gains on capital assets held more than 12 months, but not
more than 18 months) are payable at a maximum nominal rate of 28%. For
corporations, long-term capital gains and ordinary income are both taxable at a
maximum average rate of 35% (a maximum effective marginal rate of 39% applies in
the case of corporations having taxable income between $100,000 and $335,000).
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."
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
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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.
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> 239
<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 & Printing
Vicks Lithograph & Trustee Corporation (book manufacturing and commercial
Printing Corporation printing); Director, Utica Fire Insurance Company;
Commercial Drive Trustee, Savings Bank of Utica; Director, Monitor
P.O. Box 270 Life Insurance Company; Director, Commercial
Yorkville, NY 13495 Travelers Mutual Insurance Company; Trustee, The
Age 64 Galaxy VIP Fund; Trustee, Galaxy Fund II.
John T. O'Neill(1) President, Executive Vice President and CFO, Hasbro,
Hasbro, Inc. Treasurer & Inc. (toy and game manufacturer), since
200 Narragansett Trustee 1987; Trustee, The Galaxy VIP Fund; Trustee,
Park Drive Galaxy Fund II; Managing Partner, KPMG Peat
Pawtucket, RI 02862 Marwick (accounting firm), 1986.
Age 53
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day Travel,
of Minnesota Inc.; Trustee, Religious Communities Trust;
Winona, MN 55987 Trustee, The Galaxy VIP Fund; Trustee,
Age 57 Galaxy Fund II.
</TABLE>
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<PAGE> 240
<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. (broadcast
10725 Quail Covey Road services); Director/Trustee, Lexington
Boynton Beach, FL Funds; President and CEO, Media General
33436 Broadcast Services, Inc. (1986 to 1989);
Age 72 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 Projects,
The Astra Ventures, Incorporated (land development); President,
Inc. The Astra Ventures, Incorporated
One Citizens Plaza (previously, Buffinton Box Company
Providence, RI 02903 manufacturer of cardboard boxes); Trustee,
Age 56 The Galaxy VIP Fund; Trustee, Galaxy Fund
II; Commissioner, Rhode Island Investment
Commission.
Bradford S. Wellman(1) Trustee Private Investor; President, Ames & Wellman,
2468 Ohio Street from 1978 to 1991; President, Pingree
Bangor, ME 04401 Associates, Inc. (timberland management),
Age 66 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> 241
<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 Drinker Biddle &
Philadelphia National Reath LLP, Philadelphia, Pennsylvania.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age 54
Jylanne Dunne Vice First Data Investor Services Group, Inc.,
First Data Investor President 1990 to present.
Services Group, Inc. and
4400 Computer Drive Assistant
Westboro, MA 01581 Treasurer
Age 38
</TABLE>
- -------------------------
(1) An interested person within the definition set forth in
Section 2(a)(19) of the 1940 Act.
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 II") (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.
Effective March 1, 1996, each trustee became 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
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<PAGE> 242
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, 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> 243
<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 (including interest) in the amounts of $_____ and
$_____ accrued during Galaxy's fiscal year ended October 31, 1997 for
Messrs. Miller and Seed, respectively.
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<PAGE> 244
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 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.
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<PAGE> 245
Fleet 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, for the fiscal
years ended October 31, 1995, October 31, 1996 and October 31, 1997, Galaxy paid
Fleet advisory fees (net of fee waivers) of $3,321,036, $6,802,258 and $_____,
respectively, with respect to the Money Market Fund; and $3,551,367, $3,790,727
and $_____, respectively, with respect to the Government Fund. For the same
periods, Fleet waived advisory fees of $142,311, $543,180 and $ _____,
respectively, with respect to the Money Market Fund; and $63,124, $113,057 and
$_____, respectively, with respect to the Government Fund.
For the fiscal years ended October 31, 1996 and October 31, 1997, Fleet
reimbursed expenses in the amounts of $85,430 and $_______, respectively, with
respect to the Money Market Fund and $13,713 and $____, respectively, with
respect to the Government Fund, respectively.
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Galaxy paid Fleet advisory fees (net of expense
reimbursements) of $1,138,568, $1,287,528 and $____, respectively, with respect
to the Tax-Exempt Fund; and $2,126,647, $2,716,788 and $____, respectively, with
respect to the U.S. Treasury Fund.
For the same periods, Fleet reimbursed expenses in the amounts of
$36,228, $16,727 and $____, respectively, with respect to the Tax-Exempt Fund;
and $17,558, $828 and $____, respectively, with respect to the U.S. Treasury
Fund.
For the fiscal years ended October 31, 1995, October 31, 1996, and
October 31, 1997, Fleet received advisory fees (net of fee waivers) of $387,361,
$487,246 and $_____, respectively, with respect to the Institutional Government
Money Market Fund (formerly known as the Institutional Treasury Money Market
Fund). For the same periods, Fleet waived advisory fees of $387,360, $484,786
and $_____, respectively, with respect to the Institutional Government Money
Market Fund.
For the fiscal years ended October 31, 1996 and October 31, 1997, Fleet
reimbursed expenses in the amount of $31,826 and $________, respectively, with
respect to the Institutional Government Money Market Fund.
The advisory agreement provides that Fleet 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
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<PAGE> 246
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 Fleet 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, 1998, 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 Fleet, 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, 1997,
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.
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<PAGE> 247
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, 1995, October 31, 1996 and
October 31, 1997, FDISG and/or its predecessors received administration fees of
$763,921, $1,556,983 and $______, respectively, with respect to the Money Market
Fund; $799,533, $828,248 and $______, respectively, with respect to the
Government Fund; $257,052, $273,302 and $______, respectively, with respect to
the Tax-Exempt Fund; and $469,163, $577,419 and $______, respectively, with
respect to the U.S. Treasury Fund.
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, FDISG and/or its predecessors received administration fees
(net of fee waivers) of $125,448, $243,008 and $______, respectively, with
respect to the Institutional Government Money Market Fund (formerly the
Institutional Treasury Money Market Fund) and waived administration fees of
$213,577, $174,704 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 and Services Agreement ("Transfer Agency
Agreement"). Under the Transfer
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<PAGE> 248
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.
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, Fleet 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, Fleet,
FDISG, or their affiliates, and will not give preference to affiliates and
correspondent banks of Fleet with respect to such transactions.
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<PAGE> 249
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, 1997, ______.
Investment decisions for each Fund are made independently from those
for the other Funds and portfolios of Galaxy 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 Galaxy's other Funds or
portfolios, or other investment companies or accounts in order to obtain best
execution.
SHAREHOLDER SERVICES PLAN
As stated in the Prospectuses for each Fund, except the Institutional
Government 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 Government Money Market Fund). As
of October 31, 1997, 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, October 31, 1996 and
October 31, 1997, payments to Service Organizations totaled $451,861, $765,457
and $______, respectively, with
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<PAGE> 250
respect to Retail A Shares of the Money Market Fund; $269,314, $320,372 and
$_____, respectively, with respect to Retail A Shares of the Government Fund;
$115,812, $125,962 and $____, respectively, with respect to Retail A Shares of
the Tax-Exempt Fund; and $261,774, $348,084 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 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
the Money Market 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
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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 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 March 6, 1997 (date of initial public offering) through
October 31, 1997, the Money Market Fund bore the following distribution and
shareholder servicing fees under the 12b-1 Plan: $_______ in distribution fees
and $________ in shareholder servicing fees. During this period, 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 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
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Shares of the Fund, by FD Distributors 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
First Data 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 FD Distributors. Prior to that time, FD
Distributors 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 between Galaxy
and FD Distributors, remains in effect until May 31, 1998, 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.
FD Distributors is entitled to the payment of contingent deferred sales
charges upon the redemption of Retail B Shares of the Money Market Fund. For the
period March 6, 1997 (date of initial public offering) through October 31, 1997,
FD Distributors received contingent deferred sales charges of $______ in
connection with Retail B Share redemptions in the Money Market Fund.
The following table shows all sales charges, commissions and other
compensation received by FD Distributors directly or indirectly from the Funds
during the fiscal year ended October 31, 1997:
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<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 $___ $_______
Government $_______
Tax-Exempt $_______
U.S. Treasury $_______
Institutional
Government
Money Market*
</TABLE>
- ----------------------
* Formerly known as the Institutional Treasury Money Market Fund.
(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 during the fiscal year ended October 31,
1997, which includes fees accrued in the fiscal year ended October 31,
1996, which were paid in 1997 (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 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 LLP (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.
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PERFORMANCE AND YIELD INFORMATION
The standardized annualized seven-day yields for the Money Market,
Government, Tax-Exempt, U.S. Treasury and Institutional Government 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 Government Money Market Funds may be obtained by
calling FD Distributors at the telephone numbers provided on the cover page of
the Prospectus. For the seven-day period ended October 31, 1997, 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, 1997, the annualized and effective yields for the Institutional
Government Money Market Fund (formerly known as the Institutional Treasury Money
Market Fund) were ____% and ____%, respectively.
For a seven-day period ended October 31, 1997, the annualized yields
for Trust Shares of the Money Market, Government, Tax-Exempt and U.S. Treasury
Funds were ____%, _____%, ____% and ____%, respectively, and the effective
yields of Trust Shares of such Funds were ____%, ____%, ____% and ____%,
respectively.
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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 seven day period ended
October 31, 1997 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,
1997 was ____%.
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 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 the 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 seven-day period ended October 31, 1997 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, 1997 for
Trust Shares of the U.S. Treasury Fund were ____%, ____% and ____%,
respectively.
During the fiscal year ended October 31, 1997, the Institutional
Government Money Market Fund (known during such period as the Institutional
Treasury Money Market Fund) was eligible to calculate a state flow through
yield. The state flow through yields for the seven-day period ended October 31,
1997 were ____%, ____% and ____%, respectively, with respect to the 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
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<PAGE> 256
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 ________, 1998, 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 ________, 1998, 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:
___________________________________
As of ________, 1998, 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 Government Money Market Fund) were as
follows:____________________________
FINANCIAL STATEMENTS
Galaxy's Annual Reports to Shareholders with respect to the Funds for
the fiscal year ended October 31, 1997 [_____________] with the Securities and
Exchange Commission. The financial statements in such Annual Reports (the
"Financial Statements") [___________________] this Statement of Additional
Information. The Financial Statements included in the Annual Reports for the
fiscal year ended October 31, 1997 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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<PAGE> 257
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 __, 1998
<PAGE> 264
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 __, 1998, 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 Distributors, 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.
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. THERE IS NO ASSURANCE THAT THE CONNECTICUT
MUNICIPAL MONEY MARKET AND MASSACHUSETTS MUNICIPAL MONEY MARKET FUNDS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
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TABLE OF CONTENTS
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THE GALAXY FUND.............................................................. 1
INVESTMENT OBJECTIVES AND POLICIES........................................... 1
Acceptable Investments - Money Market Funds......................... 1
Types of Acceptable Investments - Money Market Funds................ 2
Types of Investments - Equity Funds................................. 2
U.S. Government Obligations......................................... 3
When-Issued and Delayed Settlement
Transactions............................................... 4
Stand-By Commitments................................................ 4
Munipreferred Securities............................................ 5
Variable Rate Demand Notes.......................................... 5
Temporary Investments............................................... 5
Repurchase Agreements, Reverse Repurchase Agreements
and Lending of Portfolio Securities........................ 7
Derivative Securities............................................... 8
Restrictions on the Use of Futures Contracts And
Options.................................................... 9
Indexed Securities.................................................. 10
Swap Agreements..................................................... 10
Portfolio Securities Generally...................................... 12
Portfolio Turnover.................................................. 12
Special Considerations Relating to Connecticut
Municipal Securities....................................... 12
Additional Investment Limitations................................... 14
NET ASSET VALUE - CONNECTICUT MUNICIPAL MONEY MARKET AND
MASSACHUSETTS MUNICIPAL MONEY MARKET FUNDS................................... 20
DIVIDENDS - MONEY MARKET FUNDS .............................................. 21
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................... 21
DESCRIPTION OF SHARES........................................................ 23
ADDITIONAL INFORMATION CONCERNING TAXES...................................... 26
In General.......................................................... 26
Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds............................... 28
Growth and Income and Small Cap Value Funds......................... 29
Taxation of Certain Financial Instruments........................... 29
State Taxation...................................................... 32
Massachusetts State Income Tax...................................... 32
TRUSTEES AND OFFICERS........................................................ 32
Shareholder and Trustee Liability................................... 37
ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER AGENCY
AGREEMENTS.......................................................... 38
Custodian and Transfer Agent........................................ 41
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PORTFOLIO TRANSACTIONS....................................................... 42
SHAREHOLDER SERVICES PLAN.................................................... 44
DISTRIBUTION AND SERVICES PLAN............................................... 45
DISTRIBUTOR.................................................................. 47
AUDITORS .................................................................... 49
COUNSEL .................................................................... 49
PERFORMANCE AND YIELD INFORMATION............................................ 50
Yield Quotations -- Connecticut Municipal Money Market
and Massachusetts Municipal Money Market Funds............. 50
Yield and Performance of the Growth and Income and
Small Cap Value Funds...................................... 51
MISCELLANEOUS................................................................ 57
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-seven 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 total 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 equity securities of companies that have a market value
capitalization of up to $1 billion. In addition, the Small Cap Value Fund may
invest as described below, and as described in the Prospectuses.
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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 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, Fleet Investment
Advisors Inc. ("Fleet"), the Fund's investment adviser, will review periodically
the issuer's assets, liabilities, contingent claims and other relevant financial
information.
The Money Market Funds will acquire stand-by commitments solely to
facilitate liquidity and do not intend to exercise
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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. Section 4(2) commercial paper is normally
resold to other institutional investors like the Equity Funds through or with
the
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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 Fleet), 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 (the "Rule") under the Securities Act of 1933, as amended. 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 5% of their respective net assets will be invested in Rule
144A securities during the current fiscal year.
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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 Fleet 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 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
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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 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
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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 liquid portfolio 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 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
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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 of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate exceeds
an agreed upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest 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 Fleet, 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 Fleet may determine that it is appropriate for the Fund to 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
Fleet 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 following information is a brief summary of factors affecting the
economies and financial strengths of the State of Connecticut, its
municipalities and its political subdivisions and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based primarily upon one or more publicly available offering
statements relating to debt offerings of this State of Connecticut that were
available prior to the date of this Statement of Additional Information. The
accuracy and completeness of the information contained in such offering
statements have not been independently verified.
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.
Manufacturing has historically been of prime economic importance to
Connecticut. The State's manufacturing industry is diversified, with
transportation equipment (primarily aircraft engines, helicopters and
submarines) the dominant industry, followed by non-electrical machinery,
fabricated metal products and electrical machinery. As a result of a rise in
employment in service-related industries and a decline in manufacturing
employment, manufacturing accounted for only 17.39% of total non-agricultural
employment in Connecticut in 1996. Defense-related business represents a
relatively high proportion of the manufacturing sector. On a per capita basis,
defense awards to Connecticut have traditionally been among the highest in the
nation, and reductions in defense spending have had a substantial adverse impact
on Connecticut's economy.
From 1986 through 1996, Connecticut's unemployment rate was generally
lower than the unemployment rate for the U.S. as a whole, and average per capita
personal income of Connecticut residents was higher than that of residents of
other states. The average unemployment rate in Connecticut increased from a low
of 3.0% in 1988 to a high of 7.5% in 1992 and, after a number of important
changes in the method of calculation, was reported to be 5.7% in 1996. Average
per capita personal income of Connecticut residents increased in every year from
1987 to 1996, rising from $21,235 to $33,189. However, pockets of significant
unemployment and poverty exist in some Connecticut cities and towns.
At the end of the 1990-1991 fiscal year, the General Fund had an
accumulated unappropriated deficit of $965,712,000. For the six fiscal years
ended June 30, 1997, the General Fund ran operating surpluses, based on the
State's budgetary method of accounting, of approximately $110,200,000,
$113,500,000, $19,700,000, $80,500,000, $250,000,000, and $262,600,000,
respectively. General Fund budgets for the biennium ending June 30, 1999, were
adopted in 1997. General Fund expenditures and revenues are budgeted to be
approximately $9,550,000,000 and $9,700,000,000 for the 1997-1998 and 1998-1999
fiscal years, respectively, an increase of more than 35% from the budgeted
expenditures of approximately $7,008,000,000 for the fiscal year 1991-1992.
During 1991 the State issued a total of $965,710,000 Economic Recovery
Notes, of which $157,055,000 were outstanding as of August 1, 1997. The notes
were to be payable no later than June 30, 1996, but as part of the budget
adopted for the biennium ending June 30, 1997, payment of the notes scheduled to
be paid during the 1995-96 fiscal year was rescheduled to be made over the four
fiscal years ending June 30, 1999.
The State's primary method for financing capital projects is through the
sale of general obligation bonds. These bonds are backed by the full faith and
credit of the State. As of August 1, 1997, the State had authorized direct
general obligation bond indebtedness totaling $11,469,639,000, of which
$9,990,468,000 had been approved for issuance by the State Bond Commission and
$8,897,072,000 had been issued. As of August 1, 1997, State direct general
obligation indebtedness outstanding was $6,733,149,000.
In 1995, the State established the University of Connecticut as a separate
corporate entity to issue bonds and construct certain infrastructure
improvements. The University is authorized to issue $962,000,000 bonds to
finance the improvements. The University's bonds will be secured by a State debt
service commitment, the aggregate amount of which is limited to $382,000,000 for
the four fiscal years ending June 30, 1999, and $580,000,000 for the six fiscal
years ending June 30, 2005.
In addition, the State has limited or contingent liability on a
significant amount of other bonds. Such bonds have been issued by the following
quasi-public agencies: the Connecticut Housing Finance Authority, the
Connecticut Development Authority, the Connecticut Higher Education Supplemental
Loan Authority, the Connecticut Resources Recovery Authority and the Connecticut
Health and Educational Facilities Authority. Such bonds have also been issued by
the cities of Bridgeport and West Haven and the Southeastern Connecticut Water
Authority. As of October 15, 1996, the amount of bonds outstanding on which the
State has limited or contingent liability totaled $3,985,400,000.
In 1984, the State established a program to plan, construct and improve
the State's transportation system (other than Bradley International Airport).
The total cost of the program through June 30, 2000, is currently estimated to
be $11.2 billion, to be met from federal, state, and local funds. The State
expects to finance most of its $4.7 billion share of such cost by issuing $4.2
billion of special tax obligation ("STO") bonds. The STO bonds are payable
solely from specified motor fuel taxes, motor vehicle receipts, and license,
permit and fee revenues pledged therefor and credited to the Special
Transportation Fund, which was established to budget and account for such
revenues.
As of October 15, 1996, the General Assembly had authorized $4,157,900,000
of such STO bonds, of which $3,594,700,000 new money borrowings had been issued.
It is anticipated that additional STO bonds will be authorized annually in
amounts necessary to finance and to complete the infrastructure program. Such
additional bonds may have equal rank with the outstanding bonds provided certain
pledged revenue coverage requirements are met. The State expects to continue to
offer bonds for this program.
The State's general obligation bonds are rated AA- by Standard & Poors and
Aa3 by Moody's. On March 17, 1995, Fitch reduced its ratings of the State's
general obligation bonds from AA+ to AA.
The State, its officers and its employees are defendants in numerous
lawsuits. Although it is not possible to determine the outcome of these
lawsuits, the Attorney General has opined that an adverse decision in any of
the following cases might have a significant impact on the State's financial
position: (i) a class action by the Connecticut Criminal Defense Lawyers
Association claiming a campaign of illegal surveillance activity and seeking
damages and injunctive relief; (ii) an action on behalf of all persons with
traumatic brain injury who have been placed in certain State hospitals, claiming
that their constitutional rights are violated by placement in State hospitals
alleged not to provide adequate treatment and training, and seeking placement in
community residential settings with appropriate support services; and (iii)
litigation involving claims by Indian tribes to a portion of the State's land
area.
As a result of litigation on behalf of black and Hispanic school children
in the City of Hartford seeking "integrated education" within the Greater
Hartford metropolitan area, on July 9, 1996, the State Supreme Court directed
the legislature to develop appropriate measures to remedy the racial and ethnic
segregation in the Hartford public schools. The fiscal impact of this decision
might be significant but is not determinable at this time.
General obligation bonds issued by municipalities are payable primarily
from ad valorem taxes on property located in the municipality. A municipality's
property tax base is subject to many factors outside the control of the
municipality, including the decline in Connecticut's manufacturing industry. In
recent years, certain Connecticut municipalities have experienced severe fiscal
difficulties and have reported operating and accumulated deficits. The most
notable of these 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 has 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. State legislation
enacted in 1993 prohibits municipal bankruptcy filings without the prior written
consent of the Governor.
In addition to general obligation bonds backed by the full faith and credit
of the municipality, certain municipal authorities finance projects by issuing
bonds that are not considered to be debts of the municipality. Such bonds may be
repaid only from revenues of the financed project, the revenues from which may
be insufficient to service the related debt obligations.
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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.
Regional economic difficulties, reductions and increases in expenses
could lead to further fiscal problems for the State and its political
subdivisions, authorities and agencies. Difficulties in payment of debt service
on borrowings could result in declines, possibly severe, 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.
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):
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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 its 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.
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
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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
and 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 non-governmental
user are considered to be issued 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.
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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.
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
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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 Board of 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 Fleet, 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 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
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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 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
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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, with respect to the Money Market Funds only, to
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, 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 397 days nor maintain a dollar-weighted average portfolio
maturity which exceeds 90 days. Galaxy's Board of Trustees has established
procedures reasonably designed, taking
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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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by First Data
Distributors, Inc. ("FD Distributors"), and FD Distributors 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
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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,
1997, 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 Price 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
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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-seven classes of shares, each representing interests in one
of twenty-seven separate investment portfolios: Money Market Fund, Government
Fund, Tax-Exempt Fund, U.S. Treasury Fund, Institutional Government 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, MidCap Equity Fund, Asset
Allocation Fund, Small Cap Value Fund, Growth and Income Fund, Special Equity
Fund, Short-Term Bond Fund, Intermediate Government Income Fund, High Quality
Bond Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New Jersey Municipal 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 and shares of each Money Market
Fund would be solely responsible for the Fund's payments to Service
Organizations under the Shareholder Services Plan and the Growth
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and Income Fund's Retail B Shares would be solely responsible for the Fund's
payments to FD Distributors 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 (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 Shares 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% in 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.
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<PAGE> 292
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 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 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
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<PAGE> 293
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 exempt-interest income ,if any, net of
certain deductions for such year (the "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 "Income Requirement").
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.
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<PAGE> 294
Substantially all of each Fund's net realized long-term capital gains,
if any, will be distributed at least annually to Fund shareholders. A Fund will
generally have no tax liability with respect to such gains and the distributions
will be taxable to Fund shareholders who are not currently exempt from federal
income taxes as long-term or mid-term capital gains, regardless of how long the
shareholders have held Fund shares and whether such gains are received in cash
or reinvested in additional shares.
Each Fund will designate the tax status of any distributions in a
written notice mailed to shareholders within 60 days after the close of its
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 on
stocks and securities are taxable at a maximum nominal rate of 20%, except that
"mid-term gains" (i.e., gains on capital assets held more than 12 months, but
not more than 18 months), are taxable at a maximum nominal rate of 28%. For
corporations, long-term capital gains and ordinary income are both taxable at a
maximum average rate of 35% (a maximum effective marginal rate of 39% applies in
the case of corporations having taxable income between $100,000 and $335,000).
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 backup withholding due to prior failure to properly
include on his or her return payments of taxable interest or dividends, or (iii)
has failed to certify to the
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<PAGE> 295
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 20% 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 are taxed as long-term
capital gains, regardless of the length of time the Fund shares have been held
by the shareholder. These tax consequences apply whether dividends 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.
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 Distribution Requirement and on the
income or gain qualifying under the Income Requirement described above.
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<PAGE> 296
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. 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 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.
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<PAGE> 297
Certain foreign currency contracts entered into by a Fund may be
subject to the "mark-to-market" process, but gain or loss will be treated as
100% ordinary income or loss. 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, or settlement by
reference to the value of, a foreign currency of a type in which regulated
futures contracts are traded; (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, 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 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 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
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<PAGE> 298
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.
MASSACHUSETTS STATE INCOME TAX
Shareholders of the Massachusetts Municipal Money Market Fund subject
to Massachusetts personal income taxation will not be required to pay
Massachusetts personal income tax on that portion of their dividends which is
attributable to (and is properly designated as attributable to) interest earned
on Massachusetts tax-free municipal obligations, gain from the sale of certain
of such obligations, interest earned on obligations of the United 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. Shareholders subject to Massachusetts income taxation
will be subject to Massachusetts personal income tax and corporate shareholders
subject to the Massachusetts corporate excise tax will be subject to that tax on
all dividends from the Massachusetts Municipal Money Market Fund.
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<PAGE> 299
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 & Printing Corporation (book
Vicks Lithograph & Trustee manufacturing and commercial printing); Director, Utica Fire Insurance Company;
Printing Corporation Trustee, Savings Bank of Utica; Director, Monitor Life Insurance Company;
Commercial Drive Director, Commercial Travelers Mutual Insurance Company; Trustee, The Galaxy VIP
P.O. Box 270 Fund; Trustee, Galaxy Fund II.
Yorkville, NY 13495
Age 64
John T. O'Neill(1) President, Executive Vice President and CFO, Hasbro, Inc. (toy and game manufacturer),
Hasbro, Inc. Treasurer & since 1987; Trustee, The Galaxy VIP Fund; Trustee, Galaxy Fund II; Managing
200 Narragansett Trustee Partner, KPMG Peat Marwick (accounting firm), 1986.
Park Drive
Pawtucket, RI 02862
Age 53
Louis DeThomasis Trustee President, Saint Mary's College of Minnesota; Director, Bright Day Travel, Inc.;
Saint Mary's College Trustee, Religious Communities Trust; Trustee, The Galaxy VIP Fund; Trustee,
of Minnesota Galaxy Fund II.
Winona, MN 55987
Age 57
</TABLE>
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<PAGE> 300
<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. (broadcast services); Director/Trustee, Lexington
10725 Quail Covey Road Funds; President and CEO, Media General Broadcast Services, Inc. (1986 to 1989);
Boynton Beach, FL 33436 Chairman, Executive Committee, Compton International, Inc. (advertising agency);
Age 72 Trustee, Keuka College; Trustee, The Galaxy VIP Fund; Trustee, Galaxy Fund II.
James M. Seed Trustee Chairman and President, The Astra Projects, Incorporated (land development);
The Astra Ventures, President, The Astra Ventures, Incorporated (previously, Buffinton Box Company
Inc. manufacturer of cardboard boxes); Trustee, The Galaxy VIP Fund; Trustee, Galaxy
One Citizens Plaza Fund II; Commissioner, Rhode Island Investment Commission.
Providence, RI 02903
Age 56
Bradford S. Wellman(1) Trustee Private Investor; President, Ames & Wellman, from 1978 to 1991; President,
2468 Ohio Street Pingree Associates, Inc.(timberland management), from 1974 until 1990; Director,
Bangor, ME 04401 Essex County Gas Company, until January 1994; Director, Maine Mutual Fire
Age 66 Insurance Co.; Member, Maine Finance Authority; Trustee, The
</TABLE>
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<PAGE> 301
<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
<S> <C> <C>
Galaxy VIP Fund; Trustee, Galaxy Fund II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle & Reath LLP, Philadelphia, Pennsylvania.
Philadelphia National
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age 54
Jylanne Dunne Vice First Data Investor Services Group, Inc., 1990 to present.
First Data Services President
Group, Inc. and
4400 Computer Drive Assistant
Westboro, MA 01581-5108 Treasurer
Age 38
</TABLE>
- --------------------------
(1) An interested person within the definition set forth in Section
2(a)(19) of the 1940 Act.
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 II") (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.
Effective March 1, 1996, each trustee became 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
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<PAGE> 302
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, 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, 1997:
<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 (including interest) in the amounts of $________
and $________ accrued during Galaxy's
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<PAGE> 303
fiscal year ended October 31, 1997 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 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.
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<PAGE> 304
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. Fleet 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 year ended October 31, 1997, Fleet received 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, and
reimbursed expenses 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 December 4, 1995 to October 31, 1996, Fleet
received advisory fees of $386,073, $154,616, $1,143,059 and $1,790,255 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 reimbursed expenses of $93,862, $90,548, $63,394 and $99,656
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: $43,242, $17,003, $128,152 and $207,833 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, $168,602, 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.
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<PAGE> 305
The advisory agreement provides that Fleet 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 Fleet 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, 1998, 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 Fleet, 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, 1997, 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 SEC, federal and state
tax returns, and filings with state securities commissions, arranges for and
bears the cost of processing share purchase and redemption orders,
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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 year ended October 31, 1997, 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 December 4, 1995 through October 31, 1996, FDISG
received administration fees of $81,178, $32,643, $129,102 and $203,187 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,
$12,973, none of which was voluntarily waived; Predecessor Massachusetts
Municipal Money Market Fund, $5,101, none of which was voluntarily waived;
Predecessor Small Cap Value Fund, $19,223, none of which was voluntarily waived;
and Predecessor Growth and Income Fund, $31,175, none of which was voluntarily
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.
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
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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 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.
FDISG also serves as Galaxy's transfer agent and dividend disbursing
agent pursuant to a Transfer Agency and Services 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 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
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such transactions involve dealer spreads rather than brokerage commissions. With
respect to over-the-counter transactions, Fleet 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 fiscal year ended October 31, 1997, the Growth and Income and
Small Cap Value Funds paid $_______ and $________, respectively, in brokerage
commissions on brokerage transactions.
For the period December 4, 1995 through October 31, 1996, the Growth
and Income and Small Cap Value Funds paid $398,181 and $118,396, respectively,
in brokerage commissions on brokerage transactions. For the fiscal year ended
October 31, 1995, the Predecessor Growth and Income and Predecessor Small Cap
Value Funds paid $250,125 and $58,543, 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.
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, Fleet,
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, 1997, _____.
Investment decisions for each Fund are made independently from those
for the other Funds and portfolios of Galaxy 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
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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 Galaxy's other Funds and
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, 1997, 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 described above requires that, with respect to
those Funds which declare dividends on a daily basis, the Service Organization
agrees 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 fiscal year ended October 31, 1997, 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.
For the period December 4, 1995 through October 31, 1996, payments to
Service Organizations totaled $104,877 with respect to shares of the Connecticut
Municipal Money Market Fund, $38,441 with respect to shares of the Massachusetts
Municipal Money Market Fund, $154,838 with respect to Retail A Shares of the
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Growth and Income Fund, and $79,503 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.
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
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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 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 fiscal year ended October 31, 1997, Retail B Shares of the
Growth and Income Fund bore $______ in distribution fees and $_______ in
shareholder servicing fees under the 12b-1 Plan. For the fiscal year ended
October 31, 1997, all amounts paid under the 12b-1 Plan were attributable to
payments to broker-dealers.
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 $7,070 in distribution fees and $3,263 in shareholder servicing
fees under the 12b-1 Plan. 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
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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 FD Distributors 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.
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 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 fiscal year ended October 31, 1995, the Predecessor Connecticut
Municipal Money Market Fund paid $377,953 in 12b-1 fees, of which $188,976 was
voluntarily waived. During the same period, the Predecessor Massachusetts
Municipal Money Market Fund did not accrue 12b-1 fees. For the fiscal year ended
October 31, 1995, the Predecessor Growth and Income and Predecessor Small Cap
Value Funds paid $166,932 and $111,535, respectively, in 12b-1 fees, of which
$83,466 and $55,768, respectively, was voluntarily waived.
DISTRIBUTOR
First Data 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 FD Distributors. Prior to that time, FD
Distributors 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 between Galaxy
and FD Distributors, remains in effect until May 31, 1998, and 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
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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.
FD Distributors 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 fiscal year ended October 31, 1997, FD
Distributors received front-end sales charges in connection with Retail A Share
purchases as follows: Growth and Income Fund -- $_______; and Small Cap Value
Fund -- $_______. For the period December 4, 1995 through October 31, 1996, FD
Distributors received front-end sales charges in connection with Retail A Share
purchases as follows: Growth and Income Fund -- $279,670; and Small Cap Value
Fund -- $34,022.
FD Distributors 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 fiscal year ended October 31, 1997, FD Distributors 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. For the period from March 4, 1996 (date of the initial
public offering of Retail B Shares) through October 31, 1996, FD Distributors
received $2,815 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 FD Distributors directly or indirectly from the Funds
during the fiscal year ended October 31, 1997:
<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 $
Municipal Money
Market
Massachusetts $
Municipal Money
Market
Growth and Income $ $ $ $
Small Cap Value $ N/A
</TABLE>
- ----------------------
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<PAGE> 314
(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 during the fiscal year ended October 31,
1997, which includes fees accrued in the fiscal year ended October 31,
1996 which were paid in 1997 (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, 1997
including in their Prospectuses and the financial statements for the fiscal year
ended October 31, 1997 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 LLP (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
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.
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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 FD
Distributors at the telephone numbers provided on the cover page of the
applicable Prospectus. For the seven-day period ended October 31, 1997, the
annualized and effective yields of the Connecticut Municipal Money Market Fund
were _______% and ________%, respectively. For the seven-day period ended
October 31, 1997, the annualized and effective yields of the Massachusetts
Municipal Money Market Fund were ______% and ______%, respectively.
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
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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, 1997 were ______% and ______%, respectively.
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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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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.
Based on the foregoing calculations, for the 30-day period ended
October 31, 1997, (i) the yields for Retail A Shares of the Growth and Income
and Small Cap Value Funds were _____% and _____%, respectively, (ii) the yield
for Retail B Shares of the Growth and Income Fund was ___%, and (iii) the 30-day
yields for Trust Shares of the Growth and Income Fund and Small Cap Value Fund
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 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:
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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 (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 A 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 A Shares or
redemptions of Retail B Shares.
The average annual total returns for the one-year period ended October
31, 1997 and for the period from February 12, 1993 (date of initial public
offering) to October 31, 1997 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, 1997 and for the period from December
14, 1992 (date of initial public offering) to October 31, 1997 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, 1997 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, 1997 were ______% and ______%,
respectively.
The average annual total return for the one-year period ended October
31, 1997 and for the period from March 4, 1996 (date of initial public offering)
to October 31, 1997 were ____% and ____%, respectively, for Retail B Shares of
the Growth and Income Fund. The aggregate total return for Retail B Shares of
the Growth and Income Fund for the period from March 4, 1996 (date of initial
public offering) to October 31, 1997 was ____%.
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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 A Shares or redemptions of Retail B Shares. The effect 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 ___________, 1998, 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 Government Money Market Fund) were as follows:
As of __________, 1998, 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 ____________, 1998, 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:
___________________.
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FINANCIAL STATEMENTS
Galaxy's Annual Reports to Shareholders with respect to the Funds for
the fiscal year ended October 31, 1997 [____________] with the Securities and
Exchange Commission. The financial statements in such Annual Reports (the
"Financial Statements") [___________________] this Statement of Additional
Information. The Financial Statements included in the Annual Reports for the
Funds for the fiscal year ended October 31, 1997 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 have been [______________________________] 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") are [_______________] 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 have been [______________________________] 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
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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 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 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"). Fleet 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 Fleet 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.
Fleet 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. Fleet 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 Fleet 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.
Fleet 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 liquid portfolio securities, 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, Fleet 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 Fleet. 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
B-5
<PAGE> 334
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 liquid portfolio securities, 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
B-6
<PAGE> 335
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
Fleet'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-7
<PAGE> 336
TRUST
THE GALAXY FUND
Short-Term Bond Fund
Intermediate Government Income Fund
High Quality Bond Fund
Prospectus
February __, 1998
<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 FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
EXPENSE SUMMARY................................................ 4
FINANCIAL HIGHLIGHTS .......................................... 5
INVESTMENT OBJECTIVES AND POLICIES............................. 11
Short-Term Bond Fund....................................... 11
Intermediate Government Income Fund........................ 13
High Quality Bond Fund..................................... 14
Special Risk Considerations................................ 15
Other Investment Policies and Risk
Considerations........................................... 16
INVESTMENT LIMITATIONS......................................... 27
PRICING OF SHARES.............................................. 29
HOW TO PURCHASE AND REDEEM SHARES.............................. 29
Distributor................................................ 29
Purchase of Shares......................................... 30
Redemption of Shares....................................... 31
DIVIDENDS AND DISTRIBUTIONS.................................... 32
TAXES.......................................................... 32
Federal.................................................... 32
State and Local............................................ 33
MANAGEMENT OF THE FUNDS........................................ 33
Investment Adviser......................................... 34
Authority to Act as Investment Adviser..................... 35
Administrator.............................................. 36
DESCRIPTION OF GALAXY AND ITS SHARES........................... 36
Shareholder Services Plan.................................. 37
Agreements for Sub-Account Services........................ 38
CUSTODIAN AND TRANSFER AGENT................................... 39
EXPENSES....................................................... 39
PERFORMANCE REPORTING.......................................... 40
MISCELLANEOUS.................................................. 41
</TABLE>
<PAGE> 338
THE GALAXY FUND
For an application and
4400 Computer Drive information regarding
Westboro, Massachusetts purchases, redemptions,
01581-5108 exchanges and other
shareholder services or for
current performance, call
1-800-628-0414.
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 assigned by 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 assigned by S&P or Moody's (or which,
if unrated, are of comparable quality) and "money market" instruments.
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 of domestic and foreign issuers that are
rated at the time of purchase within the three highest rating categories
assigned by S&P or Moody's (or which, if unrated, are of comparable quality) and
in obligations issued or
<PAGE> 339
guaranteed by the U.S. Government, its agencies or instrumentalities and "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 First Data 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 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
-2-
<PAGE> 340
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.
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 __, 1998
-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 summary
are also shown.
<TABLE>
<CAPTION>
INTERMEDIATE HIGH
SHORT-TERM GOVERNMENT QUALITY
SHAREHOLDER TRANSACTION EXPENSES BOND FUND INCOME FUND BOND FUND
- -------------------------------- ---------- ------------ ---------
<S> <C> <C> <C>
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............................................ % % %
---- ---- ----
Total Fund Operating Expenses
(After Fee Waivers)..................................... % % %
==== ==== ====
</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 which each Fund expects to incur during the
current fiscal year on its Trust Shares. Without voluntary fee waivers by Fleet,
"Advisory Fees" 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 statements and notes [ ] 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
-4-
<PAGE> 342
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, 1997 (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 charge by contacting Galaxy at its
telephone number or address provided above.
-5-
<PAGE> 343
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, October 31,
1997 1996 1995 1994 1993(2) 1992(1),(2)
----------------------------------------------------------- ------------- ----------
TRUST SHARES
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period .................. $ 10.06 $ 9.73 $ 10.30 $ 10.09 $ 10.00
------------- ------------- ------------- ------------- ----------
Income from Investment
Operations:
Net Investment Income(3),(4) 0.55 0.57 0.44 0.47 0.42
Net realized and
unrealized gain (loss)
on investments ............ (0.07) 0.33 (0.51) 0.22 0.09
------------- ------------- ------------- ------------- ----------
Total from Investment
Operations: ............. 0.48 0.90 (0.07) 0.69 0.51
------------- ------------- ------------- ------------- ----------
Less Dividends:
Dividends from net
investment income .......... (0.55) (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: ......... (0.55) (0.57) (0.50) (0.48) (0.42)
------------- ------------- ------------- ------------- ----------
Net increase (decrease)
in net asset value ......... (0.07) 0.33 (0.57) 0.21 0.09
------------- ------------- ------------- ------------- ----------
Net Asset Value, End of
Period ..................... $ 9.99 $ 10.06 $ 9.73 $ 10.30 $ 10.09
============= ============= ============= ============= ==========
Total Return ................. 4.91% 9.55% (0.66)% 6.98% 5.21%(5)
------------- ------------- ------------- ------------- ----------
Ratios/Supplemental Data:
Net Assets, End of Period
(000's) ...................... $ 58,227 $ 35,088 $ 39,843 $ 85,211 $ 57,403
Ratios to average net
assets:
Net investment
income including
reimbursement/waiver ...... 5.49% 5.79% 4.45% 4.51% 5.77%(6)
Operating expenses
including
reimbursement/waiver ...... 0.84% 0.74% 0.91% 0.86% 0.90%(6)
Operating expenses
excluding
reimbursement/waiver ...... 1.08% 1.02% 1.11% 1.06% 1.20%(6)
Portfolio Turnover Rate ...... 214% 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
Fleet and/or the Fund's administrator for the years ended October 31, 1997,
1996, 1995 and 1994 was $ , $0.53, $0.54 and $0.42, respectively.
(4) Net investment income per share before waiver of fees by Fleet and/or the
Fund's administrator for the year ended October 31, 1993 and for the period
ended October 31, 1992 was $0.45 and $0.40, respectively.
(5) Not Annualized.
(6) Annualized.
-6-
<PAGE> 344
INTERMEDIATE GOVERNMENT INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
------------------------------
1997 1996 1995 1994
----------------------------------------------------------------------
TRUST SHARES
----------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of
Period ............ $ 10.28 $ 9.68 $ 10.72
-------------- -------------- --------------
Income from
Investment
Operations:
Net Investment
Income(3,4)..... 0.60 0.64 0.57
Net realized and
unrealized gain
(loss) on
investments ... (0.22) 0.60 (1.03)
-------------- -------------- --------------
Total from
Investment
Operations: . 0.38 1.24 (0.46)
-------------- -------------- --------------
Less Dividends:
Dividends from
net investment
income ......... (0.60) (0.64) (0.56)
Dividends in
excess of net
investment
income ......... -- -- (0.01)
Dividends from
net realized
capital gains .. -- -- --
Dividends in
excess of net
realized capital
gains .......... -- -- (0.01)
-------------- -------------- --------------
Total
Dividends: .... (0.60) (0.64) (0.58)
-------------- -------------- --------------
Net increase
(decrease) in
net asset value . (0.22) 0.60 (1.04)
-------------- -------------- --------------
Net Asset Value,
End of Period ... $ 10.06 $ 10.28 $ 9.68
============== ============== ==============
Total Return ...... 3.88% 13.18% (4.39)%
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's) .. $ 213,750 $ 186,037 $ 212,144
Ratios to average
net assets:
Net investment
income including
reimbursement/
waiver ......... 5.98% 6.39% 5.61%
Operating
expenses
including
reimbursement/
waiver ......... 0.75% 0.73% 0.75%
Operating
expenses
excluding
reimbursement/
waiver ......... 0.95% 0.94% 0.95%
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
YEAR ENDED OCTOBER 31,(2) OCTOBER
----------------------------------------------------------------------------------- 31,
1993 1992 1991 1990 1989 1988(1),(2)
------ -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period ............ $10.83 $ 10.46 $ 9.73 $ 10.27 $ 10.40 $ 10.00
------ -------- ------- ------- ------- -------
Income from
Investment
Operations:
Net Investment
Income(3,4)..... 0.65 0.71 0.73 0.76 0.82 0.11
Net realized and
unrealized gain
(loss) on
investments ... 0.10 0.40 0.71 (0.56) 0.16 0.29
------ -------- ------- ------- ------- -------
Total from
Investment
Operations: . 0.75 1.11 1.44 0.20 0.98 0.40
------ -------- ------- ------- ------- -------
Less Dividends:
Dividends from
net investment
income ......... (0.64) (0.74) (0.71) (0.74) (0.96) --
Dividends in
excess of net
investment
income ......... (0.03) -- -- -- -- --
Dividends from
net realized
capital gains .. (0.19) -- -- -- (0.15) --
Dividends in
excess of net
realized capital
gains .......... -- -- -- -- -- --
------ -------- ------- ------- ------- -------
Total
Dividends: .... (0.86) (0.74) (0.71) (0.74) (1.11) --
------ -------- ------- ------- ------- -------
Net increase
(decrease) in
net asset value . (0.11) 0.37 0.73 (0.54) (0.13) 0.40
------ -------- ------- ------- ------- -------
Net Asset Value,
End of Period ... $10.72 $ 10.83 $ 10.46 $ 9.73 $ 10.27 $ 10.40
====== ======== ======= ======= ======= =======
Total Return ...... 7.06% 10.95% 15.35% 2.06% 10.22% 3.90%(5)
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's) .. $447,359 $199,135 $99,942 $80,645 $71,400 $58,318
Ratios to average
net assets:
Net investment
income including
reimbursement/
waiver ......... 6.03% 6.52% 7.25% 7.69% 8.19% 6.41%(6)
Operating
expenses
including
reimbursement/
waiver ......... 0.80% 0.80% 0.96% 0.98% 0.99% 0.98%(6)
Operating
expenses
excluding
reimbursement/
waiver ......... 1.00% 0.94% 0.96% 0.99% 1.00% 0.98%(6)
</TABLE>
-7-
<PAGE> 345
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio Turnover
Rate................... 235% 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
Fleet and/or the Fund's administrator for the years ended October 31, 1997,
1996, 1995 and 1994 was $ , $0.58, $0.62 and $0.54, respectively.
(4) Net investment income per share before waiver of fees by Fleet and/or the
Fund's administrator for the years ended October 31, 1993, 1992, 1990 and
1989 was $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 Period
OCTOBER 31, October 31,(2) Ended
------------------------------------------------- ----------------------------- October 31,
1997 1996 1995 1994 1993 1992 1991(1),(2)
------------------------------------------------- ----------------------------- ----------
TRUST SHARES
-------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period ............. $ 10.63 $ 9.54 $ 11.37 $ 10.60 $ 10.35 $ 10.00
----------- ------------ ------------ ------------ ------------ ----------
Income from
Investment
Operations:
Net Investment
Income(3,4)...... 0.62 0.64 0.65 0.66 0.68 0.64
Net realized and
unrealized gain
(loss) on
investments ..... (0.16) 1.09 (1.56) 0.93 0.36 0.33
----------- ------------ ------------ ------------ ------------ ----------
Total from
Investment
Operations: ... 0.46 1.73 (0.91) 1.59 1.04 0.97
----------- ------------ ------------ ------------ ------------ ----------
Less Dividends:
Dividends from net
investment income (0.62) (0.64) (0.65) (0.66) (0.71) (0.62)
Dividends from net
realized capital
gains ........... -- -- -- (0.16) (0.08) --
Dividends in
excess of net
realized capital
gains ........... -- -- (0.27) -- -- --
----------- ------------ ------------ ------------ ------------ ----------
Total Dividends: (0.62) (0.64) (0.92) (0.82) (0.79) (0.62)
----------- ------------ ------------ ------------ ------------ ----------
Net increase
(decrease)
in net asset value (0.16) 1.09 (1.83) 0.77 0.25 0.35
----------- ------------ ------------ ------------ ------------ ----------
Net Asset Value, End
of Period ........ $ 10.47 $ 10.63 $ 9.54 $ 11.37 $ 10.60 $ 10.35
=========== ============ ============ ============ ============ ==========
Total Return ....... 4.46% 18.66% (8.39)% 15.63% 10.32% 10.04%(5)
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's) ... $ 149,075 $ 134,631 $ 118,776 $ 162,594 $ 108,774 $ 57,580
Ratios to average
net assets:
Net investment
income including
reimbursement/
waiver .......... 5.88% 6.33% 6.28% 5.98% 6.55% 7.25%(6)
Operating expenses
including
reimbursement/
waiver .......... 0.85% 0.85% 0.78% 0.76% 0.87% 0.95%(6)
</TABLE>
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<TABLE>
<CAPTION>
Year Ended Year Ended Period
October 31, October 31,(2) Ended
------------------------------------------------- ----------------------------- October 31,
1997 1996 1995 1994 1993 1992 1991(1),(2)
------------------------------------------------- ----------------------------- ----------
TRUST SHARES
-------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating expenses
excluding
reimbursement/
waiver................. 1.06% 1.07% 0.98% 0.96% 0.94% 0.95%(6)
Portfolio Turnover
Rate.................... 163% 110% 108% 128% 121% 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 Fleet and/or the Fund's administrator for the years ended October
31, 1997, 1996, 1995 and 1994 was $ , $0.60, $0.62 and $0.63,
respectively.
(4) Net investment income per share before waiver of fees by Fleet and/or
the Fund's administrator for the years ended October 31, 1993, 1992 and
1991 was $0.63, $0.67 and $0.64, respectively.
(5) Not Annualized.
(6) Annualized.
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<PAGE> 348
INVESTMENT OBJECTIVES AND POLICIES
Fleet Investment Advisors Inc. ("Fleet") 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 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
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 Fleet
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 have
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<PAGE> 349
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 Fleet's
opinion, 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 high quality
debt obligations of U.S. companies 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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<PAGE> 350
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, Fleet 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 in 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 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 assigned by S&P
(AAA, AA and A) or Moody's (Aaa, Aa and A) (or which, if unrated, are determined
by Fleet 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 Fleet's opinion, 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." The Fund may also
invest in dollar-denominated high quality debt obligations of U.S. corporations
issued outside the United States.
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<PAGE> 351
Fleet 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 assigned by
S&P (AAA, AA and A) or Moody's (Aaa, Aa and A) (or, if unrated, are determined
by Fleet 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 Fleet's opinion, 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.
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<PAGE> 352
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 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 Fleet's assessment of prospective changes in interest
rates. The success of this strategy depends upon Fleet'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 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
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<PAGE> 353
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
Each 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 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
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<PAGE> 354
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 FDIC. 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 Funds will invest in the obligations of U.S. branches of foreign
banks or foreign branches of U.S. banks only when Fleet 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
-17-
<PAGE> 355
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 Fleet 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
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<PAGE> 356
(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 Fleet 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
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<PAGE> 357
will generally be short-term, will be made only to borrowers deemed by Fleet to
be of good standing and only when, in Fleet'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 the Funds 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 Fleet.
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
(the "SEC"). The purchase of futures instruments in connection with securities
which a Fund intends to purchase will require an amount of cash and/or liquid
assets 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
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<PAGE> 358
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 Fleet 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,
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 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 Fleet to manage the Fund may be adversely
affected. The Funds do not intend to engage in when-issued purchases, forward
commitments and delayed
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<PAGE> 359
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 it. 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 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.
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 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
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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 or other liquid assets 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 the
instrument which the Fund originally held. Successful use of mortgage dollar
rolls may depend upon Fleet'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 of the
Funds may purchase U.S. 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
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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 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 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.
Fleet 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 Fleet'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
Fleet 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
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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 that each
Fund may borrow 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 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, as amended, 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 limitation on purchases of illiquid instruments
described under Investment Limitation No. 3 above, Rule 144A securities will not
be considered illiquid if Fleet 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 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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors 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 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 FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors 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 FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors
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 per
share 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 FD Distributors 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.
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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.
On a Business Day when the Exchange closes early due to a
partial holiday or otherwise, Galaxy will advance the time at which purchase
orders must be received in order to be processed on that Business Day.
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 FD Distributors 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 FD
Distributors. On a Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which redemptions orders
must be received in order to be processed on that Business Day. Payment for
redemption orders received by FD Distributors 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 60
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 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 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
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Code.) It is anticipated that no part of any distribution will qualify for the
dividends received deduction for corporations.
Distribution by a Fund of "net capital gain" (the excess of
net long-term capital gain over net short-term capital loss) if any, of a Fund,
and out of the portion of such net capital gain that institutes mid-term capital
gain, if any, is taxable to shareholders as long-term capital gain or mid-term
capital gain, as the case may be, 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.
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
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Additional Information contains the names of and general background information
concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston,
Massachusetts 02109, 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, 1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to other 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 Government Money Market,
Equity Value, Equity Growth, Equity Income, International Equity, Small Company
Equity, MidCap Equity, Asset Allocation, Small Cap Value, Growth and Income,
Special Equity, Corporate Bond, Tax-Exempt Bond, New Jersey Municipal 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, Fleet 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 Bank
or other subsidiaries of Fleet Financial Group, Inc. in consideration for
administrative and/or 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 such 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, 1997, Fleet received advisory fees (after fee
waivers) at the effective annual rates of %, % and %, respectively,
of the Short-Term
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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 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. Fleet, the 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
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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.
For the services provided to the Funds, 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. In addition, FDISG also
receives a separate annual fee from each Portfolio for certain fund accounting
services. From time to time, FDISG may waive voluntarily all or a portion of the
administration fee payable to it by the Funds. For the fiscal year ended October
31, 1997, 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), 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 FD
Distributors at 1-800-628-0414.
-36-
<PAGE> 374
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 investment portfolio 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 investment portfolio 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
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<PAGE> 375
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. 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 of the Funds owned beneficially by Customers of Institutions.
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 FD
Distributors; 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 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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
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
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<PAGE> 376
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.
Such entities are 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 One
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' 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 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.
-39-
<PAGE> 377
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to
shareholders, the performance of the Funds may be quoted and compared to that 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 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 of the Funds.
Performance 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. 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" figures 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.
The performance of the Funds will fluctuate and any quotation
of performance 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
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<PAGE> 378
should remember that performance data 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 directly by
Institutions with respect to accounts of Customers that have invested in Trust
Shares of a Fund will not be included in performance calculations.
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 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 such Fund, or
(b) 67% or more of the shares of such Fund present at a meeting if more than 50%
of the outstanding shares of such Fund are represented at the meeting in person
or by proxy.
-41-
<PAGE> 379
TRUST
THE GALAXY FUND
Short-Term Bond Fund
Prospectus
February __, 1998
<PAGE> 380
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 FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. 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 Considerations ............................. 8
Other Investment Policies and Risk Considerations ....... 8
INVESTMENT LIMITATIONS ........................................... 19
PRICING OF SHARES ................................................ 21
HOW TO PURCHASE AND REDEEM SHARES ................................ 22
Distributor ............................................. 22
Purchase of Shares ...................................... 22
Redemption of Shares .................................... 23
DIVIDENDS AND DISTRIBUTIONS ...................................... 24
TAXES ............................................................ 24
Federal ................................................. 24
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 ............................. 28
Shareholder Services Plan................................ 29
Agreements For Sub-Account Services...................... 30
CUSTODIAN AND TRANSFER AGENT ..................................... 31
EXPENSES ......................................................... 31
PERFORMANCE REPORTING ............................................ 31
MISCELLANEOUS .................................................... 33
</TABLE>
<PAGE> 381
THE GALAXY FUND
For an application and
4400 Computer Drive information regarding
Westboro, Massachusetts purchases, redemptions,
01581-5108 exchanges and other
shareholder services or for
current performance, call
1-800-628-0414.
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 four highest rating categories assigned by 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 primarily 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.
The Fund is advised by Fleet Investment Advisors Inc. and sponsored and
distributed by First Data Distributors, Inc., which
<PAGE> 382
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
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.
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.
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 __, 1998
-2-
<PAGE> 383
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>
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 ............................... %
-----
Total Fund Operating Expenses
(After Fee Waivers)......................... %
=====
</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 the expenses which the Fund expects to
incur during the current fiscal year on its Trust Shares. Without voluntary fee
waivers by Fleet, Advisory Fees 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
[_______________________] 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 Fund are in
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<PAGE> 384
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, 1997 (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 number or address provided above.
-4-
<PAGE> 385
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, October 31,(1,2)
----------------------------------------------- ---------- ------------
1997 1996 1995 1994 1993(2) 1992(1,2)
----------------------------------------------- ---------- ------------
Trust Shares
-----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period...... $ 10.06 $ 9.73 $ 10.30 $ 10.09 $ 10.00
------- ------- ------- ------- -------
Income from Investment Operations:
Net Investment Income(3,4).............. 0.55 0.57 0.44 0.47 0.42
Net realized and unrealized
gain (loss) on investments............ (0.07) 0.33 (0.51) 0.22 0.09
------- ------- ------- ------- -------
Total from Investment Operations: 0.48 0.90 (0.07) 0.69 0.51
------- ------- ------- ------- -------
Less Dividends:
Dividends from net
investment income..................... (0.55) (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: (0.55) (0.57) (0.50) (0.48) (0.42)
------- ------- ------- ------- -------
Net increase (decrease) in net
asset value........................... (0.07) 0.33 (0.57) 0.21 0.09
------- ------- ------- ------- -------
Net Asset Value, End of Period............ $ 9.99 $ 10.06 $ 9.73 $ 10.30 $ 10.09
======= ======= ======= ======= =======
Total Return.............................. 4.91% 9.55% (0.66%) 6.98% 5.21%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)......... $58,227 $35,088 $39,843 $85,211 $57,403
Ratios to average net assets:
Net investment income including
reimbursement/waiver................... 5.49% 5.79% 4.45% 4.51% 5.77%(6)
Operating expenses including
reimbursement/waiver................... 0.84% 0.74% 0.91% 0.86% 0.90%(6)
Operating expenses excluding
reimbursement/waiver................... 1.08% 1.02% 1.11% 1.06% 1.20%(6)
Portfolio Turnover Rate................... 214% 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 Fleet and/or the Fund's administrator for the years ended
October 31, 1997, 1996, 1995 and 1994 were $____, $0.53, $0.54 and
$0.42, respectively.
(4) Net investment income per share before waiver of fees by Fleet and/or
the Fund's 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> 386
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. Government 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 assigned by S&P (AAA, AA, A
and BBB) or Moody's (Aaa, Aa, A and Baa) or which, if unrated, are determined by
Fleet Investment Advisors Inc. ("Fleet") the Fund's 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 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 ratings assigned by S&P or Moody's. Unrated securities will be
determined to be of comparable quality to rated debt obligations
-6-
<PAGE> 387
if, among other things, other outstanding obligations of the issuers of such
securities are rated BBB/Baa or better. When, in the opinion of Fleet, 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 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 Fund.
Fleet 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.
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SPECIAL RISK CONSIDERATIONS
Investments by the Fund in foreign securities 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 successful.
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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 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 FDIC. 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
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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 Fleet
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.
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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.
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 Fleet 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 Fleet 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
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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 Fleet to be of good standing and only when, in Fleet'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
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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
Fleet.
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 liquid
assets, 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 Fleet 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
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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 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 Fleet 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 its investment objective.
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
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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 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.
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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,
or other liquid assets, 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 the
instrument which the Fund originally held. Successful use of mortgage dollar
rolls may depend upon Fleet'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 U.S. Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or 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
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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.
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.
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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 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 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.
Fleet 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 Fleet'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.
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Portfolio Turnover
The Fund may sell a portfolio investment soon after its acquisition if
Fleet 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 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 that the Fund may
borrow 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%
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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.
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,
as amended, 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
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purchases of illiquid instruments described under Investment Limitation No. 3
above, Rule 144A securities will not be considered illiquid if Fleet 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, 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.
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HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors 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 primarily 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 FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors 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 FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors 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 per
share 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 FD Distributors 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 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 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 the Institutions to their
Customers. Information pertaining to such plans is available directly from the
Institution.
On a Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which purchase orders must
be received in order to be processed on that Business Day.
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 FD
Distributors 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 FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day
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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 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
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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 gain (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 "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss) if any, of the Fund,
and out of the portion of such net capital gain that constitutes mid-term
capital gain, if any, is taxable to shareholders as long-term capital gain or
mid-term capital gain, as the case may be, 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 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.
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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 75 State Street, Boston, Massachusetts
02109, 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,
1997. 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 Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Small Company Equity, MidCap
Equity, Asset Allocation, Small Cap Value, Growth and Income, Special Equity,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New Jersey Municipal 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, Fleet 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
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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 Bank or
other subsidiaries of Fleet Financial Group, Inc. in consideration for
administrative and/or 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 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, 1997, 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 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. Fleet, the 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
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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. For the
services provided to the Funds, 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. In addition, FDISG also receives a separate
annual fee from each Portfolio for certain fund accounting services. From time
to time, FDISG may waive voluntarily all or a portion of the administration fee
payable to it by the Fund. For the fiscal year ended October 31, 1997, FDISG
received 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 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 FD Distributors 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 under Galaxy's
Shareholder Services Plan described below. Holders of the Fund's Retail B Shares
bear the
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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 investment portfolio 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 investment portfolio 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 Retail A Shares. The Plan provides that Galaxy
will pay fees for such services at an annual rate of up to .30% of the
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average daily net asset value of Retail A Shares of the Fund owned beneficially
by Customers of Institutions. 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 FD Distributors; processing dividend
payments from the Fund; 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 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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities perform 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. Such entities are 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
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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 One 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 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 shareholder
reports and meetings; and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions in connection with the purchase of portfolio
securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that 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
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recognized independent service which monitors the performance of mutual funds.
Performance 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 of the Fund. Performance data will
be calculated separately for Trust Shares, Retail A Shares and/or 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" figures 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.
The performance of the Fund will fluctuate and any quotation of
performance 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 data
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 directly by Institutions with respect to accounts of
Customers that have invested in Trust Shares of the Fund will not be included in
performance calculations.
The portfolio manager of the Fund and other investment professionals
may from time to time discuss in advertising, sales
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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 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 the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
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TRUST
THE GALAXY FUND
Intermediate Government Income Fund
Prospectus
February __, 1998
<PAGE> 415
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 FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. 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
Other Investment Policies and Risk Considerations............. 7
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................................................. 27
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 27
Shareholder Services Plan..................................... 28
Agreements for Sub-Account Services........................... 29
CUSTODIAN AND TRANSFER AGENT.......................................... 30
EXPENSES.............................................................. 30
PERFORMANCE REPORTING................................................. 30
MISCELLANEOUS......................................................... 32
</TABLE>
<PAGE> 416
THE GALAXY FUND
4400 Computer Drive For an application and
Westboro, Massachusetts information regarding
01581-5108 purchases, redemptions,
exchanges and other
shareholder services or for
current performance, call
1-800-628-0414.
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 assigned by Standard & Poor's Ratings Group
("S&P") or Moody's Investor's Service, Inc. ("Moody's") (or which, if unrated,
are of comparable quality) and "money market" instruments.
This Prospectus describes Trust Shares in the Fund. Trust
Shares are offered to investors maintaining qualified accounts primarily 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.
("Fleet") and sponsored and distributed by First Data
<PAGE> 417
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 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.
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.
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 __, 1998
-2-
<PAGE> 418
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>
INTERMEDIATE
GOVERNMENT
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................................ %
----
Total Fund Operating Expenses
(After Fee Waivers) ........................ %
====
</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
investors 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 by Fleet, Advisory Fees 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 [_______________________] 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
-3-
<PAGE> 419
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, 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 up to .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. 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, 1997 (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 number or address
provided above.
-4-
<PAGE> 420
INTERMEDIATE GOVERNMENT INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996 1995 1994
------------------------------------------
TRUST SHARES
------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.28 $ 9.68 $ 10.72
-------- -------- --------
Income From Investment Operations:
Net Investment Income(3,4) 0.60 0.64 0.57
Net realized and unrealized gain (loss)
on investments (0.22) 0.60 (1.03)
-------- -------- --------
Total from Investment Operations: 0.38 1.24 (0.46)
-------- -------- --------
Less Dividends:
Dividends from net investment income (0.60) (0.64) (0.56)
Dividends in excess of net investment
income -- -- (0.01)
Dividends from net realized capital
gains -- -- --
Dividends in excess of net realized
capital gains -- -- (0.01)
-------- -------- --------
Total Dividends: (0.60) (0.64) (0.58)
-------- -------- --------
Net increase (decrease) in net asset value (0.22) 0.60 (1.04)
-------- -------- --------
Net Asset Value, End of Period $ 10.06 $ 10.28 $ 9.68
======== ======== ========
Total Return 3.88% 13.18% (4.39)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $213,750 $186,037 $212,144
Ratios to average net assets:
Net investment income including
reimbursement/waiver 5.98% 6.39% 5.61%
Operating expenses including
reimbursement/waiver 0.75% 0.73% 0.75%
Operating expenses excluding
reimbursement/waiver 0.95% 0.94% 0.95%
Portfolio Turnover Rate 235% 145% 124%
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
YEAR ENDED OCTOBER 31,(2) OCTOBER
------------------------------------------------- 31,
1993 1992 1991 1990 1989 1988(1,2)
------------------------------------------------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.83 $ 10.46 $ 9.73 $ 10.27 $ 10.40 $ 10.00
-------- -------- ------- ------- ------- -------
Income From Investment Operations:
Net Investment Income(3,4) 0.65 0.71 0.73 0.76 0.82 0.11
Net realized and unrealized gain (loss)
on investments 0.10 0.40 0.71 (0.56) 0.16 0.29
-------- -------- ------- ------- ------- -------
Total from Investment Operations: 0.75 1.11 1.44 0.20 0.98 0.40
-------- -------- ------- ------- ------- -------
Less Dividends:
Dividends from net investment income (0.64) (0.74) (0.71) (0.74) (0.96) --
Dividends in excess of net investment
income (0.03) -- -- -- -- --
Dividends from net realized capital
gains (0.19) -- -- -- (0.15) --
Dividends in excess of net realized
capital gains -- -- -- -- -- --
-------- -------- ------- ------- ------- -------
Total Dividends: (0.86) (0.74) (0.71) (0.74) (1.11) --
-------- -------- ------- ------- ------- -------
Net increase (decrease) in net asset value (0.11) 0.37 0.73 (0.54) (0.13) 0.40
-------- -------- ------- ------- ------- -------
Net Asset Value, End of Period $ 10.72 $ 10.83 $ 10.46 $ 9.73 $ 10.27 $ 10.40
======== ======== ======= ======= ======= =======
Total Return 7.06% 10.95% 15.35% 2.06% 10.22% 3.90%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $447,359 $199,135 $99,942 $80,645 $71,400 $58,318
Ratios to average net assets:
Net investment income including
reimbursement/waiver 6.03% 6.52% 7.25% 7.69% 8.19% 6.41%(6)
Operating expenses including
reimbursement/waiver 0.80% 0.80% 0.96% 0.98% 0.99% 0.98%(6)
Operating expenses excluding
reimbursement/waiver 1.00% 0.94% 0.96% 0.96% 0.99% 1.00%(6)
Portfolio Turnover Rate 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 Fleet and/or the Fund's administrator for the years ended October
31, 1997, 1996, 1995 and 1994 was $____, $0.58, $0.62 and $0.54,
respectively.
4 Net investment income per share before waiver of fees by Fleet and/or
the Fund's administrator for the years ended October 31, 1993, 1992,
1990 and 1989 was $0.63, $0.70, $0.73, and $0.82, respectively.
5 Not Annualized.
6 Annualized.
-5-
<PAGE> 421
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, Fleet Investment Advisors Inc. ("Fleet"), the Fund's 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, 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
assigned by S&P (AAA, AA and A) or Moody's (Aaa, Aa and A) (or which, if
unrated, are determined by Fleet 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 Fleet's opinion, 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, which are similar to U.S. municipal securities
except that the income derived therefrom is
-6-
<PAGE> 422
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 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. In addition, the Fund may also invest in
dollar-denominated high quality debt obligations of U.S. corporations issued
outside the United States.
Fleet 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.
Fleet 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.
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 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
-7-
<PAGE> 423
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 ("FDIC"), or by a savings and loan association or savings bank which
is insured by the FDIC. 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 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
-8-
<PAGE> 424
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 Fleet 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
-9-
<PAGE> 425
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 Fleet 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 Fleet 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
-10-
<PAGE> 426
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 Fleet to be of good standing and only when, in
Fleet'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
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<PAGE> 427
aggregate by the Fund, other investment portfolios of Galaxy, and any other
investment companies advised by Fleet.
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
(the "SEC"). The purchase of futures instruments in connection with securities
which the Funds intend to purchase will require an amount of cash and/or liquid
assets, 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 Fleet 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 Fleet 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 its investment
objective.
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
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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 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 value of
mortgage-related securities, including government and government-related
mortgage pools, generally will fluctuate in response to market interest rates.
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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 or other liquid assets 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 the instrument which the Fund originally held. Successful use of
mortgage dollar rolls may depend upon Fleet'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 U.S. 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
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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 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
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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 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.
Fleet 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 Fleet'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
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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 Fleet 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 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 that the
Fund may borrow 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
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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 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, as amended, for resales of certain securities to qualified
institutional buyers. The Fund's investment in
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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
Fleet 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 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
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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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors 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 primarily 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 FD Distributors orders for
purchases of Trust Shares and for wiring required funds in payment to Galaxy's
custodian on a timely basis. FD Distributors 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 FD
Distributors, Galaxy's custodian and the purchasing Institution are open for
business ("Business Days").
A purchase order for Trust Shares received by FD Distributors
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 per
share 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
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received and accepted by FD Distributors 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 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 the Institutions to their
Customers. Information pertaining to such plans is available directly from the
Institution.
On a Business Day when the Exchange closes early due to a
partial holiday or otherwise, Galaxy will advance the time at which purchase
orders must be received in order to be processed on that Business Day.
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 FD Distributors 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 FD Distributors. On a
Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will
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advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors 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.
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.
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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 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 "net capital gain" (the excess of
net long-term capital gain over net short-term capital loss) if any, of the
Fund, and out of the portion of such net capital gain that constitutes mid-term
capital gain, if any, is taxable to shareholders as long-term capital gain or
mid-term capital gain, as the case may be, 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 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
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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 75 State Street, Boston,
Massachusetts 02109, 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, 1997. 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 Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Small Company Equity, MidCap
Equity, Asset Allocation, Small Cap Value, Growth and Income, Special Equity,
Short-Term Bond, High Quality Bond, Corporate Bond, Tax-Exempt Bond, New Jersey
Municipal 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, Fleet 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
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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 Bank
or other subsidiaries of Fleet Financial Group, Inc. in consideration for
administrative and/or 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 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, 1997, 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, 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 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. Fleet, the 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.
-26-
<PAGE> 442
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.
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 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. In addition, FDISG also receives a
separate annual fee from each Portfolio for certain fund accounting services.
From time to time, FDISG may waive voluntarily all or a portion of the
administration fee payable to it by the Fund. For the fiscal year ended October
31, 1997, FDISG received 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 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 A Shares and these other portfolios, which are offered through
separate prospectuses, contact FD Distributors 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
-27-
<PAGE> 443
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 investment portfolio 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
investment portfolio 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 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 of the Fund owned
beneficially by Customers of Institutions. 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 FD Distributors; 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
-28-
<PAGE> 444
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 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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
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. Such entities are 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> 445
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at One 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 fees; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; advisory, administration, shareholders 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 shareholder reports and meetings; and any
extraordinary expenses. The Fund also pays for brokerage fees and commissions in
connection with the purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to
shareholders, the performance of the Fund may be quoted and compared to that 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 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 of the Fund.
Performance data
-30-
<PAGE> 446
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" figures 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.
The performance of the Fund will fluctuate and any quotation
of performance 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 data
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 directly by Institutions with respect to accounts of
Customers that have invested in Trust Shares of the Fund will not be included in
performance calculations.
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
-31-
<PAGE> 447
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 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 the Fund, or (b)
67% or more of the shares of the Fund present at a meeting if more than 50% of
the outstanding shares of the Fund are represented at the meeting in person or
by proxy.
-32-
<PAGE> 448
TRUST
THE GALAXY FUND
High Quality Bond Fund
Prospectus
February __, 1998
<PAGE> 449
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 FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. 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
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............................................................................................ 24
Federal.................................................................................. 24
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............................................................. 27
Shareholder Services Plan................................................................ 28
Agreements for Sub-Account Services...................................................... 29
CUSTODIAN AND TRANSFER AGENT..................................................................... 30
EXPENSES......................................................................................... 30
PERFORMANCE REPORTING............................................................................ 31
MISCELLANEOUS.................................................................................... 32
</TABLE>
<PAGE> 450
THE GALAXY FUND
For an application and
4400 Computer Drive information regarding
Westboro, Massachusetts purchases, redemptions,
01581-5108 exchanges and other
shareholder services or for
current performance, call
1-800-628-0414.
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 assigned by 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 primarily 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. ("Fleet") and
sponsored and distributed by First Data
<PAGE> 451
Distributors, Inc., which is unaffiliated with Fleet 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
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. 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.
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 __, 1998
-2-
<PAGE> 452
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>
HIGH
QUALITY
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 ..................................... %
----
Total Fund Operating Expenses
(After Fee Waivers)............................ %
====
</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 investors 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 by Fleet, Advisory Fees 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 [ ] 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
-3-
<PAGE> 453
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 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,
1997 (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 number or address provided above.
-4-
<PAGE> 454
HIGH QUALITY BOND FUND
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,(2) OCTOBER 31,
1997 1996 1995 1994 1993 1992 1991(1,2)
----------------------------------------- --------------------- -----------
TRUST SHARES
-----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ............. $ 10.63 $ 9.54 $ 11.37 $ 10.60 $ 10.35 $ 10.00
-------- -------- -------- -------- -------- --------
Income from Investment Operations
Net Investment Income(3,4) ................. 0.62 0.64 0.65 0.66 0.68 0.64
Net realized and unrealized gain (loss)
on investments ........................... (0.16) 1.09 (1.56) 0.93 0.36 0.33
-------- -------- -------- -------- -------- --------
Total from Investment Operations: ...... 0.46 1.73 (0.91) 1.59 1.04 0.97
-------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income ....... (0.62) (0.64) (0.65) (0.66) (0.71) (0.62)
Dividends from net realized capital gains .. -- -- -- (0.16) (0.08) --
Dividends in excess of net realized
capital gains ............................ -- -- (0.27) -- -- --
-------- -------- -------- -------- -------- --------
Total Dividends: ......................... (0.62) (0.64) (0.92) (0.82) (0.79) (0.62)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net asset value ....... (0.16) 1.09 (1.83) 0.77 0.25 0.35
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ................... $ 10.47 $ 10.63 $ 9.54 $ 11.37 $ 10.60 $ 10.35
======== ======== ======== ======== ======== ========
Total Return ..................................... 4.46% 18.66% (8.39%) 15.63% 10.32% 10.04%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ................ $149,075 $134,631 $118,776 $162,594 $108,774 $ 57,580
Ratios to average net assets:
Net investment income including
reimbursement/waiver ..................... 5.88% 6.33% 6.28% 5.98% 6.55% 7.25%(6)
Operating expenses including
reimbursement/waiver ..................... 0.85% 0.85% 0.78% 0.76% 0.87% 0.95%(6)
Operating expenses excluding
reimbursement/waiver ..................... 1.06% 1.07% 0.98% 0.96% 0.94% 0.95%(6)
Portfolio Turnover Rate .......................... 163% 110% 108% 128% 121% 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 Fleet and/or the Fund's administrator for the years ended October
31, 1997, 1996, 1995 and 1994 was $ , $0.60, $0.62 and $0.63,
respectively.
(4) Net investment income per share before waiver of fees by Fleet and/or
the Fund's administrator for the years ended October 31, 1993, 1992 and
1991 was $0.63, $0.67 and $0.64, respectively.
(5) Not Annualized.
(6) Annualized.
-5-
<PAGE> 455
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. Government 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." 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 assigned by
S&P (AAA, AA, and A) or Moody's (Aaa, Aa and A) (or, if unrated, are determined
by Fleet Investment Advisors Inc. ("Fleet"), the Fund's 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 Fleet's opinion, 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, 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-
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<PAGE> 456
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 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 those commitments will
be undertaken or met in the future. In addition, the Fund may 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 Fleet's assessment of prospective changes in interest
rates. The success of this strategy depends upon Fleet'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.
Fleet 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.
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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, 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 FDIC. 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.
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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 Fleet 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
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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 Fleet 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 Fleet 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
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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 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 Fleet to be of good standing and only when, in Fleet'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
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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
Fleet.
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 liquid
assets, 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 Fleet 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
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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
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 Fleet 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 its
investment objective.
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.
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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 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
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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.
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
or other liquid assets 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 the
instrument which the Fund originally held. Successful use of mortgage dollar
rolls may depend upon Fleet's ability to predict correctly interest rates and
mortgage prepayments. For these
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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 U.S. 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.
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
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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 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
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instruments that have been developed recently, data are lacking regarding their
actual performance over complete market cycles.
Fleet 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 Fleet'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
Fleet 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 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
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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 that the
Fund may borrow 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 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
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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,
as amended, 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 Fleet 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, 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 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
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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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors 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 FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors 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 FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors 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 per
share determined on that day, provided that Galaxy's custodian receives the
purchase
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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 FD Distributors 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 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 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.
On a Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which purchase orders must
be received in order to be processed on that Business Day.
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 FD
Distributors 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 and acceptance of the order by FD Distributors. On a
Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day. Payment for redemption
orders received by FD Distributors 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 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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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 "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss) if any, of the Fund,
and out of the portion of such net capital gain that constitutes mid-term
capital gain, if any, is taxable to shareholders as long-term capital gain or
mid-term capital gain, as the case may be, 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 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
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<PAGE> 474
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 75 State Street, Boston,
Massachusetts 02109, 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, 1997. 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 Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Small Company Equity, MidCap
Equity, Asset Allocation, Small Cap Value, Growth and Income, Special Equity,
Short-Term Bond, Intermediate Government Income, Corporate Bond, Tax-Exempt
Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut Municipal
Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds.
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<PAGE> 475
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, Fleet 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 Bank or
other subsidiaries of Fleet Financial Group, Inc. in consideration for
administrative and/or 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 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, 1997, 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 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
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<PAGE> 476
agent for and upon the order of customers. Fleet, the 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. 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 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. In addition, FDISG also receives a separate
annual fee from each Portfolio for certain fund accounting services. From time
to time, FDISG may voluntarily waive all or a portion of the administration fee
payable to it by the Fund. For the fiscal year ended October 31, 1997, FDISG
received 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 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
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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 FD Distributors 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. 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.
Each share of Galaxy (irrespective of series designation) has a par
value of $.001 per share, represents an equal proportionate interest in the
related investment portfolio 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 investment portfolio 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
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<PAGE> 478
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. 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 of the Fund owned
beneficially by Customers of Institutions. 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 FD Distributors; 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 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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities agree to perform certain
sub-account and administrative functions ("Sub-Account Services") on a per
account basis with respect to Trust Shares of the Fund
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<PAGE> 479
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. Such entities are
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 One 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 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 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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PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders,
the performance of the Fund may be quoted and compared to that 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 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 of the Fund. Performance data will
be calculated separately for Trust Shares, Retail A Shares and/or 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" figures 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.
The performance of the Fund will fluctuate and any quotation of
performance 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
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<PAGE> 481
guaranteed fixed yield for a stated period of time. Shareholders should remember
that performance data 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 directly by Institutions with
respect to accounts of Customers that have invested in Trust Shares of the Fund
will not be included in performance calculations.
The portfolio manager of the Fund and other investment professionals
may from time to time discuss in advertising, sales literature and 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 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 the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
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<PAGE> 482
TRUST
THE GALAXY FUND
Corporate Bond Fund
Prospectus
February __, 1998
<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
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. 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.................................................... 10
INVESTMENT LIMITATIONS......................................................................................... 20
PRICING OF SHARES.............................................................................................. 22
HOW TO PURCHASE AND REDEEM SHARES.............................................................................. 23
Distributor........................................................................................... 23
Purchase of Shares................................................................................. 23
Purchase Procedures -- Customers of Institutions................................................... 23
Purchase Procedures -- Direct Investors........................................................... 24
Other Purchase Information............................................................................ 25
Redemption Procedures -- Customers of Institutions................................................. 26
Redemption Procedures -- Direct Investors.......................................................... 26
Other Redemption Information......................................................................... 28
INFORMATION SERVICES........................................................................................... 28
Galaxy Information Center............................................................................. 28
Voice Response System................................................................................. 29
Galaxy Shareholder Services........................................................................... 29
DIVIDENDS AND DISTRIBUTIONS.................................................................................... 29
TAXES ...................................................................................................... 30
Federal............................................................................................... 30
State and Local....................................................................................... 31
</TABLE>
<PAGE> 484
<TABLE>
<CAPTION>
Page
<S> <C>
MANAGEMENT OF THE FUND......................................................................................... 31
Investment Adviser.................................................................................... 31
Authority to Act as Investment Adviser................................................................ 32
Administrator......................................................................................... 33
DESCRIPTION OF GALAXY AND ITS SHARES........................................................................... 33
Shareholder Services Plan............................................................................. 34
Agreements for Sub-Account Services................................................................... 35
CUSTODIAN AND TRANSFER AGENT................................................................................... 36
EXPENSES ...................................................................................................... 36
PERFORMANCE REPORTING.......................................................................................... 36
MISCELLANEOUS.................................................................................................. 38
</TABLE>
<PAGE> 485
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts regarding purchases, redemptions,
01581-5108 exchanges and other shareholder
services or for current
performance, call 1-800-628-0414.
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. Under normal market
and economic conditions, 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 assigned by 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 primarily 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
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> 486
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet"), and
sponsored and distributed by First Data Distributors, Inc., which is
unaffiliated with Fleet 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
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.
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.
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 __, 1998
-2-
<PAGE> 487
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>
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...................................................................... %
----
Total Fund Operating
Expenses (After Fee Waivers)...................................................... %
====
</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
-3-
<PAGE> 488
Shares. Without voluntary fee waivers by Fleet, Advisory Fees 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 [_______________________] into the Statement of
Additional Information. Any fees charged by affiliates of Fleet 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.
-4-
<PAGE> 489
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, 1997 (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 number or address provided above.
-5-
<PAGE> 490
CORPORATE BOND FUND
(FOR A TRUST SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995(1)
---------------- ---------------- -------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of period.................... $ 10.74 $ 10.00
------ ------
Income from Investment
Operations:
Net investment income(2)............... 0.64 0.61
Net realized and
unrealized gain
(loss) on investments............... (0.13) 0.74
----- -----
Total from Invest-
ment Operations:.................... 0.51 1.35
----- -----
Less Dividends:
Dividends from net
investment income...................... (0.64) (0.61)
Dividends from net
realized capital gains................. (0.08) --
----- ----
Total Dividends:................... (0.72) (0.61)
----- -----
Net increase (decrease)
in net asset value..................... (0.21) 0.74
----- ------
Net Asset Value, End of period $ 10.53 $ 10.74
===== ======
Total Return............................. 5.00% 13.85%(3)
Ratios/Supplemental Data:
Net Assets, End of period (000's) $ 107,728 $ 37,391
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 6.13% 6.61%(4)
Operating expenses including
reimbursement/waiver................. 0.85% 1.06%(4)
Operating expenses excluding
reimbursement/waiver................. 1.05% 1.26%(4)
Portfolio Turnover Rate.................. 84% 41%(3)
- ---------------------------
</TABLE>
(1) The Fund commenced operations on December 12, 1994.
(2) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the fiscal years ended
October 31, 1997 and 1996 and for the period ended October 31, 1995 was
$___, $0.62 and $0.57, respectively.
(3) Not Annualized.
(4) Annualized.
-6-
<PAGE> 491
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"), will consider the total rate of return on
securities in managing the Fund. Under normal market and economic conditions,
the Fund invests at least 65% of its total assets in corporate debt obligations,
which means 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 corporate 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. Government 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 invests
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
assigned by S&P ("AAA", "AA", "A" and "BBB") or Moody's ("Aaa", "Aa", "A" and
"Baa") (or which, if unrated, are determined by Fleet 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
-7-
<PAGE> 492
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 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 Fleet 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/Baa or better. When, in Fleet's opinion, 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 Risk Considerations." The Fund may also
invest in dollar-denominated debt obligations of U.S. corporations issued
outside the United States.
Fleet expects that under normal market conditions, the Fund's portfolio
securities will have an average weighted maturity of three to ten years. See
"Other Investment Policies" below for information regarding additional
investment policies of the Fund.
Fleet 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 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
-8-
<PAGE> 493
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 affect the value of these
investments. Fluctuations in the market value of fixed income securities
subsequent to their acquisition will not affect 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 unfavorable currency exchange rate developments, the Fund is
subject to the possible imposition of exchange control regulations or freezes on
convertibility of currency.
-9-
<PAGE> 494
The Fund's investments in obligations rated below the four highest
ratings assigned by 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 Fleet 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
-10-
<PAGE> 495
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 FDIC. 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 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 Fleet believes that the credit risk
with respect to the instrument is minimal.
-11-
<PAGE> 496
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
-12-
<PAGE> 497
Fleet 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 Fleet to be of good standing and only when, in Fleet'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
-13-
<PAGE> 498
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 Fleet.
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 or other liquid
assets, 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 Fleet to predict correctly movements in the direction of the market. In
addition, there may be an imperfect correlation, or no correlation at all,
between
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<PAGE> 499
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 Fleet 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.
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
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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 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 value of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
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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 or other liquid assets 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 the instrument which the Fund originally held. Successful use of
mortgage dollar rolls may depend upon Fleet'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 U.S. Treasury receipts and other "stripped" securities that evidence
ownership in either future interest payments or 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
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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 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.
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
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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.
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.
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Fleet 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 Fleet'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
Fleet 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 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.
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2. Borrow money or issue senior securities, except that the
Fund may borrow 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 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
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restrictions on resale to the general public. Rule 144A establishes a "safe
harbor" from the registration requirements of the Securities Act of 1933, as
amended, 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 Fleet 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 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
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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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors is a
registered broker/dealer with principal offices located at 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
FD Distributors 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 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 FD Distributors, 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 FD Distributors
on a Business Day in accordance with FD Distributors' procedures.
PURCHASE PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Purchase orders for Trust Shares are placed by Customers of
Institutions through their Institutions. The Institution is responsible for
transmitting Customer purchase orders to FD Distributors and for wiring required
funds in payment to Galaxy's custodian on a timely basis. FD Distributors is
responsible for transmitting such orders to Galaxy's transfer agent for
execution. Trust Shares purchased by Institutions on behalf of
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their Customers will normally be held of record by the Institutions and
beneficial ownership of Trust 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 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:
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 FD Distributors 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 FD
Distributors, 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
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Investor Services Group, Inc. ("FDISG"), Galaxy's transfer agent. Such purchases
may only be made on days on which FD Distributors, Galaxy's custodian and
Galaxy's transfer agent are open for business. Prior to making any purchase by
wire, an investor must telephone 1-800-628-0414 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 FD Distributors 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 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 FD Distributors 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
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<PAGE> 510
be given promptly to the Institution or Direct Investor submitting the order.
Payment for orders which are not received or accepted will be returned. On a
Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which purchase orders must be
received in order to be processed on that Business Day.
REDEMPTION PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Customers may redeem all or part of their Trust Shares in accordance
with procedures governing their accounts at their Institutions. It is the
responsibility of the Institution to transmit redemption orders to FD
Distributors 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 FD Distributors on a Business Day will normally be wired on
the third Business Day to the Institution.
REDEMPTION PROCEDURES -- DIRECT INVESTORS
Redemption by Mail. Trust 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 Trust 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. FD Distributors will not
accept guarantees from notaries public. FD Distributors may require additional
supporting documents for redemptions made by corporations, executors,
administrators, trustees and guardians.
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A redemption request will not be deemed to be properly received until FD
Distributors 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 FD Distributors of the redemption request. Questions
with respect to the proper form for redemption requests should be directed to FD
Distributors at 1-800-628-0414.
Redemption by Telephone. Direct Investors may redeem Trust Shares by
calling 1-800-628-0414 and instructing FD Distributors 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 FD Distributors 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. FD Distributors 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 FD
Distributors. To request redemption of Trust Shares by wire, Direct Investors
should call FD Distributors at 1-800-628-0414.
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 FD
Distributors. In attempting to confirm that telephone instructions are genuine,
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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 FD Distributors 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 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 FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. 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
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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
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 1-800-628-0414 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 1-800-628-0414.
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.
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
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the procedures governing such Customers' accounts at their 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 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 distribution will qualify for the dividends received deduction
for corporations.
Distribution by the Fund of "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of the Fund,
and out of the portion of such net capital gain that constitutes mid-term
capital gain, if any, is taxable to shareholders as long-term capital gain or
mid-term capital gain, as the case may be, 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 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.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, 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,
1997. 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 Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Small Company Equity, MidCap
Equity, Asset
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Allocation, Small Cap Value, Growth and Income, Special Equity, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Tax-Exempt Bond, New Jersey
Municipal 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, Fleet 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 Bank or
other subsidiaries of Fleet Financial Group, Inc., in consideration for
administrative and/or shareholder support services which they provide to
beneficial shareholders. Fleet is currently waiving a portion of the advisory
fee payable by the Fund such that it is entitled to receive advisory fees at the
annual rate of .55% of the Fund's average daily net assets. For the fiscal year
ended October 31, 1997, 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 Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting
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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. Fleet, the 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. For the
services provided to the Fund, 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. In addition, FDISG also receives a separate
annual fee from each Portfolio for certain fund accounting services. From time
to time, FDISG may waive voluntarily, all or a portion of the administration fee
payable to it by the Fund. For the fiscal year ended October 31, 1997, FDISG
received 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 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
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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 FD Distributors 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 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 investment portfolio 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 investment portfolio 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
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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 FD Distributors; 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 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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities agree to perform 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
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participant a periodic statement regarding the sub-account as well as any proxy
materials, reports and other material Fund communications. Such entities are
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 One 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.
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 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 shareholder 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 REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment
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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 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 of the Fund. Performance 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" figures 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 gains distributions made by the Fund during the period
are reinvested in Fund shares.
The performance of the Fund will fluctuate and any quotation of
performance 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 data
are generally functions of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions.
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Any additional fees charged by Institutions to accounts of Customers
that have invested in Trust Shares of the Fund will not be included in
performance calculations of 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 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 the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
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RETAIL
THE GALAXY FUND
Short-Term Bond Fund
Intermediate Government Income Fund
High Quality Bond Fund
Prospectus
February __, 1998
<PAGE> 524
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 FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
HIGHLIGHTS....................................................... 4
EXPENSE SUMMARY.................................................. 7
FINANCIAL HIGHLIGHTS............................................. 9
INVESTMENT OBJECTIVES AND POLICIES............................... 15
Short-Term Bond Fund....................................... 15
Intermediate Government Income Fund........................ 17
High Quality Bond Fund..................................... 18
Special Risk Considerations................................ 19
Other Investment Policies and
Risk Considerations...................................... 20
INVESTMENT LIMITATIONS........................................... 31
PRICING OF SHARES................................................ 32
HOW TO PURCHASE SHARES........................................... 33
Distributor................................................ 33
General.................................................... 33
Purchase Procedures -- Customers of
Institutions............................................. 34
Purchase Procedures -- Direct Investors.................... 35
Other Purchase Information................................. 36
Applicable Sales Charges - Retail A Shares................. 36
Quantity Discounts......................................... 39
Applicable Sales Charges - Retail B Shares................. 41
Characteristics of Retail A Shares and
Retail B Shares.......................................... 43
Factors to Consider When Selecting Retail A
Shares or Retail B Shares................................ 44
HOW TO REDEEM SHARES............................................. 45
General.................................................... 45
Redemption Procedures -- Customers of
Institutions............................................. 45
Redemption Procedures -- Direct Investors.................. 46
Other Redemption Information............................... 48
INVESTOR PROGRAMS................................................ 48
Exchange Privilege......................................... 48
Retirement Plans........................................... 50
Automatic Investment Program and
Systematic Withdrawal Plan............................... 51
</TABLE>
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<TABLE>
<CAPTION>
Page
<S> <C>
Payroll Deduction Program.................................. 52
College Investment Program................................. 52
Direct Deposit Program..................................... 52
INFORMATION SERVICES............................................. 53
Galaxy Information Center --
24 Hour Information Service.............................. 53
Voice Response System...................................... 53
Galaxy Shareholder Services................................ 53
DIVIDENDS AND DISTRIBUTIONS...................................... 54
TAXES. .......................................................... 54
Federal.................................................... 54
State and Local............................................ 55
MANAGEMENT OF THE FUNDS.......................................... 56
Investment Adviser......................................... 56
Authority to Act as Investment Adviser..................... 57
Administrator.............................................. 58
DESCRIPTION OF GALAXY AND ITS SHARES............................. 58
Shareholder Services Plan.................................. 59
Distribution and Services Plan............................. 60
Agreements for Sub-Account Services........................ 61
CUSTODIAN AND TRANSFER AGENT..................................... 61
EXPENSES ........................................................ 62
PERFORMANCE REPORTING............................................ 62
MISCELLANEOUS.................................................... 64
</TABLE>
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<PAGE> 526
THE GALAXY FUND
4400 Computer Drive For an application and
Westboro, Massachusetts information regarding
01581-5108 purchases, redemptions,
exchanges and other
shareholder services or for
current performance, call
1-800-628-0414.
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 assigned by 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 assigned by S&P or Moody's (or which, if
unrated, are of comparable quality) and in "money market" instruments.
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 assigned by S&P 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 "money market"
instruments.
This Prospectus describes the Retail A Shares representing interests in
each Fund and the Retail B Shares representing
<PAGE> 527
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 First Data 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 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 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.
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
-2-
<PAGE> 528
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.
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 ___, 1998
-3-
<PAGE> 529
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 GOVERNMENT MONEY MARKET,
EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME, INTERNATIONAL EQUITY, SMALL COMPANY
EQUITY, MIDCAP EQUITY, ASSET ALLOCATION, SMALL CAP VALUE, GROWTH AND INCOME,
SPECIAL EQUITY, CORPORATE BOND, TAX-EXEMPT BOND, NEW JERSEY MUNICIPAL 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"), 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,
1997 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-seven mutual funds should your investment goals change.
Q: How can I buy and redeem shares?
A: The Funds are distributed by First Data 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
qualified banks, savings and
-4-
<PAGE> 530
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 assigned by S&P or
Moody's. Corporate debt obligations rated in the lowest of the four highest
rating categories assigned by 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 assigned by 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 foreign
governments or any of their political subdivisions or
-5-
<PAGE> 531
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 additional sales or CDSC charges.
Galaxy offers Individual Retirement Accounts ("IRAs"), Simplified Employee
Pension Plans ("SEP") accounts 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> 532
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 summary 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%(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 % 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 charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Retail A Shares that
are purchased with no sales charge as part of an investment of $500,000
or more. 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 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> 533
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 Government Income 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 Fleet, "Advisory Fees" 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, 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 [_______________________] into the
Statement of Additional Information. Any fees charged by affiliates of
Fleet or other
-8-
<PAGE> 534
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 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 (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 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 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, 1997 (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 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 the
Funds is also contained in the Annual Report, which may be obtained without
charge by contacting Galaxy at its telephone number or address provided above.
-9-
<PAGE> 535
SHORT-TERM BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------
1997 1996
---- ----
RETAIL A SHARES RETAIL B SHARES(3) RETAIL A SHARES RETAIL B SHARES(3)
--------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .............. $ 10.06 $10.09
------- ------
Income from Investment Operations:
Net Investment Income(4,5) ..................... 0.52 0.31
Net realized and unrealized gain (loss) on
investments ................................ (0.07) 0.10
------- ------
Total from Investment Operations: .......... 0.45 0.21
------- ------
Less Dividends:
Dividends from net investment income ............ (0.52) (0.31)
Dividends from net realized capital
gains ......................................... -- --
Dividends in excess of net realized capital gains
Total Dividends ............................ (0.52) (0.31)
------- ------
Net increase (decrease) in net asset value ........ (0.07) (0.10)
------- ------
Net Asset Value, End of Period .................... $ 9.99 $ 9.99
======= ======
Total Return(6) ................................... 4.63% 2.12%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ................. $33,388 $ 260
Ratios to average net assets:
Net investment income including
reimbursement/waiver .......................... 5.22% 4.73%
Operating expenses including
reimbursement/waiver .......................... 1.11% 1.77%(8)
Operating expenses excluding
reimbursement/waiver .......................... 1.35% 1.98%(8)
Portfolio Turnover Rate ........................... 214% 214%
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1995 1994 1993(3) 1992(1,2)
---- ---- ------- ---------
RETAIL 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(4,5) ..................... 0.55 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: .......... 0.88 (0.07) 0.69 0.51
------- ------- ------- -------
Less Dividends:
Dividends from net investment income ............ (0.55) (0.44) (0.47) (0.42)
Dividends from net realized capital
gains ......................................... -- -- (0.01) --
Dividends in excess of net realized capital gains
Total Dividends ............................ (0.55) (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(6) ................................... 9.28% (0.68)% 6.98% 5.21%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ................. $31,542 $34,061 $85,211 $57,403
Ratios to average net assets:
Net investment income including
reimbursement/waiver .......................... 5.54% 4.43% 4.51% 5.77%(8)
Operating expenses including
reimbursement/waiver .......................... 0.99% 0.93% 0.86% 0.90%(8)
Operating expenses excluding
reimbursement/waiver .......................... 1.32% 1.14% 1.06% 1.20%(8)
Portfolio Turnover Rate ........................... 289% 233% 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 A Shares before reimbursement
and waiver of fees by Fleet for the years ended October 31, 1997, 1996,
1995 and 1994 was $___, $0.50, $0.52 and $0.42, respectively, and net
investment income per share for Retail B Shares for the year ended October
31, 1997 and for the period ended October 31, 1996 was $____ and $0.29,
respectively.
(5) Net investment income per share before fee waivers and/or reimbursements
by Fleet and/or the Fund's administrator for the year ended October 31,
1993 and for the period ended October 31, 1992 was $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.
-10-
<PAGE> 536
INTERMEDIATE GOVERNMENT INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR-ENDED OCTOBER 31,
----------------------------------------
1997 1996 1995 1994
----------------------------------------
RETAIL A RETAIL A
SHARES SHARES RETAIL SHARES
-------- -------- ------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ................ $ 10.28 $ 9.68 $ 10.72
------- ------- -------
Income from Investment
Operations:
Net Investment Income(3,4) ........ 0.57 0.61 0.57
Net realized and unrealized
gain (loss) on investments ...... (0.22) 0.60 (1.03)
------- ------- -------
Total from Investment
Operations: ................... 0.35 1.21 (0.46)
------- ------- -------
Less Dividends:
Dividends from net
investment income ................. (0.57) (0.61) (0.56)
Dividends in excess of
net investment income ............. -- -- (0.01)
Dividends from net realized
capital gains ..................... -- -- --
Dividends in excess of net
realized capital gains ............ -- -- (0.01)
------- ------- -------
Total Dividends ................. (0.57) (0.61) (0.58)
------- ------- -------
Net increase (decrease) in
net asset value .................... (0.22) 0.60 (1.04)
------- ------- -------
Net Asset Value, End of
Period ............................. $ 10.06 $ 10.28 $ 9.68
======= ======= =======
Total Return(5) ...................... 3.58% 12.85% (4.42)%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's) ............................. $79,741 $79,558 $94,669
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............. 5.69% 6.10% 5.58%
Operating expenses including
reimbursement/waiver ............. 1.04% 1.02% 0.78%
Operating expenses excluding
reimbursement/waiver ............. 1.24% 1.26% 0.99%
Portfolio Turnover Rate .............. 235% 145% 124%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(2) PERIOD
------------------------------------------------------ ENDED
October
31,
1993 1992 1991 1990 1989 1988(1,2)
------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ................ $ 10.83 $ 10.46 $ 9.73 $ 10.27 $ 10.40 $ 10.00
-------- -------- ------- ------- ------- -------
Income from Investment
Operations:
Net Investment Income(3,4) ........ 0.65 0.71 0.73 0.76 0.82 0.11
Net realized and unrealized
gain (loss) on investments ...... 0.10 0.40 0.71 (0.56) 0.16 0.29
-------- -------- ------- ------- ------- -------
Total from Investment
Operations: ................... 0.75 1.11 1.44 0.20 0.98 0.40
-------- -------- ------- ------- ------- -------
Less Dividends:
Dividends from net
investment income ................. (0.64) (0.74) (0.71) (0.74) (0.96) --
Dividends in excess of
net investment income ............. (0.03) -- -- -- -- --
Dividends from net realized
capital gains ..................... (0.19) -- -- -- (0.15) --
Dividends in excess of net
realized capital gains ............ -- -- -- -- -- --
-------- -------- ------- ------- ------- -------
Total Dividends ................. (0.86) (0.74) (0.71) (0.74) (1.11) --
-------- -------- ------- ------- ------- -------
Net increase (decrease) in
net asset value .................... (0.11) 0.37 0.73 (0.54) (0.13) 0.40
-------- -------- ------- ------- ------- -------
Net Asset Value, End of
Period ............................. $ 10.72 $ 10.83 $ 10.46 $ 9.73 $ 10.27 $ 10.40
======== ======== ======= ======= ======= =======
Total Return(5)....................... 7.06% 10.95% 15.35% 2.06% 10.22% 3.90%(6)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's) ............................. $447,359 $199,135 $99,942 $80,645 $71,400 $58,318
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............. 6.03% 6.52% 7.25% 7.69% 8.19% 6.41%(7)
Operating expenses including
reimbursement/waiver ............. 0.80% 0.80% 0.96% 0.98% 0.99% 0.98%(7)
Operating expenses excluding
reimbursement/waiver ............. 1.00% 0.94% 0.96% 0.99% 1.00% 0.98%(7)
Portfolio Turnover Rate .............. 153% 103% 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."
-11-
<PAGE> 537
(3) Net investment income per share for Retail Shares before waiver of fees by
Fleet for the years ended October 31, 1997, 1996, 1995 and 1994 was $___,
$0.55, $0.58 and $0.54, respectively.
(4) Net investment income per share before waiver of fees by Fleet and/or the
Fund's administrator for the years ended October 31, 1993, 1992, 1990 and
1989 was $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> 538
HIGH QUALITY BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996 1995 1994
---------------------- -------------------------- ----------- -----------
RETAIL A RETAIL B RETAIL A RETAIL B
SHARES SHARES(3) SHARES SHARES(3) RETAIL SHARES
------ --------- ------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ...... $ 10.63 $ 10.72 $ 9.54 $ 11.37
----------- ----------- ----------- -----------
Income from Investment Operations:
Net Investment Income(4,5)............... 0.59 0.36 0.62 0.64
Net realized and unrealized gain
(loss) on investments .................. (0.16) (0.25) 1.09 (1.56)
----------- ----------- ----------- -----------
Total from Investment
Operations: .................... 0.43 0.11 1.71 (0.92)
----------- ----------- ----------- -----------
Less Dividends:
Dividends from net investment income .... (0.59) (0.36) (0.62) (0.64)
Dividends from net realized capital gains -- -- -- --
Dividends in excess of net realized
capital gains ......................... -- -- -- (0.27)
----------- ----------- ----------- -----------
Total Dividends ................... (0.59) (0.36) (0.62) (0.91)
----------- ----------- ----------- -----------
Net increase (decrease) in net asset value (0.16) (0.25) 1.09 (1.83)
----------- ----------- ----------- -----------
Net Asset Value, End of Period ............ $ 10.47 $ 10.47 $ 10.63 $ 9.54
=========== =========== =========== ===========
Total Return(6)............................ 4.24% 1.14%(7) 18.46% (8.41)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........ $ 30,984 $ 646 $ 30,093 $ 26,654
Ratios to average net assets:
Net investment income including
reimbursement/waiver .................. 5.66% 5.34%(8) 6.16% 6.25%
Operating expenses including
reimbursement/waiver .................. 1.07% 1.60%(8) 1.02% 0.81%
Operating expenses excluding
reimbursement/waiver .................. 1.28% 1.81%(8) 1.26% 1.02%
Portfolio Turnover Rate ................... 163% 163% 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>
- ----------
(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 offering Retail B Shares on March 4, 1996.
(4) Net investment income per share for Retail A Shares before waiver of fees
by Fleet for the years ended October 31, 1997, 1996, 1995 and 1994 was
$____, $0.57, $0.59 and $0.62, respectively, and net investment income per
share for Retail B Shares for the year ended October 31, 1997 and for the
period ended October 31, 1996 was $____ and $0.34, respectively.
-13-
<PAGE> 539
(5) Net investment income per share before waiver of fees by Fleet for the
years ended October 31, 1993 and 1992 and for the period ended October 31,
1991 was $0.63, $0.67 and $0.64, respectively.
(6) Calculation does not include sales charge for Retail A and Retail B
Shares.
(7) Not Annualized.
(8) Annualized.
-14-
<PAGE> 540
INVESTMENT OBJECTIVES AND POLICIES
Fleet Investment Advisors Inc. ("Fleet") 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. Government 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 assigned by S&P ("AAA", "AA",
"A" and "BBB") or Moody's ("Aaa", "Aa", "A" and "Baa") (or which, if unrated,
are determined by Fleet 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
-15-
<PAGE> 541
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 Fleet, 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 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.
-16-
<PAGE> 542
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, Fleet 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 in 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 assigned by S&P
("AAA", "AA" and "A") or Moody's ("Aaa", "Aa" and "A") (or which, if unrated,
are determined by Fleet 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 Fleet, 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." The Fund may also
invest in dollar-denominated high quality debt obligations of U.S. corporations
issued outside the United States.
-17-
<PAGE> 543
Fleet 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. 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 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 assigned by
S&P ("AAA", "AA" and "A") or Moody's ("Aaa", "Aa" and "A") (or which, if
unrated, are determined by Fleet 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 Fleet, 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
-18-
<PAGE> 544
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 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 Fleet's assessment of prospective changes in interest
rates. The success of this strategy depends upon Fleet'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
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
-19-
<PAGE> 545
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
Each 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 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
-20-
<PAGE> 546
insured by the Federal Deposit Insurance Corporation ("FDIC"), or by a savings
and loan association or savings bank which is insured by the FDIC. 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 Funds will invest in the obligations of U.S. branches of foreign
banks or foreign branches of U.S. banks only when Fleet 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. The Funds may also purchase Rule 144A securities. See "Investment
Limitations."
-21-
<PAGE> 547
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 Fleet 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.
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
-22-
<PAGE> 548
will be entered into only with financial institutions such as banks and
broker/dealers which are deemed to be creditworthy by Fleet 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 Fleet to be of good standing and only when, in Fleet'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.
-23-
<PAGE> 549
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 the Funds 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 Fleet.
INTEREST RATE FUTURES CONTRACTS
The Funds may enter into contracts (both purchase 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 liquid assets, 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.
-24-
<PAGE> 550
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 Fleet 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 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
Fleet 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 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
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<PAGE> 551
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 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
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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 value of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
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 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 or other liquid assets 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,
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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 the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet'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 U.S. 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 Funds. Obligations
issued by the U.S. Government may be considered liquid under guidelines
established by Galaxy's Board of Trustees
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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.
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, interest rate futures and certain asset-backed and mortgage-backed
securities.
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<PAGE> 555
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.
Fleet 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 Fleet'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
Fleet 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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<PAGE> 556
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 that each Fund
may borrow 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 its 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
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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,
as amended, 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 Fleet 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
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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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors is a
registered broker/dealer with principal offices located at 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
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".
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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.
FD Distributors 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 FD Distributors, 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 FD
Distributors on a Business Day in accordance with FD Distributors' 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 FD Distributors and for wiring required funds in
payment to Galaxy's custodian on a timely basis. FD Distributors 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 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.
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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 FD Distributors 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 FD
Distributors, 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
1-800-628-0414 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 FD Distributors at 1-800-628-0414. Redemptions will not be processed
until the application in proper form has been
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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 FD Distributors 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 FD Distributors on a Business Day in accordance with
the above procedures. On a Business Day when the Exchange closes early due to a
partial holiday or otherwise, Galaxy will advance the time at which purchase
orders must be received in order to be processed on that Business Day.
OTHER PURCHASE INFORMATION
Except as provided under "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.
APPLICABLE SALES CHARGES -- 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
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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 3.25
$50,000 but less than
$100,000.......... 3.50 3.63 3.00
$100,000 but less than
$250,000.......... 3.00 3.09 2.50
$250,000 but less than
$500,000.......... 2.50 2.56 2.00
$500,000 and over... 0.00* 0.00* 0.00
</TABLE>
* There is no initial sales charge on purchases of $500,000 or more of Retail A
Shares; however, a contingent deferred sales charge of 1.00% will be imposed on
the lesser of the offering price or the net asset value of such Retail A Shares
on the redemption date for Shares redeemed within one year after purchase.
Further reductions in the sales charges shown above are also possible. See
"Quantity Discounts" below.
FD Distributors will pay the appropriate reallowance to dealers to
broker-dealer organizations which have entered into agreements with FD
Distributors. The reallowance to dealers may be changed from time to time.
At various times FD Distributors may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, FD Distributors in its discretion may from time to time, pursuant
to objective criteria established by FD Distributors, 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 FD
Distributors out of its own assets and not out of the assets of the Funds. 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.
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<PAGE> 563
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 purchases of Retail A Shares of the Funds by the following
categories of investors or in the following types of transactions:
- reinvestment of dividends and distributions;
- purchases by any retirement account, including but not limited to
SIMPLE, IRA, SEP, Keogh and Roth accounts;
- 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 broker-dealers
having agreements with FD Distributors 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 made with redemption proceeds from another mutual fund
complex on which a front-end or back-end sales charge has been paid,
provided the purchase is made within 60 days after the redemption;
- purchases by current and retired members of Galaxy's Board of
Trustees and members of their immediate families;
- purchases by officers, directors, employees and retirees of Fleet
Financial Group, Inc. and any of its affiliates and members of their
immediate families;
- purchases by officers, directors, employees and retirees of First
Data Corporation and any of its affiliates and members of their
immediate families;
- purchases by persons who are also plan participants in any employee
benefit plan which is the record or beneficial holder of Trust
Shares of the Funds or any of the other portfolios offered by
Galaxy; and
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- any purchase 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 FD Distributors 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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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 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 FD
Distributors' 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
FDISG, Galaxy's transfer agents 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 FDISG as transfer agent stating that
the investor is eligible to use the Privilege. The reinstatement request and
payment must be
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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.
APPLICABLE SALES CHARGES - RETAIL B SHARES
The public offering price for Retail B Shares of the Short-Term Bond and
High Quality Bond 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 FD Distributors 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 Charges - 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%
</TABLE>
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<TABLE>
<S> <C>
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 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 FD Distributors, 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 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 the Funds 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
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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. In
addition to the foregoing exemptions, no contingent deferred sales charge will
be imposed on redemptions made pursuant to the Systematic Withdrawal Plan,
subject to the limitations set forth under "Investor Programs - Automatic
Investment Program and Systematic Withdrawal Plan" below.
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 .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 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 FD Distributors 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
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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 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
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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 distribution and shareholder servicing fees on Retail
B Shares 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 FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. 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
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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 FD
Distributors 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 FD Distributors 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 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. FD Distributors will not
accept guarantees from notaries public. FD Distributors 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 FD Distributors 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 FD Distributors of
the redemption request. Questions with
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respect to the proper form for redemption requests should be directed to FD
Distributors at 1-800-628-0414.
Redemption by Telephone. Direct Investors may redeem Retail Shares by
calling 1-800-628-0414 and instructing FD Distributors 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 FD Distributors by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to the Direct Investor's account
at any commercial bank in the United States. FD Distributors 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 FD
Distributors. To request redemption of Retail Shares by wire, Direct Investors
should call FD Distributors at 1-800-628-0414.
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 FD
Distributors. 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
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and/or bank). If Galaxy fails to follow established procedures for the
authentication of the 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 FD Distributors 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
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, MidCap Equity, Asset
Allocation, Growth and Income, and Special Equity Funds offered
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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 Fund or
portfolio by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless at the time of the exchange the Direct Investor or
Customer elects, with respect to the Fund or 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 Government 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 1-800-628-0414. Customers of Institutions should
call their Institution for such information. Customers exercising the exchange
privilege into other portfolios should request and review these portfolios'
prospectuses prior to making an exchange. Telephone 1-800-628-0414 for a
prospectus or to make an exchange. See "How to Redeem Shares--Redemption
Procedure--Direct Investors - Redemptions by Wire" above for a description of
Galaxy's policy regarding telephone transactions.
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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 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.
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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 relating to these plans and the form
of application is available from Galaxy's distributor (call 1-800-628-0414) 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 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 FDISG, Galaxy's 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. No contingent deferred sales charge will be assessed on
redemptions of Retail B Shares made through the Systematic Withdrawal Plan that
do not exceed 12% of an account's net asset value on an annualized basis. For
example, monthly, quarterly and semi-annual Systematic Withdrawal Plan
redemptions of Retail B Shares will not be subject to the contingent deferred
sales charge if they do not exceed 1%, 3% and 6%, respectively, of an account's
net asset value on the redemption date. Systematic Withdrawal Plan redemptions
of
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Retail B Shares in excess of this limit are still subject to the applicable
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 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 FD Distributors (call
1-800-628-0414).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for the
Direct Deposit Program. This Program enables a
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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 FD Distributors at 1-800-628-0414.
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
redemptions and exchanges. These transactions are subject to the terms and
conditions described under "How To Redeem Shares" and "Investor Programs" above.
To access the Voice Response System, just call 1-800-628-0414 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 1-800-628-0414.
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.
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DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Funds 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
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 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 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.
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Distribution by a Fund "net capital gain" of (the excess of its net
long-term capital gain over net short-term capital loss) if any, of a Fund, and
out of the portion of such net capital gain that constitutes mid-term capital
gain, if any, is taxable to shareholders as long-term capital gain or mid-term
capital gain, as the case may be, 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.
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.
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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 75 State Street, Boston, Massachusetts,
02109, 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,
1997. 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.
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,
Fleet 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 Bank or
other subsidiaries of Fleet Financial Group, Inc. in consideration for
administrative and/or 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 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, 1997, 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.
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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 Retail
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. Fleet, the 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 share or result in financial losses to any
shareholder.
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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. For the
services provided to the Funds, 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. In addition, FDISG also receives a separate
annual fee from each Portfolio for certain fund accounting services. From time
to time, FDISG may waive voluntarily all or a portion of the administration fee
payable to it by the Funds. For the fiscal year ended October 31, 1997, 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, each of which is a diversified company under the 1940 Act.
The Board of Trustees has also authorized the issuance of additional
classes and services of shares representing interests in other investment
portfolios of Galaxy. For information concerning the Funds' Retail Shares and
these other portfolios, which are offered through separate prospectuses, contact
FD Distributors at 1-800-628-0414.
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<PAGE> 584
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
investment portfolios 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 investment portfolio 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 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
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redemption orders with FD Distributors; 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.
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) FD Distributors 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 sub-accounting
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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 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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities agree to perform 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. Such entities are 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 One 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
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the Short-Term Bond Fund upon approval of the Trustees in accordance with
regulations of the SEC, for the purpose of providing custodian 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' operations including taxes; interest; fees (including
fees paid to its trustees and officers who are not affiliated with FDISG); SEC
fees; state securities 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 shareholder reports
and meetings; and any extraordinary expenses. The Funds also pay for brokerage
fees and commissions in connection with the purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that 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 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 of the Funds. Performance data will be
calculated separately for Trust Shares, Retail A Shares and/or Retail B Shares
of the Funds.
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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" figures 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 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 or the redemption of
Retail B 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.
The performance of the Funds will fluctuate and any quotation of
performance 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 data
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 directly by Institutions to accounts of Customers that
have invested in shares of a Fund will not be included in performance
calculations.
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
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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 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 such Fund or such series of shares, or (b) 67% or more of
the shares of such Fund or such series of shares present at a meeting if more
than 50% of the outstanding shares of such Fund or such series of shares are
represented at the meeting in person or by proxy.
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RETAIL A SHARES
THE GALAXY FUND
Corporate Bond Fund
Prospectus
February __, 1998
<PAGE> 591
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
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. 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
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............. 32
Other Purchase Information.......................... 33
Redemption Procedures -- Customers of Institutions.. 34
Redemption Procedures -- Direct Investors........... 34
Other Redemption Information........................ 36
INVESTOR PROGRAMS............................................ 37
Exchange Privilege.................................. 37
Retirement Plans.................................... 38
Automatic Investment Program and Systematic
Withdrawal Plan................................... 39
Payroll Deduction Program........................... 39
College Investment Program.......................... 40
Direct Deposit Program.............................. 40
</TABLE>
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<TABLE>
<CAPTION>
Page
<S> <C>
INFORMATION SERVICES......................................... 41
Galaxy Information Center - 24 Hour
Information Service............................... 41
Voice Response System............................... 41
Galaxy Shareholder Services......................... 41
DIVIDENDS AND DISTRIBUTIONS.................................. 41
TAXES .................................................... 42
Federal............................................. 42
State and Local..................................... 43
MANAGEMENT OF THE FUND....................................... 43
Investment Adviser.................................. 43
Authority to Act as Investment Adviser.............. 44
Administrator....................................... 45
DESCRIPTION OF GALAXY AND ITS SHARES......................... 45
Shareholder Services Plan........................... 46
Agreements for Sub-Account Services................. 47
CUSTODIAN AND TRANSFER AGENT................................. 48
EXPENSES .................................................... 48
PERFORMANCE REPORTING........................................ 48
MISCELLANEOUS................................................ 50
</TABLE>
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<PAGE> 593
THE GALAXY FUND
4400 Computer Drive For an application and
Westboro, Massachusetts information regarding purchases,
01581-5108 redemptions, exchanges and other
shareholder services or for
current performance, call
1-800-628-0414.
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. Under normal market
and economic conditions, 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 assigned by 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 primarily 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> 594
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is
unaffiliated with Fleet 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
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.
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.
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 __, 1998
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<PAGE> 595
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, U.S. TREASURY, TAX-EXEMPT, CONNECTICUT
MUNICIPAL MONEY MARKET, MASSACHUSETTS MUNICIPAL MONEY MARKET, INSTITUTIONAL
GOVERNMENT MONEY MARKET, EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME,
INTERNATIONAL EQUITY, SMALL COMPANY EQUITY, MIDCAP EQUITY, ASSET ALLOCATION,
SMALL CAP VALUE, GROWTH AND INCOME, SPECIAL EQUITY, SHORT-TERM BOND,
INTERMEDIATE GOVERNMENT INCOME, HIGH QUALITY BOND, TAX-EXEMPT BOND, NEW JERSEY
MUNICIPAL 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"), 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,
1997 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-seven mutual funds should your investment goals change.
Q: How does one buy and redeem shares?
A: The Fund is distributed by First Data Distributors, Inc.("FD
Distributors"). 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
-3-
<PAGE> 596
broker/dealers ("Institutions"). 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 assigned by 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> 597
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") accounts 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> 598
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. Examples based on the
summary are also shown.
<TABLE>
<CAPTION>
CORPORATE
BOND
SHAREHOLDER TRANSACTION EXPENSES FUND
<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 ___%
Total Fund Operating
Expenses (After Fee Waivers) %
===
</TABLE>
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1% is assessed on certain redemptions of Retail A Shares that are
purchased with no initial sales charge as part of an investment of
$500,000 or more. 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 investors in
understanding the costs and expenses that an investor in Retail A Shares of the
Fund will bear directly or indirectly. The information contained in the Expense
Summary and Example is based on expenses the Fund expects to incur during the
-6-
<PAGE> 599
current fiscal year on its Retail A Shares. Without voluntary fee waivers by
Fleet, Advisory Fees 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 A 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> 600
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, 1997 (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 number or address provided
above.
-8-
<PAGE> 601
CORPORATE BOND FUND
(FOR A TRUST SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995(1)
---------------- ---------------- -------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ........ $ 10.74 $ 10.00
----------- -----------
Income from Investment Operations:
Net investment income(2) .............. 0.64 0.61
Net realized and unrealized gain
(loss) on investments ................ (0.13) 0.74
----------- -----------
Total from Investment Operations: ... 0.51 1.35
----------- -----------
Less Dividends:
Dividends from next investment income . (0.64) (0.61)
Dividends from net realized capital gains ... (0.08) --
----------- -----------
Total Dividends ..................... (0.72) (0.61)
----------- -----------
Net increase (decrease) in net asset value .. 10.21 0.74
----------- -----------
Net Asset Value, End of Period .............. $ 10.53 $ 10.74
=========== ===========
Total Return ................................ 5.00% 13.85%(3)
Ratios/Supplemental Data:
Net assets, End of Period (000s) ...... $ 107,728 $ 37,391
Ratio to average net assets:
Net investment income including
reimbursement/waiver ................. 6.13% 6.61%(4)
Operating expenses including
reimbursement/waiver .............. 0.85% 1.06%(4)
Operating expenses excluding
reimbursement/waiver .............. 1.05% 1.26%(4)
Portfolio Turnover Rate ............... 84% 41%(3)
</TABLE>
(1) The Fund commenced operations on December 12, 1994.
(2) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the fiscal years ended
October 31, 1997 and 1996 and for the period ended October 31, 1995 was
$________, $0.62 and $0.57, respectively.
(3) Not Annualized.
(4) Annualized.
-9-
<PAGE> 602
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 will consider the total rate of return
on securities in managing the Fund. Under normal market and economic conditions,
the Fund invests at least 65% of its total assets in corporate debt obligations,
which means 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 corporate 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. Government 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 invests
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
assigned by S&P ("AAA," "AA," "A" and "BBB") or Moody's ("Aaa," "Aa," "A" and
"Baa") (or which, if unrated, are determined by Fleet 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
-10-
<PAGE> 603
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
assigned by 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 Fleet, 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/Baa or better. When, in the
opinion of Fleet, 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 Risk 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 Fleet fails to predict foreign currency values
correctly.
Fleet expects that under normal market conditions, the Fund's portfolio
securities will have an average weighted maturity of three to ten years. See
"Other Investment Policies and Risk Considerations" below for information
regarding additional investment policies of the Fund.
Fleet 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> 604
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 affect the value of these
investments. Fluctuations in the market value of fixed income securities
subsequent to their acquisition will not affect 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> 605
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 assigned by 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 Fleet fails to predict foreign currency values
correctly.
-13-
<PAGE> 606
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 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 FDIC. 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 the Fund to
-14-
<PAGE> 607
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 Fleet
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.
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<PAGE> 608
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 Fleet 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
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<PAGE> 609
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 Fleet to be of good standing and only when, in Fleet'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 Fleet.
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 or other liquid
assets, 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
-17-
<PAGE> 610
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 Fleet 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
Fleet to manage the Fund might be
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<PAGE> 611
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.
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,
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<PAGE> 612
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.
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 or other liquid assets 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> 613
which the Fund is required to repurchase may be worth less than the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet'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 U.S. Treasury receipts and other "stripped" securities that evidence
ownership in either future interest payments or 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 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.
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<PAGE> 614
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> 615
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.
Fleet 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 Fleet'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
Fleet 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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<PAGE> 616
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 that the
Fund may borrow 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.
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<PAGE> 617
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, (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,
as amended, 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 Fleet 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,
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<PAGE> 618
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 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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors is a
registered broker/dealer with principal offices located at 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
FD Distributors 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,
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<PAGE> 619
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 FD Distributors, 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 FD Distributors on a Business Day in
accordance with FD Distributors' procedures.
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 3.25
$50,000 but less than
$100,000................... 3.50 3.63 3.00
$100,000 but less than
$250,000................... 3.00 3.09 2.50
$250,000 but less than
$500,000................... 2.50 2.56 2.00
$500,000 and over............ 0.00* 0.00* 0.00
</TABLE>
Further reductions in the sales charges shown above are also possible.
See "Quantity Discounts" below.
FD Distributors 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.
* There is no initial sales charge on purchases of $500,000 or more of
Retail A Shares; however, a contingent deferred sales charge of 1.00%
will be imposed on the lesser of the offering price or the net asset
value of such Retail A Shares on the redemption date for shares
redeemed within one year of purchase.
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<PAGE> 620
At various times FD Distributors may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, FD Distributors in its discretion may from time to time, pursuant
to objective criteria established by FD Distributors, 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 FD
Distributors 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 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 purchasers of Retail A Shares of the Fund by the following
categories of investors or in the following types of transactions:
- reinvestment of dividends and distributions;
- purchases by any retirement account, including, but not
limited to SIMPLE, IRA, SEP, Keogh and Roth accounts;
- 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
broker-dealers having agreements with FD Distributors
pertaining to the sale of Retail A Shares to the extent
permitted by such organizations;
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<PAGE> 621
- investors who purchase pursuant to a "wrap fee" program
offered by any broker-dealer or other financial
institution or financial planning organization;
- purchases made with redemption proceeds from another mutual
fund complex on which a front-end or back-end sales charge has
been paid, provided the purchase is made within 60 days after
the redemption;
- purchases by current and retired members of Galaxy's Board of
Trustees and members of their immediate families;
- purchases by officers, directors, employees and retirees of
Fleet Financial Group, Inc. and any of its affiliates and
members of their immediate families;
- purchases by officers, directors, employees and retirees of
First Data Corporation and any of its affiliates and members
of their immediate families;
- purchases by persons who are also plan participants in any
employee benefit plan which is the record or beneficial holder
of Trust Shares of any of the portfolios offered by Galaxy;
and
- any purchase 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 FD Distributors 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
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<PAGE> 622
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 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 FD Distributors' 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
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<PAGE> 623
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 FDISG, 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 FDISG as 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.
PURCHASE PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Purchase orders for Retail A Shares are placed by Customers of
Institutions through their Institutions. The Institution is responsible for
transmitting Customer purchase orders to FD Distributors and for wiring required
funds in payment to Galaxy's custodian on a timely basis. FD Distributors 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
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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 particular
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 FD Distributors at
1-800-628-0414.
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 FD Distributors, 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 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 FD
Distributors, Galaxy's custodian and Galaxy's transfer agent are open for
business. Prior to making any purchase by wire, an investor must telephone
1-800-628-0414 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> 625
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 FD Distributors 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 FD Distributors 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 FD Distributors on a Business Day
in accordance with the above procedures. On a Business Day when the Exchange
closes early due to a partial holiday or otherwise, Galaxy will advance the time
at which purchase orders must be received in order to be processed on that
Business Day.
OTHER PURCHASE INFORMATION
Except as provided under "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
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<PAGE> 626
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. 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.
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 particular Institutions. It is
the responsibility of the Institutions to transmit redemption orders to FD
Distributors 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 FD Distributors 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.
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 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
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<PAGE> 627
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. FD Distributors will not accept guarantees from notaries public. FD
Distributors 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 FD Distributors
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 FD Distributors of the redemption request. Questions with
respect to the proper form for redemption requests should be directed to FD
Distributors at 1-800-628-0414.
Redemption by Telephone. Direct Investors may redeem Retail A Shares by
calling 1-800-628-0414 and instructing FD Distributors 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 A Shares by instructing FD Distributors by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to the Direct Investor's account
at any commercial bank in the United States. FD Distributors 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 FD
Distributors. To request redemption of Retail A Shares by wire, Direct Investors
should call FD Distributors at 1-800-628-0414.
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
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<PAGE> 628
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 FD
Distributors. 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 transactions.
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 FD Distributors 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.
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 FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received
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<PAGE> 629
in order to be processed on that Business Day. 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 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 in another
portfolio by exchange, except for the Institutional Government Money Market
Fund, 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 Government 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
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 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 1-800-628-0414. Customers of Institutions should call their
Institution for such information. Customers exercising the exchange privilege
into other portfolios should request and review these portfolios' prospectuses
prior to making an
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exchange. Telephone 1-800-628-0414 for a prospectus or to make an exchange. 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.
RETIREMENT PLANS
Retail A 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
(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
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<PAGE> 631
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 relating to these plans and the form of
application is available from FD Distributors (call 1-800-628-0414) 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.
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 FDISG, Galaxy's 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
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<PAGE> 632
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 A Shares of the Fund 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 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 FD Distributors (call
1-800-628-0414).
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 FD Distributors at 1-800-628-0414.
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<PAGE> 633
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 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
redemptions and exchanges. These transactions are subject to the terms and
conditions described above under "How To Purchase and Redeem Shares" and
"Investor Programs - Exchanges". To access the Voice Response System, just call
1-800-628-0414 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 1-800-628-0414.
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.
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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 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 capital gain over net long-term
capital loss), if any, 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.
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<PAGE> 635
Distribution by the Fund of "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss) if any, of the Fund,
and out of the portion of such net capital gain that constitutes mid-term
capital gain, if any, is taxable to shareholders as long-term capital gain or
mid-term capital gain, as the case may be, 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.
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.
-43-
<PAGE> 636
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, 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,
1997. 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.
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, Fleet 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 Bank or
other subsidiaries of Fleet Financial Group, Inc., in consideration for
administrative and/or shareholder support services which they provide to
beneficial shareholders. Fleet is currently waiving a portion of the advisory
fee payable by the Fund such that it is entitled to receive advisory fees at the
annual rate of .55% of the Fund's average daily net assets. For the fiscal year
ended October 31, 1997, 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
-44-
<PAGE> 637
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 A 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. Fleet, the 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. For
services provided to the Fund, 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. In addition, FDISG also receives a separate
annual fee from each Portfolio for certain fund accounting services. From time
to time, FDISG may waive voluntarily all or a portion of the administration fee
payable to it by the Fund. For the fiscal year ended October 31, 1997, FDISG
received 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
-45-
<PAGE> 638
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 Trust Shares
and these other portfolios, which are offered through separate prospectuses,
contact FD Distributors 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 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 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 investment portfolio 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 investment portfolio 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
-46-
<PAGE> 639
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 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 FD Distributors; 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 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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities agree to perform 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
-47-
<PAGE> 640
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.
Such entities are 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 One 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 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); SEC fees; state securities 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 shareholder reports and meetings; and
any extraordinary expenses. The Fund also pays for brokerage fees and
commissions in connection with the purchase of portfolio securities.
-48-
<PAGE> 641
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that 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 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 of the Fund. Performance data 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 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" figures 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 SEC. Quotations that do not reflect a sales charge will be higher than
quotations that do reflect sales charges.
-49-
<PAGE> 642
The performance of the Fund will fluctuate and any quotation of
performance 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 data
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 directly by Institutions to accounts of Customers that
have invested in Retail A Shares of the Fund will not be included in performance
calculations.
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 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 the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
-50-
<PAGE> 643
TRUST
THE GALAXY FUND
Tax-Exempt Bond Fund
New Jersey Municipal Bond Fund
New York Municipal Bond Fund
Connecticut Municipal Bond Fund
Massachusetts Municipal Bond Fund
Rhode Island Municipal Bond Fund
Prospectus
February __, 1998
<PAGE> 644
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 FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
EXPENSE SUMMARY........................................................................................... 4
FINANCIAL HIGHLIGHTS...................................................................................... 6
INVESTMENT OBJECTIVES AND POLICIES........................................................................ 12
Tax-Exempt Bond Fund............................................................................. 12
New Jersey Municipal Bond Fund................................................................... 13
New York Municipal Bond Fund..................................................................... 14
Connecticut Municipal Bond Fund.................................................................. 15
Massachusetts Municipal Bond Fund................................................................ 16
Rhode Island Municipal Bond Fund................................................................. 17
Special Considerations and Risks................................................................. 18
Other Investment Policies and Risk Considerations................................................ 24
INVESTMENT LIMITATIONS.................................................................................... 34
PRICING OF SHARES......................................................................................... 36
HOW TO PURCHASE AND REDEEM SHARES......................................................................... 37
Distributor...................................................................................... 37
Redemption of Shares............................................................................. 38
DIVIDENDS AND DISTRIBUTIONS............................................................................... 39
TAXES..................................................................................................... 40
Federal.......................................................................................... 40
State and Local.................................................................................. 41
Miscellaneous.................................................................................... 43
MANAGEMENT OF THE FUNDS................................................................................... 44
Investment Adviser............................................................................... 44
Authority to Act as Investment Adviser........................................................... 45
Administrator.................................................................................... 45
DESCRIPTION OF GALAXY AND ITS SHARES...................................................................... 46
</TABLE>
<PAGE> 645
<TABLE>
<CAPTION>
Page
----
<S> <C>
Shareholder Services Plan........................................................................ 48
CUSTODIAN AND TRANSFER AGENT.............................................................................. 49
EXPENSES.................................................................................................. 49
PERFORMANCE REPORTING..................................................................................... 49
MISCELLANEOUS............................................................................................. 51
</TABLE>
<PAGE> 646
THE GALAXY FUND
4400 Computer Drive For an application and
Westboro, Massachusetts information regarding purchases,
01581-5108 redemptions, exchanges and other
shareholder services or for current
performance, call 1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes six series of Galaxy's shares (collectively, the
"Trust Shares") which represent interests in six 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 JERSEY 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 Jersey 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 Jersey Municipal
Securities. The Fund is a non-diversified investment portfolio under the
Investment Company Act of 1940, as amended (the "1940 Act").
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 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
<PAGE> 647
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 Massachusetts 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
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 Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, 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")
and sponsored and distributed by First Data Distributors, Inc., which is
unaffiliated with Fleet and its parent, Fleet Financial Group, Inc., and
affiliates.
-2-
<PAGE> 648
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.
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 __, 1998
-3-
<PAGE> 649
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>
RHODE
NEW JERSEY NEW YORK CONNECTICUT MASSACHUSETTS ISLAND
TAX-EXEMPT MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
SHAREHOLDER TRANSACTION EXPENSES BOND FUND BOND FUND BOND FUND BOND FUND BOND FUND BOND FUND
- -------------------------------- ---------- ---------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales Load................................ None None None None None None
Sales Load on Reinvested Dividends None None None None None None
Deferred Sales Load....................... None None None None None None
Redemption Fees........................... 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................................ 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>
Tax-Exempt Bond Fund.................................. $ $ $ $
New Jersey Municipal Bond Fund........................ $ $ N/A N/A
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 with respect to the Tax-Exempt Bond, New York Municipal
Bond, Connecticut Municipal Bond and Massachusetts Municipal Bond Funds 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. The information in the Expense Summary and Example
with respect to the New Jersey Municipal Bond and Rhode Island Municipal Bond
Funds is based on the expenses each Fund expects to incur during the current
fiscal year on its Trust Shares. Without voluntary fee waivers and expense
reimbursements by Fleet and/or the Fund's administrator, "Advisory Fees" would
be ___%, ___%, ___%, ___%, ___% and ___%, Other Expenses would be ___%, ___%,
___%, ___%, ___% and ___% and Total Fund Operating Expenses would be ___%, ___%,
___%, ___%, ___% and ___% for Trust Shares
-4-
<PAGE> 650
of the Tax-Exempt Bond Fund, New Jersey Municipal 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 [_________________________] 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 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.
-5-
<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
Jersey Municipal Bond Fund, 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, 1997 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, 1997 (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, the New Jersey Municipal Bond Fund had not commenced
operations. In addition, 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 number or address provided above.
-6-
<PAGE> 652
TAX-EXEMPT BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996 1995 1994 YEAR ENDED PERIOD ENDED
------------------------------------------------ OCTOBER 31, OCTOBER 31,
TRUST SHARES 1993(2) 1992(1,2)
------------------------------------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................ $10.78 $9.99 $11.12 $10.11 $10.00
-------- -------- -------- -------- --------
Income From Investment Operations:
Net Investment Income(3, 4)............... 0.53 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........ 0.53 1.33 (0.51) 1.55 0.45
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment
income.................................. (0.53) (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....................... (0.53) (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 $10.78 $9.99 $11.12 $10.11
======== ======== ======== ======== ========
Total Return .................................... 5.03% 13.62% (4.75)% 15.63% 4.55%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)................... $103,163 $91,740 $91,647 $144,048 $15,891
Ratios to average net assets:
Net investment income including
reimbursement/waiver.................... 4.91% 5.18% 5.01% 5.00% 5.03%(6)
Operating expenses including
reimbursement/waiver.................... 0.70% 0.72% 0.78% 0.64% 0.42%(6)
Operating expenses excluding
reimbursement/waiver.................... 0.95% 0.97% 1.00% 1.08% 2.15%(6)
Portfolio Turnover Rate............................. 15% 11% 17% 38% 11%(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 Fleet and/or the Fund's administrator for the years
ended October 31, 1997, 1996, 1995 and 1994 was $___, $0.51, $0.51 and
$0.50, respectively.
(4) Net investment income per share before fee waivers and expense
reimbursements by Fleet and/or the Fund's administrator for the year ended
October 31, 1993 and for the period ended October 31, 1992 was $0.49 and
$0.23, respectively.
(5) Not Annualized.
(6) Annualized.
-7-
<PAGE> 653
NEW YORK MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996 1995 1994 YEAR ENDED PERIOD ENDED
------------------------------------------------ OCTOBER 31, OCTOBER 31,
TRUST SHARES 1993(2) 1992(1,2)
------------------------------------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................. $10.78 $9.89 $11.04 $10.00 $10.00
-------- -------- -------- -------- --------
Income From Investment Operations:
Net Investment Income(3, 4)................. 0.51 0.51 0.49 0.50 0.38
Net realized and unrealized
gain (loss) on investments.................. (0.03) 0.89 (1.15) 1.04 --
-------- -------- -------- -------- --------
Total From Investment Operations.......... 0.48 1.40 (0.66) 1.54 0.38
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income........ (0.51) (0.51) (0.49) (0.50) (O.38)
Dividends from net realized capital gains -- -- -- -- --
-------- -------- -------- -------- --------
Total Dividends........................... (0.51) (0.51) (0.49) (0.50) (0.38)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value............ (0.03) 0.89 (1.15) 1.04 --
-------- -------- -------- -------- --------
Net Asset Value, End of Period........................ $10.75 $10.78 $9.89 $11.04 $10.00
======== ======== ======== ======== ========
Total Return ...................................... 4.55% 14.23% (6.14)% 15.66% 3.83%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..................... $23,762 $23,077 $24,209 $70,242 $20,144
Ratios to average net assets:
Net investment income including
reimbursement/waiver...................... 4.75% 4.91% 4.64% 4.54% 5.22%(6)
Operating expenses including
reimbursement/waiver...................... 0.70% 0.74% 0.87% 0.87% 0.65%(6)
Operating expenses excluding
reimbursement/waiver...................... 1.10% 1.07% 1.08% 1.19% 1.70%(6)
Portfolio Turnover Rate............................... 12% 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 Fleet and/or the Fund's administrator for the years
ended October 31, 1997, 1996, 1995 and 1994 was $____, $0.47, $0.48 and
$0.47, respectively.
(4) Net investment income per share before fee waivers and expense
reimbursements by Fleet and/or the Fund's administrator for the year ended
October 31, 1993 and for the period ended October 31, 1992 was $0.47 and
$0.30, respectively.
(5) Not Annualized.
(6) Annualized.
-8-
<PAGE> 654
CONNECTICUT MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996 1995 1994
---------------------------------------------- PERIOD ENDED
TRUST SHARES OCTOBER 31, 1993(1,2)
---------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $10.13 $9.22 $10.32 $10.00
-------- -------- -------- --------
Income From Investment Operations:
Net Investment Income(3, 4)........................... 0.44 0.46 0.46 0.25
Net realized and unrealized
gain (loss) on investments............................ 0.01 0.91 (1.10) 0.32
-------- -------- -------- --------
Total From Investment Operations.................... 0.45 1.37 (0.64) 0.57
-------- -------- -------- --------
Less Dividends:
Dividends from net investment income.................. (0.44) (0.46) (0.46) (O.25)
Dividends from net realized capital gains............. -- -- -- --
-------- -------- -------- --------
Total Dividends..................................... (0.44) (0.46) (0.46) (0.25)
-------- -------- -------- --------
Net increase (decrease) in net asset value............... 0.01 0.91 (1.10) 0.32
-------- -------- -------- --------
Net Asset Value, End of Period........................... $10.14 $10.13 $9.22 $10.32
======== ======== ======== ========
Total Return ......................................... 4.54% 15.21% (6.37)% 5.80%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)........................ $6,348 $4,083 $4,419 $18,771
Ratios to average net assets:
Net investment income including
reimbursement/waiver................................ 4.34% 4.76% 4.66% 4.30%(6)
Operating expenses including
reimbursement/waiver................................ 0.49% 0.45% 0.23% 0.00%(6)
Operating expenses excluding
reimbursement/waiver................................ 1.17% 1.24% 1.41% 1.73%(6)
Portfolio Turnover Rate.................................. 3% 7% 4% 7%(5)
</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 Fleet and/or the Fund's administrator for the years
ended October 31, 1997, 1996, 1995 and 1994 were $_____, $0.37, $0.38 and
$0.35, respectively.
(4) Net investment income per share before fee waivers and expense
reimbursements by Fleet and/or the Fund's administrator for the period
ended October 31, 1993 was $0.15.
(5) Not Annualized.
(6) Annualized.
-9-
<PAGE> 655
MASSACHUSETTS MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996 1995 1994
---------------------------------------------- PERIOD ENDED
TRUST SHARES OCTOBER 31, 1993(1,2)
---------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $9.98 $9.12 $10.24 $10.00
-------- -------- -------- --------
Income From Investment Operations:
Net Investment Income(3,4)............................ 0.46 0.45 0.48 0.29
Net realized and unrealized
gain (loss) on investments............................ (0.04) 0.86 (1.12) 0.24
-------- -------- -------- --------
Total From Investment Operations.................... 0.42 1.31 (0.64) 0.53
-------- -------- -------- --------
Less Dividends:
Dividends from net investment
income............................................... (0.46) (0.45) (0.48) (0.29)
Dividends from net realized capital
gains................................................ -- -- -- --
-------- -------- -------- --------
Total Dividends..................................... (0.46) (0.45) (0.48) (0.29)
-------- -------- -------- --------
Net increase (decrease) in net asset
value.................................................. (0.04) 0.86 (1.12) 0.24
-------- -------- -------- --------
Net Asset Value, End of Period........................... $9.94 $9.98 $9.12 $10.24
======== ======== ======== ========
Total Return............................................. 4.27% 14.72% (6.46)% 5.42%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)........................ $11,047 $7,607 $5,617 $20,121
Ratios to average net assets:
Net investment income including
reimbursement/waiver................................ 4.60% 4.73% 4.89% 4.87%(6)
Operating expenses including
reimbursement/waiver................................ 0.48% 0.52% 0.33% 0.05%(6)
Operating expenses excluding
reimbursement/waiver................................ 1.14% 1.31% 1.41% 1.82%(6)
Portfolio Turnover Rate.................................. 16% 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 Fleet and/or the Fund's administrator for the years
ended October 31, 1997, 1996, 1995 and 1994 were $____, $0.40, $0.38 and
$0.38, respectively.
(4) Net investment income per share before fee waivers and expense
reimbursements by Fleet and/or the Fund's administrator for the period
ended October 31, 1993 was $0.18.
(5) Not Annualized.
(6) Annualized.
-10-
<PAGE> 656
RHODE ISLAND MUNICIPAL BOND FUND
(FOR A RETAIL SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996
---------------------- PERIOD ENDED
RETAIL A SHARES OCTOBER 31, 1995(1)
---------------------- -------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period....................... $10.67 $10.00
-------- --------
Income From Investment Operations:
Net Investment Income(2)......................... 0.51 0.44
Net realized and unrealized
gain (loss) on investments....................... 0.03 0.67
-------- --------
Total From Investment Operations............... 0.54 1.11
-------- --------
Less Dividends:
Dividends from net investment income............. (0.51) (0.44)
Dividends from net realized capital gains........ (0.05) --
-------- --------
Total Dividends.............................. (0.56) (0.44)
-------- --------
Net increase (decrease) in net asset value................. (0.02) 0.67
-------- --------
Net Asset Value, End of Period............................. $10.65 $10.67
======== ========
Total Return ........................................... 5.22% 11.29%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's).......................... $14,900 $10,850
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 4.78% 5.13%(4)
Operating expenses including
reimbursement/waiver........................... 0.77% 0.40%(4)
Operating expenses excluding
reimbursement/waiver........................... 1.34% 2.25%(4)
Portfolio Turnover Rate.................................... 13% 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
Fleet and/or the Fund's administrator for the fiscal years ended October
31, 1997 and 1996 and for the period ended October 31, 1995 were $____,
$0.45 and $0.28, respectively.
(3) Not Annualized.
(4) Annualized.
-11-
<PAGE> 657
INVESTMENT OBJECTIVES AND POLICIES
Fleet Investment Advisors Inc., the Funds' investment adviser ("Fleet"),
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 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).
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 Fleet, 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; or (v) futures
contracts. 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
-12-
<PAGE> 658
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 JERSEY MUNICIPAL BOND FUND
The New Jersey 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 Jersey personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will invest
primarily in New Jersey 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 Jersey and other 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 expects that except during temporary defensive periods or when, in the
opinion of Fleet, 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 Jersey, 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 New Jersey personal income taxes ("New Jersey
Municipal Securities"). See "Special Considerations and Risks -- New Jersey
Municipal Bond Fund" below for a discussion of certain risks in investing in New
Jersey Municipal Securities. Dividends derived from interest on Municipal
Securities other than New Jersey Municipal Securities will generally be exempt
from regular federal income tax but may be subject to New Jersey personal income
tax. See "Taxes" below.
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 Fleet, 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
-13-
<PAGE> 659
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 Jersey Municipal 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
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 Fleet, 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
-14-
<PAGE> 660
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.
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 Fleet, prevailing market or economic conditions warrant.
Uninvested cash reserves will not earn income. See "Investment Objectives and
Policies -- New Jersey Municipal Bond Fund" above for a description of the types
of taxable obligations in which the Fund may invest. 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 Fleet, 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,
-15-
<PAGE> 661
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 federal income tax and from
Connecticut personal income tax 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.
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 Fleet, prevailing market or economic conditions warrant.
Uninvested cash reserves will not earn income. See "Investment Objectives and
Policies -- New Jersey Municipal Bond Fund" above for a description of the types
of taxable obligations in which the Fund may invest. 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 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,
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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 Fleet, 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.
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 Fleet, prevailing market or economic conditions warrant.
Uninvested cash reserves will not earn income. See "Investment Objectives and
Policies -- New Jersey Municipal Bond Fund" above for a description of the types
of taxable obligations in which the Fund may invest. 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
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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 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 expects that except during temporary defensive periods or when, in the
opinion of Fleet, 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.
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 Fleet, prevailing market or economic conditions warrant.
Uninvested cash reserves will not earn income. See "Investment Objectives and
Policies -- New Jersey Municipal Bond Fund" above for a description of the types
of taxable obligations in which the Fund may invest. 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.
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SPECIAL CONSIDERATIONS AND RISKS
Investment Quality
Municipal Securities purchased by the Funds 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", and "A"
and "Baa") or unrated instruments determined by Fleet to be of comparable
quality. Municipal Securities rated within the four highest rating categories
assigned by 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
Fleet believes the issuers have an adequate capacity to pay interest and repay
principal. If the ratings of a particular Municipal Security purchased by a Fund
are subsequently downgraded below the four highest rating categories assigned by
S&P or Moody's, such factor will be considered by Fleet 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 each 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.
General Risk Considerations
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
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<PAGE> 665
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 revenues of similar projects if such investment is
deemed necessary or appropriate by Fleet. 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 Jersey Municipal Bond, 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 Jersey Municipal Bond Fund
The New Jersey Municipal Bond Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New Jersey Municipal
Securities to meet their continuing obligations for the payment of principal and
interest. Since the Fund invests primarily in New Jersey Municipal Securities,
the value of the Fund's shares may be especially affected by factors pertaining
to the economy of New Jersey and other factors specifically affecting the
ability of issuers of New Jersey Municipal Securities to meet their obligations.
The State of New Jersey generally has a diversified economic base
consisting of, among others, commerce and service industries, selective
commercial agriculture, insurance, tourism, petroleum refining and
manufacturing, although New Jersey's manufacturing industry has experienced a
downward trend in the last few years. New Jersey is a major recipient of federal
assistance and, of all the states, is among the highest in the amount of federal
aid received. Therefore, a decrease in federal
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financial assistance may adversely affect the financial condition of New Jersey
and its political subdivisions and instrumentalities. While New Jersey's
economic base has become more diversified over time and thus its economy appears
to be less vulnerable during recessionary periods, a recurrence of high levels
of unemployment could adversely affect New Jersey's overall economy and the
ability of New Jersey and its political subdivisions and instrumentalities to
meet their financial obligations. In addition, New Jersey maintains a balanced
budget which restricts total appropriation increases to only 5% annually with
respect to any municipality or county. This balanced budget plan may adversely
affect a particular municipality's or county's ability to repay its obligations.
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 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.
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<PAGE> 667
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.
Manufacturing has historically been of prime economic importance to
Connecticut. However, as a result of a rise in employment in service-related
industries and a decline in manufactuirng employment, manufacturing accounted
for only 17.39% of total non-agricultural employment in Connecticut in 1996. The
average unemployment rate in Connecticut was reported to be 5.7% in 1996, and
the average per capita personal income of Connecticut residents was reported to
be $33,189 in 1996. However, pockets of significant unemployment and poverty
exist in some Connecticut cities and towns.
For the four fiscal years ended June 30, 1991, the General Fund
experienced operating deficits but, for the six fiscal years ended June 30,
1997, the General Fund recorded operating surpluses, based on Connecticut's
budgetary method of accounting. General Fund expenditures and revenues are
budgeted to be approximately $9,550,000,000 and $9,700,000,000 for the 1997-98
and 1998-99 fiscal years, respectively. The State's budgeted expenditures have
more than doubled from approximately $4,300,000,000 for the 1986-87 fiscal year
to approximately $9,700,000,000 for the 1998-99 fiscal year. In 1991,
legislation was enacted by the State authorizing the State Treasurer to issue
Economic Recovery Notes to fund the General Fund's accumulated deficit. The
notes were to be payable no later than June 30, 1996, but payment of the notes
scheduled to be paid during the 1995-96 fiscal year was rescheduled to be made
over the four fiscal years ending June 30, 1999. Connecticut's general
obligation bonds are rated AA- by S&P and Aa3 by Moody's. On March 17, 1995,
Fitch reduced its ratings of Connecticut's general obligations bonds from AA+ to
AA.
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
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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. State legislation
enacted in 1993 prohibits municipal bankruptcy filings without the prior written
consent of the Governor. 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 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
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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 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.
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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.
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 FDIC. 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
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<PAGE> 671
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. banks only when Fleet
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
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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 Fleet 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% (15% with respect to the New
Jersey Municipal Bond Fund) 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 Fleet under guidelines approved by Galaxy's Board of Trustees.
No Fund will enter into repurchase agreements with Fleet or any
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<PAGE> 673
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% (15% with respect to the New Jersey Municipal Bond Fund)
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 Fleet to be of good standing and only when, in Fleet'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
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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 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 Fleet.
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, Fleet 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).
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Futures Contracts
Each 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.
Each 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 or other liquid assets, 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 Fleet 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
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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 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 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 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
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 Fleet 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
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
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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 guaranteed up to a
certain amount 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.
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<PAGE> 678
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.
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%
(15% with respect to the New Jersey Municipal Bond Fund) 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% (15% with respect to the New Jersey Municipal Bond
Fund) limitation on such investments, unless there is an active and substantial
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<PAGE> 679
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 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.
Fleet 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 Fleet'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
Fleet 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,
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<PAGE> 680
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." Although
the New Jersey Municipal Bond Fund cannot accurately predict its annual
portfolio turnover rate, it is not expected to exceed 100%.
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 that each Fund
may borrow 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 its 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% (15% with respect to the New Jersey
Municipal Bond Fund) of the value of its net assets
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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 Jersey Municipal Bond, 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.
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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). 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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors is a
registered broker/dealer with principal offices located at 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
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<PAGE> 683
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 FD Distributors orders for
purchases of Trust Shares and for wiring required funds in payment to Galaxy's
custodian on a timely basis. FD Distributors 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 FD
Distributors, 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 FD Distributors 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 per
Share 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 FD Distributors 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 for further information
concerning the types of eligible Customer accounts and the related purchase and
redemption procedures.
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<PAGE> 684
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.
On a Business Day when the Exchange closes early due to a partial holiday
or otherwise, Galaxy will advance the times at which purchase orders must be
received in order to be processed on that Business Day.
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 the Institution to transmit redemption orders to FD
Distributors 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 FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors 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,
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<PAGE> 685
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 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 Tax-Exempt Bond Fund, New York Municipal Bond Fund, Connecticut
Municipal Bond Fund, Massachusetts Municipal Bond Fund and Rhode Island
Municipal Bond Fund each qualified during its last taxable year and intends to
continue to qualify, and the New Jersey Municipal Bond Fund intends 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 applicable to corporations. Corporate
shareholders must also take all exempt interest dividends into account in
determining certain adjustments for federal alternative minimum tax purposes.
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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, mid-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 subject to tax.
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.
It is anticipated that substantially all dividends paid by the New Jersey
Municipal Bond Fund will not be subject to New Jersey personal income tax. In
accordance with the provisions of New Jersey law as currently in effect,
distributions paid by a "qualified investment fund" will not be subject to the
New Jersey personal Income Tax to the extent that the distributions are
attributable to income received as interest or gain from New Jersey Municipal
Securities (as defined above), or as interest or gain from direct U.S.
Government obligations. Distributions by a "qualified investment fund" that are
attributable to most other sources will be subject to the New Jersey personal
income tax. Shares of the Fund are not subject to property taxation by New
Jersey or its political subdivisions.
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<PAGE> 687
The New Jersey personal Income Tax is not applicable to corporations. For
all corporations subject to the New Jersey Corporation Business Tax, dividends
and distributions from a "qualified investment fund" are included in the net
income tax base for purposes of computing the Corporation Business Tax.
Furthermore, any gain upon the redemption or sale of shares by a corporate
shareholder is also included in the net income tax base for purposes of
computing the Corporation Business Tax.
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 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 (as defined above). Other Fund dividends and
distributions, whether received in cash or additional Trust Shares, are subject
to this tax, except that capital gain dividends are not subject to the tax to
the extent they are 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. 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 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
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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 (as defined above), (ii) capital gains
realized by the Fund from the sale of certain Massachusetts Municipal
Securities, or (iii) interest on U.S. Government Obligations exempt from state
income taxation. 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. In 1994, the Massachusetts personal
income tax statute was modified to provide for graduated rates of tax (with some
exceptions) on gains from the sale or exchange of capital assets held for more
than one year based on the length of time the asset has been held since January
1, 1995. The Massachusetts Department of Revenue has released proposed
regulations providing that the holding period of the mutual fund (rather than
that of its shareholders) will be determinative for purposes of applying the
revised statute to shareholders that receive capital gain distributions (other
than exempt capital gain distributions, as discussed above), so long as the
mutual fund separately designates the amount of such distributions attributable
to each of six classes of gains from the sale or exchange of capital assets held
for more than one year in a notice provided to shareholders and the Commissioner
of Revenue on or before March 1 of the calendar year after the calendar year of
such distributions. In the absence of such notice, the holding period of the
assets giving rise to such gain is deemed to be more than one but not more than
two years. Shareholders should consult their tax advisers with respect to the
Massachusetts tax treatment of capital gain distributions from the Fund.
Distributions by the Massachusetts Municipal Bond Fund to corporate
shareholders, including exempt-interest dividends, may be subject to
Massachusetts corporate excise tax. Fund shares are not, however, subject to
property taxation by Massachusetts or its political subdivisions.
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 (as defined above) 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 Trust Shares of the Fund.
The Rhode Island Municipal Bond Fund will be subject to the Rhode Island
business corporation tax on its "gross income" apportioned to the State of Rhode
Island. 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.
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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 Jersey Municipal Bond,
New York Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal
Bond and Rhode Island Municipal Bond Funds, the New Jersey Gross Income Tax, 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 75 State Street, Boston, Massachusetts
02109, 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,
1997. 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 Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Small Company Equity, MidCap
Equity, Asset Allocation, Growth and Income, Small Cap Value, Special Equity,
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.
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<PAGE> 690
For the services provided and expenses assumed with respect to the Funds,
Fleet 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 Bank or
other subsidiaries of Fleet Financial Group, Inc. in consideration for
administrative and/or 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 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, 1997, Fleet received advisory fees (after fee
waivers) at the effective annual 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. In addition to fee waivers, during the fiscal
year ended October 31, 1997, Fleet also reimbursed the Tax-Exempt Bond, New York
Municipal Bond and Rhode Island Municipal Bond Funds for certain operating
expenses, which reimbursement may be revised or discontinued at any time. The
New Jersey Municipal Bond Fund did not conduct investment operations during the
fiscal year ended October 31, 1997.
The organizational arrangements of Fleet require that all investment
decisions with respect to the Funds be made by Fleet's Tax-Exempt Investment
Policy Committee and no one person is primarily responsible for making
recommendations to that Committee.
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
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<PAGE> 691
agent for and upon the order of customers. Fleet, the 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. For the
services provided to the Funds, 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. In addition, FDISG also receives a separate
annual fee from each Portfolio for certain fund accounting services. From time
to time, FDISG may waive voluntarily all or a portion of the administration fee
payable to it by the Funds. For the fiscal year ended October 31, 1997, FDISG
received administration fees at the effective annual rate of ____% of the
average daily net assets of each of the Tax-Exempt Bond, New York Municipal
Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds. The New Jersey Municipal Bond Fund did not conduct
investment operations during the fiscal year ended October 31, 1997.
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
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<PAGE> 692
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;
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; and Class Y-Series 1 shares (Trust Shares) and Class Y-Series 2 shares
(Retail A Shares), each series representing interests in the New Jersey
Municipal Bond Fund. The Tax-Exempt Bond Fund is classified as a diversified
company and the New Jersey Municipal Bond, 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 FD Distributors 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 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 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% 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 to Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value
of $.001 per share, represents an equal
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<PAGE> 693
proportionate interest in the related investment portfolio 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 investment portfolio 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 FD
Distributors; 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
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<PAGE> 694
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 One 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 fees; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; advisory,
administration, distribution, 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 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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<PAGE> 695
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that 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 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 of the Funds. Performance 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 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. Each Fund may also quote its "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. A Fund's tax- equivalent yield will
always be higher than its yield.
The Funds may also advertise their performance using "average annual total
return" figures 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 the
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.
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<PAGE> 696
The performance of the Funds will fluctuate and any quotation of
performance 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 data
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 directly by Institutions to accounts of
Customers that have invested in Trust Shares of a Fund will not be included in
performance calculations.
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.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of 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 such Fund, or (b) 67% or more
of the shares of such Fund present at a meeting if more than 50% of the
outstanding shares of such Fund are represented at the meeting in person or by
proxy.
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<PAGE> 697
RETAIL
THE GALAXY FUND
Tax-Exempt Bond Fund
New Jersey Municipal Bond Fund
New York Municipal Bond Fund
Connecticut Municipal Bond Fund
Massachusetts Municipal Bond Fund
Rhode Island Municipal Bond Fund
Prospectus
February __, 1998
<PAGE> 698
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 FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
HIGHLIGHTS................................................................................. 4
EXPENSE SUMMARY............................................................................ 7
FINANCIAL HIGHLIGHTS....................................................................... 10
INVESTMENT OBJECTIVES AND POLICIES......................................................... 17
Tax-Exempt Bond Fund............................................................... 17
New Jersey Municipal Bond Fund..................................................... 18
New York Municipal Bond Fund....................................................... 19
Connecticut Municipal Bond Fund.................................................... 20
Massachusetts Municipal Bond Fund.................................................. 21
Rhode Island Municipal Bond Fund................................................... 22
Special Considerations and Risks................................................... 23
Other Investment Policies and Risk Considerations.................................. 29
INVESTMENT LIMITATIONS..................................................................... 39
PRICING OF SHARES.......................................................................... 41
HOW TO PURCHASE SHARES..................................................................... 42
Distributor........................................................................ 42
General............................................................................ 42
Purchase Procedures -- Customers of Institutions................................... 43
Purchase Procedures -- Direct Investors............................................ 43
Other Purchase Information......................................................... 45
Applicable Sales Charge -- Retail A Shares......................................... 45
Quantity Discounts......................................................................... 48
Applicable Sales Charge - Retail B Shares.......................................... 50
</TABLE>
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<PAGE> 699
<TABLE>
<CAPTION>
Page
----
<S> <C>
Characteristics of Retail A Shares and Retail B Shares............................. 52
Factors to Consider When Selecting Retail A Shares
or Retail B Shares............................................................... 53
HOW TO REDEEM SHARES....................................................................... 54
Redemption Procedures -- Customers of Institutions................................. 54
Redemption Procedures -- Direct Investors.......................................... 55
Other Redemption Information....................................................... 57
INVESTOR PROGRAMS.......................................................................... 57
Exchange Privilege................................................................. 57
Automatic Investment Program and Systematic...........................
Withdrawal Plan.................................................................... 59
Payroll Deduction Program.......................................................... 60
College Investment Program......................................................... 60
Direct Deposit Program............................................................. 61
INFORMATION SERVICES....................................................................... 61
Galaxy Information Center -- 24 Hour Information......................
Service............................................................................ 61
Voice Response System.............................................................. 61
Galaxy Shareholder Services........................................................ 61
DIVIDENDS AND DISTRIBUTIONS................................................................ 62
TAXES ................................................................................... 62
Federal............................................................................ 62
State and Local.................................................................... 63
Miscellaneous...................................................................... 66
MANAGEMENT OF THE FUNDS.................................................................... 66
Investment Adviser................................................................. 66
Authority to Act as Investment Adviser............................................. 67
Administrator...................................................................... 68
DESCRIPTION OF GALAXY AND ITS SHARES....................................................... 68
Shareholder Services Plan.......................................................... 70
Distribution and Services Plan..................................................... 71
CUSTODIAN AND TRANSFER AGENT............................................................... 72
EXPENSES................................................................................... 72
PERFORMANCE AND REPORTING.................................................................. 72
MISCELLANEOUS.............................................................................. 74
</TABLE>
-ii-
<PAGE> 700
THE GALAXY FUND
4400 Computer Drive For an application and
Westboro, Massachusetts information regarding
01581-5108 purchases, redemptions,
exchanges and other
shareholder services or for
current performance, call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus relates to six 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 JERSEY 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 Jersey 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 Jersey Municipal
Securities. The Fund is a non-diversified investment portfolio under the
Investment Company Act of 1940, as amended (the "1940 Act").
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 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
<PAGE> 701
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 Massachusetts 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
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. ("Fleet")
and sponsored and distributed by First Data
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<PAGE> 702
Distributors, Inc., which is unaffiliated with Fleet 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 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 __, 1998
-3-
<PAGE> 703
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 JERSEY MUNICIPAL BOND,
NEW YORK MUNICIPAL BOND, CONNECTICUT MUNICIPAL BOND, MASSACHUSETTS MUNICIPAL
BOND and RHODE ISLAND MUNICIPAL BOND FUNDS. Prospectuses for Galaxy's MONEY
MARKET, GOVERNMENT, U.S. TREASURY, TAX-EXEMPT, CONNECTICUT MUNICIPAL MONEY
MARKET, MASSACHUSETTS MUNICIPAL MONEY MARKET, INSTITUTIONAL GOVERNMENT MONEY
MARKET, EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME, INTERNATIONAL EQUITY, SMALL
COMPANY EQUITY, MIDCAP EQUITY, ASSET ALLOCATION, SMALL CAP VALUE, GROWTH AND
INCOME, SPECIAL EQUITY, 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. ("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,
1997 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-seven mutual funds should your investment goals change.
Q: How can I buy and redeem shares?
A: The Funds are distributed by First Data 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 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,
-4-
<PAGE> 704
their correspondent banks and other 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 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 Tax-Exempt Bond Fund invests primarily in Municipal Securities
rated within the four highest rating categories assigned by Standard & Poor's
Ratings Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") and the New
Jersey Municipal Bond Fund, New York Municipal Bond Fund, Connecticut Municipal
Bond Fund, Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond
Fund invest primarily in New Jersey Municipal Securities, New York Municipal
Securities, Connecticut Municipal Securities, Massachusetts Municipal Securities
and Rhode Island Municipal Securities, respectively, rated within the four
highest
-5-
<PAGE> 705
rating categories assigned by S&P or Moody's. Municipal Securities rated in the
lowest of the four highest rating categories assigned by Moody's or S&P are
considered to have speculative characteristics, even though they are of
investment grade quality. Because the New Jersey Municipal Bond, New York
Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds invest primarily in New Jersey Municipal
Securities, 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 Jersey Municipal Bond, 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 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 additional sales or 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> 706
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 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 JERSEY NEW YORK CONNECTICUT MASSACHUSETTS RHODE ISLAND
BOND FUND MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
-------------------- BOND FUND BOND FUND BOND FUND BOND FUND BOND FUND
(RETAIL A (RETAIL B (RETAIL A (RETAIL A (RETAIL A (RETAIL A (RETAIL A
SHARES) SHARES) SHARES) SHARES) SHARES) SHARES) SHARES)
--------- --------- ---------- --------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Front End Sales Charge Imposed on
Purchases (as a percentage of offering
price)............................... 3.75%(1) None 3.75%(1) 3.75%(1) 3.75%(1) 3.75%(1) 3.75%(1)
Maximum Deferred Sales Charge (as a
percentage of offering price)........ None 5.00%(2) None None None None None
Sales Charge Imposed on Reinvested
Dividends............................ None None None None None None None
Redemption Fees(3)..................... None None None None None None None
Exchange Fees.......................... 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 .80% None None None None None
Other Expenses (After Fee Waivers and
Expense Reimbursements).............. % % % % % % %
---- ---- ---- ---- ---- ---- ----
Total Fund Operating Expenses
(After Fee Waivers and Expense
Reimbursements)...................... % % % % % % %
==== ==== ==== ==== ==== ==== ====
</TABLE>
- ----------
-7-
<PAGE> 707
(1) Reduced front-end sales charges may be available. A deferred sales
charge of up to 1.00% is assessed on certain redemptions of Retail A
Shares that are purchased with no initial sales charge as part of an
investment of $500,000 or more. 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 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.
-8-
<PAGE> 708
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 Jersey Municipal Bond Fund (Retail A Shares)(1).............. $ $ N/A N/A
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 with respect to the Tax-Exempt
Bond, New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond and Rhode Island Municipal Bond Funds 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
Retail A and/or Retail B Shares. The information contained in the Expense
Summary and Example with respect to the New Jersey Municipal Bond Fund is based
on 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 Fleet and/or the Fund's administrator, Advisory Fees would be ___%, ___%,
___%, ___%, ___% and ___%, Other Expenses would be ___%, ___%, ___%, ___%, ___%
and ___% and Total Fund Operating Expenses would be ___%, ___%, ___%, ___%, ___%
and ___% for Retail A Shares of the Tax-Exempt Bond Fund, New Jersey Municipal
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 ___%, 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 [ ] 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
-9-
<PAGE> 709
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 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, 1997 (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. As of the date of this
Prospectus, the New Jersey Municipal Bond Fund had not commenced operations.
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.
-10-
<PAGE> 710
TAX-EXEMPT BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------------------------------------------
1997 1996
-------------------------------- ------------------------------------
Retail A Shares Retail B Shares Retail A Shares Retail B Shares(3)
--------------- --------------- --------------- ------------------
Net Asset Value,
<S> <C> <C> <C> <C>
Beginning of Period................. $ 10.78 $10.94
-------- ------
Income From Investment
Operations:
Net Investment Income(4),(5)...... 0.50 0.27
Net Realized and unrealized
gain (loss) on investments........ -- (0.16)
-------- ------
Total From Investment Operations.... 0.50 0.11
-------- ------
Less Dividends:
Dividends from net
investment income................. (0.50) (0.27)
Dividends from net realized
capital gains..................... -- --
Dividends in excess of net
realized capital gains............
Total Dividends:................ -- --
-------- ------
(0.50) (0.27)
-------- ------
Net increase (decrease) in net
asset value....................... -- (0.16)
-------- ------
Net Asset Value, End of Period...... $ 10.78 $10.78
======== ======
Total Return(6)..................... 4.77% 1.08%(7)
Ratios/Supplement Data:
Net Assets, End of Period (000's). $ 28,339 $ 787
Ratio to average net assets:
Net investment income including
reimbursement/waiver............ 4.68% 4.08%(8)
Operating expenses including
reimbursement/waiver............ 0.93% 1.57%(8)
Operating expenses excluding
reimbursement/waiver............ 1.18% 1.77%(8)
Portfolio Turnover Rate............. 15% 15%
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------------------- Period
1995 1994 1993(2) Ended
---- ---- ----- October 31,
Retail Shares 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 Dividends:
Dividends from net
investment income................. (0.52) (0.53) (0.54) (0.34)
Dividends from net realized
capital gains..................... -- -- -- --
Dividends in excess of net
realized capital gains............
Total Dividends:................ -- (0.09) -- --
------- -------- -------- ---------
(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/Supplement 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)
Portfolio Turnover Rate............. 11% 17% 38% 11%(7)
</TABLE>
-11-
<PAGE> 711
- ----------
(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 before reimbursement and waiver of fees
by Fleet and/or the Fund's administrator for the years ended October 31,
1997, 1996, 1995 and 1994 was $________, $0.48, $0.48 and $0.50,
respectively for Retail A Shares, and (ii) for the fiscal year ended
October 31, 1997 and the period ended October 31, 1996 was $_________
and $0.25 respectively for Retail B Shares.
(5) Net investment income per share before fee waivers and expense
reimbursements by Fleet and/or the Fund's administrator for the year
ended October 31, 1993 and for the period ended October 31, 1992 was
$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.
-12-
<PAGE> 712
NEW YORK MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
1997 1996 1995 1994 PERIOD
----------------------------------------------------- ENDED
RETAIL A RETAIL A RETAIL RETAIL OCTOBER 31,
SHARES SHARES SHARES SHARES 1993(1),(2) 1992(1),(2)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ............. $ 10.78 $ 9.89 $ 11.04 $ 10.00 $ 10.00
---------- ---------- ---------- ---------- ----------
Income From Investment
Operations:
Net Investment Income(3),(4) .... 0.48 0.49 0.49 0.50 0.38
Net realized and unrealized
gain (loss) on investments .... (0.03) 0.89 (1.15) 1.04 --
---------- ---------- ---------- ---------- ----------
Total From Investment
Operations: ................... 0.45 1.38 (0.66) 1.54 0.38
---------- ---------- ---------- ---------- ----------
Less Dividends:
Dividends from net
investment income ............... (0.48) (0.49) (0.49) (0.50) (0.38)
Dividends from net realized
capital gains ................. -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total Dividends: .............. (0.48) (0.49) (0.49) (0.50) (0.38)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
asset value ..................... (0.03) 0.89 (1.15) 1.04 --
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ... $ 10.75 $ 10.78 $ 9.89 $ 11.04 $ 10.00
========== ========== ========== ========== ==========
Total Return(5) .................. 4.31% 14.03% (6.14)% 15.66% 3.83%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 40,154 $ 42,870 $ 42,451 $ 70,242 $ 20,144
Ratio to average net assets:
Net investment income including
reimbursement/waiver .......... 4.50% 4.73% 4.64% 4.54% 5.22%(7)
Operating expenses including
reimbursement/waiver .......... 0.95% 0.92% 0.87% 0.87% 0.65%(7)
Operating expenses excluding
reimbursement/waiver .......... 1.35% 1.31% 1.10% 1.19% 1.70%(7)
Portfolio Turnover Rate .......... 12% 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 Fleet and/or the Fund's administrator for the
years ended October 31, 1997, 1996, 1995 and 1994 was $_______, $0.44,
$0.44 and $0.46, respectively.
(4) Net investment income per share before fee waivers and expense
reimbursements by Fleet and/or the Fund's administrator for the year
ended October 31, 1993 and for the period ended October 31, 1992 was
$0.47 and $0.30, respectively.
(5) Calculation does not include sales charge for Retail A Shares.
(6) Not Annualized.
(7) Annualized.
-13-
<PAGE> 713
CONNECTICUT MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 PERIOD
--------------- --------------- --------------------------- ENDED
RETAIL A SHARES RETAIL A SHARES RETAIL SHARES 1993(1),(2)
--------------- --------------- --------------------------- ----------
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period ............... $ 10.13 $ 9.22 $ 10.32 $ 10.00
---------- ---------- ---------- ----------
Income From Investment
Operations:
Net Investment Income(3),(4) ...... 0.42 0.44 0.46 0.25
Net realized and unrealized
gain (loss) on investments ....... 0.01 0.91 (1.10) 0.32
---------- ---------- ---------- ----------
Total From Investment
Operations: ...................... 0.43 1.35 (0.64) 0.57
---------- ---------- ---------- ----------
Less Dividends:
Dividends from net
investment income ................. (0.42) (0.44) (0.46) (0.25)
Dividends from net realized
capital gains ..................... -- -- -- --
---------- ---------- ---------- ----------
Total Dividends: ................ (0.42) (0.44) (0.46) (0.25)
---------- ---------- ---------- ----------
Net increase (decrease) in net
asset value ....................... 0.01 0.91 (1.10) 0.32
---------- ---------- ---------- ----------
Net Asset Value, End of Period ..... $ 10.14 $ 10.13 $ 9.22 $ 10.32
========== ========== ========== ==========
Total Return(5) .................... 4.32% 14.94% (6.39)% 5.80%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) . $ 23,244 $ 18,066 $ 18,229 $ 18,771
Ratio to average net assets:
Net investment income including
reimbursement/waivers ............ 4.13% 4.53% 4.66% 4.30%(7)
Operating expenses including
reimbursement/waivers ............ 0.70% 0.68% 0.25% 0.00%(7)
Operating expenses excluding
reimbursement/waiver ............. 1.38% 1.48% 1.42% 1.73%(7)
Portfolio Turnover Rate ............ 3% 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 Fleet and/or the Fund's administrator for the
years ended October 31, 1997, 1996, 1995 and 1994 was $_____, $0.35,
$0.37 and $0.34, respectively.
(4) Net investment income per share before fee waivers and expense
reimbursements by Fleet and/or the Fund's 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.
-14-
<PAGE> 714
MASSACHUSETTS MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------- PERIOD
1997 1996 1995 1994 ENDED
--------------- --------------- ---------- ---------- OCTOBER 31,
RETAIL A SHARES RETAIL A SHARES RETAIL SHARES 1993(1),(2)
--------------- --------------- ------------------------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period .............. $ 10.13 $ 9.22 $ 10.32 $ 10.00
---------- ---------- ---------- ----------
Income From Investment
Operations:
Net Investment Income(3),(4) ...... 0.43 0.44 0.47 0.29
Net realized and unrealized
gain (loss) on investments ........ (0.04) 0.86 (1.12) 0.24
---------- ---------- ---------- ----------
Total From Investment
Operations: ..................... 0.39 1.30 (0.65) 0.53
---------- ---------- ---------- ----------
Less Dividends:
Dividends from net
investment income ................. (0.43) (0.44) (0.47) (0.29)
Dividends from net realized
capital gains ..................... -- -- -- --
---------- ---------- ---------- ----------
Total Dividends: ................ (0.43) (0.44) (0.47) (0.29)
---------- ---------- ---------- ----------
Net increase (decrease) in net
asset value ....................... (0.04) 0.86 (1.12) 0.24
---------- ---------- ---------- ----------
Net Asset Value, End of Period ..... $ 9.94 $ 9.98 $ 9.12 $ 10.24
========== ========== ========== ==========
Total Return(5) .................... 4.05% 14.52% (6.46)% 5.42%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) . $ 26,275 $ 16,113 $ 15,966 $ 20,121
Ratio to average net assets:
Net investment income including
reimbursement/waiver ............ 4.42% 4.56% 4.89% 4.87%(7)
Operating expenses including
reimbursement/waiver ............ 0.66% 0.70% 0.33% 0.05%(7)
Operating expenses excluding
reimbursement/waiver ............ 1.32% 1.58% 1.43% 1.82%(7)
Portfolio Turnover Rate ............ 16% 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 Fleet and/or the Fund's administrator for the
years ended October 31, 1997, 1996, 1995 and 1994 was $____, $0.37,
$0.36 and $0.37, respectively.
(4) Net investment income per share before fee waivers and expense
reimbursements by Fleet and/or the Fund's administrator and for the
period ended October 31, 1993 was $0.18.
(5) Calculation does not include sales charge for Retail A Shares.
(6) Not Annualized.
(7) Annualized.
-15-
<PAGE> 715
RHODE ISLAND MUNICIPAL BOND FUND(1)
(FOR A RETAIL A SHARE(1) OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------ PERIOD ENDED
1997 1996 OCTOBER 31, 1995(1)
--------------- --------------- ------------------
RETAIL A SHARES RETAIL A SHARES RETAIL SHARES
--------------- --------------- -------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.67 $ 10.00
---------- ----------
Income From Investment Operations:
Net Investment Income(2) .......... 0.51 0.44
Net realized and unrealized
gain (loss) on investments ....... 0.03 0.67
---------- ----------
Total From Investment
Operations: ...................... 0.54 1.11
---------- ----------
Less Dividends:
Dividends from net
investment income ................. (0.51) (0.44)
Dividends from net realized
capital gains ................... (0.05) --
---------- ----------
Total Dividends: .................. (0.56) (0.44)
---------- ----------
Net increase (decrease) in net
asset value ....................... (0.02) 0.67
---------- ----------
Net Asset Value, End of Period ..... $ 10.65 $ 10.67
========== ==========
Total Return(3) .................... 5.22% 11.29%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .. $ 14,900 $ 10,850
Ratio to average net assets:
Net investment income including
reimbursement/waiver ............ 4.78% 5.13%(5)
Operating expenses including
reimbursement/waiver ............ 0.77% 0.40%(5)
Operating expenses excluding
reimbursement/waiver ............ 1.34% 2.25%(5)
Portfolio Turnover Rate ............ 13% 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
Fleet and/or the Fund's administrator for the fiscal years ended October
31, 1997 and 1996 and the period ended October 31, 1995 was $____, $0.45
and $0.28, respectively.
(3) Calculation does not include sales charge for Retail A Shares.
(4) Not Annualized.
(5) Annualized.
-16-
<PAGE> 716
INVESTMENT OBJECTIVES AND POLICIES
Fleet 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).
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 Fleet's opinion, 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; or (v) futures
contracts. 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.
-17-
<PAGE> 717
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 JERSEY MUNICIPAL BOND FUND
The New Jersey 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 Jersey personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will invest
primarily in New Jersey 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 Jersey 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 Fleet's
opinion, 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
Jersey, 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 New Jersey personal income taxes ("New Jersey Municipal
Securities"). See "Special Considerations and Risks -- New Jersey Municipal Bond
Fund" below for a discussion of certain risks in investing in New Jersey
Municipal Securities. Dividends derived from interest on Municipal Securities
other than New Jersey Municipal Securities will generally be exempt from regular
federal income tax but may be subject to New Jersey personal income tax. See
"Taxes" below.
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 Fleet's opinion, 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
-18-
<PAGE> 718
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 Jersey Municipal 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
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 Fleet's
opinion, 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 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
-19-
<PAGE> 719
regular federal income tax but may be subject to New York State and New York
City personal income tax. See "Taxes" below.
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 Fleet's opinion, prevailing market or economic conditions warrant.
Uninvested cash reserves will not earn income. See "Investment Objectives and
Policies -- New Jersey Municipal Bond Fund" above for a description of the types
of taxable obligations in which the Fund may invest. 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 Fleet's
opinion, 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
-20-
<PAGE> 720
as Puerto Rico, the interest on the obligations of which is exempt from federal
income tax and from Connecticut personal income tax 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 may be subject to
Connecticut personal income tax. See "Taxes" below.
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 Fleet's opinion, prevailing market or economic conditions warrant.
Uninvested cash reserves will not earn income. See "Investment Objectives and
Policies -- New Jersey Municipal Bond Fund" above for a description of the types
of taxable obligations in which the Fund may invest. 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 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
-21-
<PAGE> 721
from regular federal income tax ("Municipal Securities"). The Fund expects that
except during temporary defensive periods or when, in Fleet's opinion, 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.
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 Fleet's opinion, prevailing market or economic conditions warrant.
Uninvested cash reserves will not earn income. See "Investment Objectives and
Policies -- New Jersey Municipal Bond Fund" above for a description of the types
of taxable obligations in which the Fund may invest. 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 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
-22-
<PAGE> 722
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 Fleet's opinion, 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.
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 Fleet's opinion, prevailing market or economic conditions warrant.
Uninvested cash reserves will not earn income. See "Investment Objectives and
Policies -- New Jersey Municipal Bond Fund" above for a description of the types
of taxable obligations in which the Fund may invest. 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
INVESTMENT QUALITY
Municipal Securities purchased by the Funds 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 Fleet
to be of
-23-
<PAGE> 723
comparable quality. Municipal Securities rated within the four highest rating
categories assigned by 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 Fleet
believes the issuers have an adequate capacity to pay interest and repay
principal. If the ratings of a particular Municipal Security purchased by a Fund
are subsequently downgraded below the four highest ratings assigned by S&P or
Moody's, such factor will be considered by Fleet in its evaluation of the
overall merits of that Municipal Security, but such ratings will not necessarily
result in an automatic sale of the Municipal Security. Under normal market and
economic conditions, at least 65% of each 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.
GENERAL RISK CONSIDERATION
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
-24-
<PAGE> 724
revenues on similar projects if such investment is deemed necessary or
appropriate by Fleet. 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 Jersey Municipal Bond, 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 JERSEY MUNICIPAL BOND FUND
The New Jersey Municipal Bond Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New Jersey Municipal
Securities to meet their continuing obligations for the payment of principal and
interest. Since the Fund invests primarily in New Jersey Municipal Securities,
the value of the Fund's shares may be especially affected by factors pertaining
to the economy of New Jersey and other factors specifically affecting the
ability of issuers of New Jersey Municipal Securities to meet their obligations.
The State of New Jersey generally has a diversified economic base
consisting of, among others, commerce and service industries, selective
commercial agriculture, insurance, tourism, petroleum refining and
manufacturing, although New Jersey's manufacturing industry has experienced a
downward trend in the last few years. New Jersey is a major recipient of federal
assistance and, of all the states, is among the highest in the amount of federal
aid received. Therefore, a decrease in federal financial assistance may
adversely affect the financial condition of New Jersey and its political
subdivisions and instrumentalities. While New Jersey's economic base has become
more diversified over time and thus its economy appears to be less vulnerable
during recessionary periods, a recurrence of high levels of unemployment could
adversely affect New Jersey's overall economy and the ability of New Jersey and
its political subdivisions and instrumentalities to meet their financial
obligations. In addition, New Jersey maintains a balanced budget
-25-
<PAGE> 725
which restricts total appropriation increases to only 5% annually with respect
to any municipality or county. This balanced budget plan may adversely affect a
particular municipality's or county's ability to repay its obligations.
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 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
-26-
<PAGE> 726
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.
Manufacturing has historically been of prime economic importance to
Connecticut. However, as a result of a rise in employment in service-related
industries and a decline in manufactuirng employment, manufacturing accounted
for only 17.39% of total non-agricultural employment in Connecticut in 1996. The
average unemployment rate in Connecticut was reported to be 5.7% in 1996, and
the average per capita personal income of Connecticut residents was reported to
be $33,189 in 1996. However, pockets of significant unemployment and poverty
exist in some Connecticut cities an towns.
For the four fiscal years ended June 30, 1991, the General Fund
experienced operating deficits but, for the six fiscal years ended June 30,
1997, the General Fund recorded operating surpluses, based on Connecticut's
budgetary method of accounting. General Fund expenditures and revenues are
budgeted to be approximately $9,550,000,000 and $9,700,000,000 for the 1997-98
and 1998-99 fiscal years, respectively. The State's budgeted expenditures have
more than doubled from approximately $4,300,000,000 for the 1986-87 fiscal year
to approximately $9,700,000,000 for the 1998-99 fiscal year. In 1991,
legislation was enacted by the State authorizing the State Treasurer to issue
Economic Recovery Notes to fund the General Fund's accumulated deficit. The
notes were to be payable no later than June 30, 1996, but payment of the notes
scheduled to be paid during the 1995-96 fiscal year was rescheduled to be made
over the four fiscal years ending June 30, 1999. Connecticut's general
obligation bonds are rated AA- by S&P and Aa3 by Moody's. On March 17, 1995,
Fitch reduced its ratings of Connecticut's general obligations bonds from AA+ to
AA.
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. State
legislation enacted in 1993 prohibits municipal bankruptcy filings without the
prior written consent of the Governor. 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
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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 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 obligations to pay principal and interest. Since the
Fund invests primarily in Rhode Island Municipal Securities, the value
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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
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<PAGE> 729
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 FDIC. 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 Funds will invest in the obligations of U.S. branches of foreign
banks or foreign branches of
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<PAGE> 730
U.S. banks only when Fleet 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 Fleet 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% (15% with respect
to the New Jersey Municipal Bond Fund) 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 Fleet 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% (15% with respect to the New Jersey Municipal Bond Fund) 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
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<PAGE> 732
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 Fleet to be of good standing and only when, in Fleet'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 Fund, other investment portfolios of Galaxy, or any
other investment companies advised by Fleet.
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, Fleet 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 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
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<PAGE> 734
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 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 or other liquid assets, 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 Fleet 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 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> 735
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 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 total assets, the Fund's liquidity and the ability of
Fleet 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,
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<PAGE> 736
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. 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
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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 value of mortgage-related securities,
including government and government-related mortgage pools, generally will
fluctuate in response to market interest rates.
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%
(15% with respect to the New Jersey Municipal Bond Fund) 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% (15% with respect to the New
Jersey Municipal Bond Fund) 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
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<PAGE> 738
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.
Fleet 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 Fleet'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
Fleet 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." Although the New Jersey Municipal Bond Fund cannot accurately predict
its annual portfolio turnover rate, it is not expected to exceed 100%.
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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 that each Fund
may borrow 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 its 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% (15% with respect to the New Jersey
Municipal Bond Fund) 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 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
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<PAGE> 740
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 Jersey Municipal Bond, 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 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
-41-
<PAGE> 741
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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors is a
registered broker/dealer with principal offices located at 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
GENERAL
Investments in Retail A Shares of the Funds are 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.
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<PAGE> 742
FD Distributors 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 FD Distributors, 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 FD
Distributors on a Business Day in accordance with FD Distributors' 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 FD Distributors and for wiring required
funds in payment to Galaxy's custodian on a timely basis. FD Distributors 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 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.
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<PAGE> 743
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 FD Distributors 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 FD
Distributors, 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
1-800-628-0414 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 FD Distributors at 1-800-628-0414. Redemptions will not
be processed until the application in proper form has been
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<PAGE> 744
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 FD Distributors 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 FD Distributors on a Business Day in accordance with
the above procedures. On a Business Day when the Exchange closes early due to a
partial holiday or otherwise, Galaxy will advance the times at which purchase
orders must be received in order to be processed on that Business Day.
OTHER PURCHASE INFORMATION
Except as provided under "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
Shares to Direct Investors and Institutions is recorded on the books of Galaxy
and 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 assessed is as follows:
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<PAGE> 745
<TABLE>
<CAPTION>
REALLOWANCE
TO
TOTAL SALES CHARGE DEALERS
------------------------------------------ --------------
As a % of As a % of As a % of
AMOUNT OF Offering Price Net Asset Offering Price
TRANSACTION Per Share Value Per Share Per Share
- ------------ -------------- --------------- --------------
<S> <C> <C> <C>
Less than
$50,000 3.75 3.90 3.25
$50,000 but less
than $100,000 3.50 3.63 3.00
$100,000 but
less than 3.00 3.09 2.50
$250,000
$250,000 but
less than 2.50 2.56 2.00
$500,000
$500,000 and
over 0.00* 0.00* 0.00
</TABLE>
* There is no initial sales charge on purchases of $500,000 or more of Retail A
Shares; however, a contingent deferred sales charge of 1.00% will be imposed on
the lesser of the offering price or the net asset value of such Retail A Shares
on the redemption date for Shares redeemed within one year after purchase.
Further reductions in the sales charges shown above are also
possible. See "Quantity Discounts" below.
FD Distributors will pay the appropriate reallowance to dealers to
broker-dealer organizations which have entered into agreements with FD
Distributors. The reallowance to dealers may be changed from time to time.
At various times FD Distributors may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, FD Distributors in its discretion may from time to time, pursuant
to objective criteria established by FD Distributors, 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 FD
Distributors 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> 746
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 purchases of Retail A Shares of the Funds by the following
categories of investors or in the following types of transactions:
- reinvestment of dividends and distributions;
- purchases by any retirement account, including but not
limited to SIMPLE, IRA, SEP, Keogh and Roth accounts;
- 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 broker-dealers
having agreements with FD Distributors 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 made with redemption proceeds from another mutual fund
complex on which a front-end or back-end sales charge has been paid,
provided the purchase is made within 60 days after the redemption;
- purchases by current and retired members of Galaxy's Board of
Trustees and members of their immediate families;
- purchases by officers, directors, employees and retirees of Fleet
Financial Group, Inc. and any of its affiliates and members of their
immediate families;
- purchases by officers, directors, employees and retirees of First
Data Corporation and any of its affiliates and members of their
immediate families;
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<PAGE> 747
- purchases by persons who are also plan participants in any employee
benefit plan which is the record or beneficial holder of Trust Shares
of any of the portfolios offered by Galaxy; and
- any purchase 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 FD Distributors 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
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<PAGE> 748
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 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 FD
Distributors' 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
FDISG, Galaxy's transfer agent, receives a reinstatement request and payment in
proper form.
-49-
<PAGE> 749
Direct Investors and Customers wishing to exercise this Privilege must
submit a written reinstatement request to FDISG as 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 as to 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.
APPLICABLE SALES CHARGE - 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 FD Distributors 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.
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<PAGE> 750
<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 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 FD Distributors, 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. In addition to the foregoing exemptions, no contingent
deferred sales charge will be imposed on redemptions made pursuant to the
Systematic Withdrawal Plan, subject to the
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<PAGE> 751
limitations set forth under "Investor Programs - Automatic Investment Program
and Systematic Withdrawal Plan" below.
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 .15% of the Fund's
average daily net assets attributable to its Retail A Shares.
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 FD
Distributors 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.
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<PAGE> 752
Retail B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charge -- 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 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
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<PAGE> 753
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 distribution and shareholder servicing fees on
Retail B Shares 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, 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
Redemption orders are effected at the net asset value per share next
determined after receipt and acceptance of the order by FD Distributors. On a
Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day. 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 FD
Distributors 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.
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Payments for redemption orders received by the FD Distributors 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 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. FD Distributors will not
accept guarantees from notaries public. FD Distributors 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 FD Distributors 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 FD Distributors of
the redemption request. Questions with respect to the proper form for redemption
requests should be directed to FD Distributors at 1-800-628-0414.
Redemption by Telephone. Direct Investors may redeem Retail Shares by
calling 1-800-628-0414 and instructing FD Distributors 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
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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 FD Distributors 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. FD Distributors 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 FD
Distributors. To request redemption of Retail Shares by wire, Direct Investors
should call FD Distributors at 1-800-628-0414.
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 FD
Distributors. 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 FD Distributors is reasonably satisfied that the check has been
collected which
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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 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 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, MidCap Equity, Asset Allocation, Growth and
Income and Special Equity 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.
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The minimum initial investment to establish an account in another Fund
or portfolio by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless at the time of the exchange the Direct Investor or
Customer elects, with respect to the Fund or 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 Government 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 1-800-628-0414. Customers of Institutions should
call their Institution for such information. Customers exercising the exchange
privilege into other portfolios should request and review these portfolios'
prospectuses prior to making an exchange. Telephone 1-800-628-0414 for a
prospectus or to make an exchange. See "How to Redeem Shares -- Redemption
Procedures -- Direct Investors -- Redemptions by Wire" above for a description
of Galaxy's policy on telephone transactions.
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.
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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 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 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.
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 FDISG, Galaxy's 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. No contingent deferred sales charge will be
assessed on redemptions of Retail B Shares made through the Systematic
Withdrawal Plan that do not exceed 12% of an account's net asset value on an
annualized basis. For example, monthly, quarterly and semi-annual Systematic
Withdrawal Plan redemptions of Retail B Shares will not be subject to the
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contingent deferred sales charge if they do not exceed 1%, 3% and 6%,
respectively, of an account's net asset value on the redemption date. Systematic
Withdrawal Plan redemptions of Retail B Shares in excess of this limit are still
subject to the applicable 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 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 FD Distributors (call
1-800-628-0414).
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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 FD Distributors at 1-800-628-0414. 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
redemptions and exchanges. These transactions are subject to the terms and
conditions described above under "How to Redeem Shares" and "Investor Programs".
To access the Voice Response System, just call 1-800-628-0414 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 1-800-628-0414.
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
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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
The Tax-Exempt Bond Fund, New York Municipal Bond Fund, Connecticut
Municipal Bond Fund, Massachusetts Municipal Bond Fund and Rhode Island
Municipal Bond Fund each qualified during its last taxable year and intends to
continue to qualify, and the New Jersey Municipal Bond Fund intends 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 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.")
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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 applicable to corporations.
Corporate shareholders must also take all exempt-interest dividends into account
in determining certain adjustments for federal alternative minimum 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, mid-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 subject to tax.
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.
It is anticipated that substantially all dividends paid by the New
Jersey Municipal Bond Fund will not be subject to New Jersey personal income
tax. In accordance with the provisions of
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New Jersey law as currently in effect, distributions paid by a "qualified
investment fund" will not be subject to the New Jersey personal income tax to
the extent that the distributions are attributable to income received as
interest or gain from New Jersey Municipal Securities (as defined above), or as
interest or gain from direct U.S. Government obligations. Distributions by a
"qualified investment fund" that are attributable to most other sources will be
subject to the New Jersey personal income tax. Shares of the Fund are not
subject to property taxation by New Jersey or its political subdivisions.
The New Jersey personal income tax is not applicable to corporations.
For all corporations subject to the New Jersey Corporation Business Tax,
dividends and distributions from a "qualified investment fund" are included in
the net income tax base for purposes of computing the Corporation Business Tax.
Furthermore, any gain upon the redemption or sale of shares by a corporate
shareholder is also included in the net income tax base for purposes of
computing the Corporation Business Tax.
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 (as defined above). Other Fund dividends and
distributions, whether received in cash or additional Retail Shares, are subject
to this tax, except that capital gain dividends are not subject to the tax to
the extent they are 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. Dividends and distributions paid by the Fund that constitute
items of tax preference for purposes of the federal alternative
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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 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 (as defined above), (ii)
capital gains realized by the Fund from the sale of certain Massachusetts
Municipal Securities, or (iii) interest on U.S. Government Obligations exempt
from state income taxation. 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. In 1994, the
Massachusetts personal income tax statute was modified to provide for graduated
rates of tax (with some exceptions) on gains from the sale or exchange of
capital assets held for more than one year based on the length of time the asset
has been held since January 1, 1995. The Massachusetts Department of Revenue has
released proposed regulations providing that the holding period of the mutual
fund (rather than that of its shareholders) will be determinative for purposes
of applying the revised statute to shareholders that receive capital gain
distributions (other than exempt capital gain distributions as discussed above),
so long as the mutual fund separately designates the amount of such
distributions attributable to each of six classes of gains from the sale or
exchange of capital assets held for more than one year in a notice provided to
shareholders and the Commissioner of Revenue on or before March 1 of the
calendar year after the calendar year of such distributions. In the absence of
such notice, the holding period of the assets giving rise to such gain is deemed
to be more than one but not more than two years. Shareholders should consult
their tax advisers with respect to the Massachusetts tax treatment of capital
gain distributions from the Fund.
Distributions by the Massachusetts Municipal Bond Fund to corporate
shareholders, including exempt-interest dividends, may be subject to
Massachusetts corporate excise tax. Fund shares are not, however, subject to
property taxation by Massachusetts or its political subdivisions.
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 (as defined above) 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.
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The Rhode Island Municipal Bond Fund will be subject to the Rhode Island
business corporation tax on its "gross income" apportioned to the State of Rhode
Island. 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 Jersey Municipal Bond,
New York Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal
Bond and Rhode Island Municipal Bond Funds, the New Jersey personal income tax,
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 75 State Street, Boston, Massachusetts
02108, 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,
1997. 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.
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.
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For the services provided and expenses assumed with respect to the
Funds, Fleet 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 Bank or
other subsidiaries of Fleet Financial Group, Inc., in consideration for
administrative and/or 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, 1997, Fleet received advisory fees (after fee
waivers) at the effective annual 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. In addition to fee waivers, Fleet also
reimbursed the Tax-Exempt Bond, New York Municipal Bond and Rhode Island
Municipal Bond Funds for certain operating expenses, which reimbursement may be
revised or discontinued at any time. The New Jersey Municipal Bond Fund did not
conduct investment operations during the fiscal year ended October 31, 1997.
The organizational arrangements of Fleet require that all investment
decisions with respect to the Funds be made by Fleet's Tax-Exempt Investment
Policy Committee and no one person is responsible for making recommendations to
that Committee.
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 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. Fleet, the custodian
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<PAGE> 767
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 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. For the
services provided to the Funds, 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. In addition, FDISG also receives a separate
annual fee from each Portfolio for certain fund accounting services. From time
to time, FDISG may waive voluntarily all or a portion of the administration fee
payable to it by the Funds. For the fiscal year ended October 31, 1997, FDISG
received administration fees at the effective annual rate of ____% of the
average daily net assets of each of the Tax-Exempt Bond, New York Municipal
Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds. The New Jersey Municipal Bond Fund did not conduct
investment operations during the fiscal year ended October 31, 1997.
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-
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<PAGE> 768
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; 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; and Class Y Series 1 shares
(Trust Shares) and Class Y - Series 2 shares (Retail A Shares), each series
representing interests in the New Jersey Municipal Bond Fund. The Tax-Exempt
Bond Fund is classified as a diversified investment company and the New Jersey
Municipal Bond, 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 FD Distributors 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 investment portfolio 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 investment portfolio 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
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<PAGE> 769
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 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 FD Distributors; 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,
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<PAGE> 770
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 Tax-Exempt Bond
Fund. Under the Distribution and Services Plan, Galaxy may pay (a) FD
Distributors 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 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 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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<PAGE> 771
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at One 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 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 shareholder reports
and meetings; and any extraordinary expenses. The Funds also pay for brokerage
fees and commissions in connection with the purchase of portfolio securities.
PERFORMANCE AND REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that 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 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 of the Funds. Performance
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<PAGE> 772
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. 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 the 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. A Fund's tax-equivalent yield will
always be higher than its yield.
The Funds may also advertise their performance using "average annual
total return" figures 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 the Funds for Retail
A Shares and the applicable contingent deferred sales charge for Retail B Shares
of the Tax-Exempt Bond Fund 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.
The performance of the Funds will fluctuate and any quotation of
performance 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 data
are generally functions
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<PAGE> 773
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 shares of a Fund will not be included in
performance calculations.
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 a particular Fund or a particular series of shares in a
Fund 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 such Fund or such series of shares, or (b)
67% or more of the shares of such Fund or such series of shares present at a
meeting if more than 50% of the outstanding shares of such Fund or such series
of shares are represented at the meeting in person or by proxy.
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<PAGE> 774
RETAIL A SHARES
THE GALAXY FUND
Rhode Island Municipal Bond Fund
Prospectus
February __, 1998
<PAGE> 775
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
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
----------------
TABLE OF CONTENTS
<TABLE>
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HIGHLIGHTS......................................................................... 3
EXPENSE SUMMARY.................................................................... 6
FINANCIAL HIGHLIGHTS............................................................... 8
INVESTMENT OBJECTIVE AND POLICIES.................................................. 10
Special Considerations and Risks............................................ 11
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
Purchase Procedures -- Customers of Institutions............................ 26
Purchase Procedures -- Direct Investors..................................... 27
Other Purchase Information.................................................. 28
Applicable Sales Charge..................................................... 29
Quantity Discounts.......................................................... 31
Redemption Procedures -- Customers of Institutions.......................... 33
Redemption Procedures -- Direct Investors................................... 33
Other Redemption Information................................................ 36
INVESTOR PROGRAMS.................................................................. 36
Exchange Privilege.......................................................... 36
Automatic Investment Program and Systematic Withdrawal
Plan........................................................................ 38
Payroll Deduction Program................................................... 38
College Investment Program.................................................. 39
Direct Deposit Program...................................................... 39
</TABLE>
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<TABLE>
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<S> <C>
INFORMATION SERVICES............................................................... 39
Galaxy Information Center - 24 Hour Information
Service..................................................................... 39
Voice Response System....................................................... 40
Galaxy Shareholder Services................................................. 40
DIVIDENDS AND DISTRIBUTIONS........................................................ 40
TAXES.............................................................................. 41
Federal..................................................................... 41
State and Local............................................................. 42
Miscellaneous............................................................... 43
MANAGEMENT OF THE FUND............................................................. 43
Investment Adviser.......................................................... 43
Authority to Act as Investment Adviser...................................... 44
Administrator............................................................... 45
DESCRIPTION OF GALAXY AND ITS SHARES............................................... 45
Shareholder Services Plan................................................... 46
CUSTODIAN AND TRANSFER AGENT....................................................... 47
EXPENSES........................................................................... 47
PERFORMANCE REPORTING.............................................................. 48
MISCELLANEOUS...................................................................... 49
</TABLE>
-ii-
<PAGE> 777
THE GALAXY FUND
4400 Computer Drive For an application and
Westboro, Massachusetts information regarding
01581-5108 purchases, redemptions,
exchanges and other
shareholder services or for
current performance, call
1-800-628-0414.
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 First Data 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 are
not being offered to investors. Retail A Shares and Trust Shares represent equal
pro rata interests in the Fund, except
<PAGE> 778
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.
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.
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.
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 __, 1998
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<PAGE> 779
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, U.S. TREASURY, TAX-EXEMPT,
CONNECTICUT MUNICIPAL MONEY MARKET, MASSACHUSETTS MUNICIPAL MONEY MARKET,
INSTITUTIONAL GOVERNMENT MONEY MARKET, EQUITY VALUE, EQUITY GROWTH, EQUITY
INCOME, INTERNATIONAL EQUITY, SMALL COMPANY EQUITY, MIDCAP EQUITY, ASSET
ALLOCATION, GROWTH AND INCOME, SMALL CAP VALUE, SPECIAL EQUITY, SHORT-TERM BOND,
INTERMEDIATE GOVERNMENT INCOME, HIGH QUALITY BOND, CORPORATE BOND, TAX-EXEMPT
BOND, NEW JERSEY MUNICIPAL 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"), 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,
1997 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-seven mutual funds should your investment goals change.
Q: How does one buy and redeem shares?
A: The Fund is distributed by First Data 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
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<PAGE> 780
qualified banks, savings and loan associations and broker/dealers
("Institutions"). 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 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 a 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 assigned by
Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's"). Municipal Securities rated in the lowest of the four highest rating
categories assigned by Moody's or S&P are 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
-4-
<PAGE> 781
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 "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> 782
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
---------
<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. A deferred sales
charge of up to 1.00% is assessed on certain redemptions of Retail A
Shares that are purchased with no initial sales charge as part of an
investment of $500,000 or more. 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>
-6-
<PAGE> 783
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 Retail A Shares. Without voluntary fee waivers by
Fleet, Advisory Fees would be ___%, 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 [________________________] 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 A 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> 784
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, 1997 (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> 785
RHODE ISLAND MUNICIPAL BOND FUND
(FOR A RETAIL A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
OCT. 31, 1997 OCT. 31, 1996 OCT. 31, 1995(1)
RETAIL A SHARES RETAIL A SHARES RETAIL SHARES
--------------- --------------- -------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period............ $10.67 $10.00
------ ------
Income From Investment Operations:
Net Investment Income(2)....................... 0.51 0.44
Net realized and unrealized
gain (loss) on investments.................... 0.03 0.67
------ ------
Total From Investment
Operations:.................................... 0.54 1.11
------ ------
Less Dividends:
Dividends from net
investment income.............................. (0.51) (0.44)
Dividends from net realized
capital gains.................................. (0.05) --
------ ----
Total Dividends:............................... (0.56) (0.44)
------ ------
Net increase (decrease) in net
asset value.................................... (0.02) 0.67
------ ------
Net Asset Value, End of Period.................. $10.65 $10.67
====== ======
Total Return(3)................................. 5.22% 11.29%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............... $14,900 $10,850
Ratio to average net assets:
Net investment income including
reimbursement/waiver......................... 4.78% 5.13%(5)
Operating expenses including
reimbursement/waiver......................... 0.77% 0.40%(5)
Operating expenses excluding
reimbursement/waiver......................... 1.34% 2.25%(5)
Portfolio Turnover Rate......................... 13% 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
Fleet and/or the Fund's administrator for the fiscal years ended October
31, 1997 and 1996 and the period ended October 31, 1995 was $____, $0.45
and $0.28, respectively.
3 Calculation does not include sales charge for Retail A Shares.
4 Not Annualized.
5 Annualized.
-9-
<PAGE> 786
INVESTMENT OBJECTIVE AND POLICIES
Fleet Investment Advisors Inc., the Fund's investment adviser ("Fleet"),
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 Fleet's opinion, 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" 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.
-10-
<PAGE> 787
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 Fleet's opinion, prevailing market or economic conditions warrant.
Uninvested cash reserves may 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.
SPECIAL CONSIDERATIONS AND RISKS
INVESTMENT QUALITY
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 Fleet to be of comparable
quality. Municipal Securities rated within the four highest rating categories
assigned by 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
Fleet 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 Fleet 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
-11-
<PAGE> 788
Securities rated in the three highest rating categories assigned by S&P or
Moody's.
GENERAL RISK CONSIDERATIONS
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 Fleet. 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> 789
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
-13-
<PAGE> 790
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 FDIC. 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
-14-
<PAGE> 791
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 Fleet
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.
-15-
<PAGE> 792
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 Fleet will review the proceedings relating to the issuance of Municipal
Securities or the bases for such opinions.
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 Fleet 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
-16-
<PAGE> 793
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 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 Fleet to be of good standing and only when, in Fleet'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
-17-
<PAGE> 794
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 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 Fleet.
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 certificates of
participation that, in the opinion of counsel to the issuer, are exempt from
federal income tax. A certificate of participation gives the 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, Fleet 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, 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 specified dollar amount
multiplied by the difference between the
-18-
<PAGE> 795
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 or other liquid assets, 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 Fleet 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 it holds or intends 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> 796
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 Fleet 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> 797
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
-21-
<PAGE> 798
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.
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 Fund may from time to time, in accordance with its interest
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.
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<PAGE> 799
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.
Fleet 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 Fleet'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
Fleet 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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<PAGE> 800
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 that the Fund
may borrow 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 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.
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<PAGE> 801
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 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
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<PAGE> 802
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, First Data Distributors Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors is a
registered broker/dealer with principal offices located at 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
PURCHASE OF SHARES
FD Distributors 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
("Institutions") on behalf of their customers ("Customers"). Purchases by Direct
Investors may take place only on days on which FD Distributors, 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 FD
Distributors on a Business Day in accordance with FD Distributors' procedures.
PURCHASE PROCEDURES -- CUSTOMERS OF INSTITUTIONS
Purchase orders for Retail A Shares are placed by Customers of
Institutions through their Institutions. The Institution is responsible for
transmitting Customer purchase orders to FD
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<PAGE> 803
Distributors and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors 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 FD Distributors at
1-800-628-0414.
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 FD Distributors, 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
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<PAGE> 804
to making any purchase by wire, an investor must telephone 1-800-628-0414 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 FD Distributors 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 FD Distributors 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 FD Distributors on a Business Day
in accordance with the above procedures. On a Business Day when the Exchange
closes early due to a partial holiday or otherwise, Galaxy will advance the time
at which purchase orders must be received in order to be processed on that
Business Day.
OTHER PURCHASE INFORMATION
Except as provided under "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
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<PAGE> 805
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.
APPLICABLE SALES CHARGE
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 assessed is as follows:
<TABLE>
<CAPTION>
REALLOWANCE TO
TOTAL SALES CHARGE 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 3.25
$50,000 but less than $100,000 3.50 3.63 3.00
$100,000 but less than $250,000 3.00 3.09 2.50
$250,000 but less than $500,000 2.50 2.56 2.00
$500,000 and over 0.00* 0.00* 0.00
</TABLE>
* There is no initial sales charge on purchases of $500,000 or more of Retail A
Shares; however, a contingent deferred sales charge of 1.00% will be imposed on
the lesser of the offering price or the net asset value of such Retail A Shares
on the redemption date for Shares redeemed within one year after purchase.
Further reductions in the sales charges shown above are also
possible. See "Quantity Discounts" below.
FD Distributors will pay the appropriate reallowance to dealers to
broker-dealer organizations which have entered into agreements with FD
Distributors. The reallowance to dealers may be changed from time to time.
At various times, FD Distributors may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, FD Distributors in its discretion may from time to time, pursuant
to objective criteria established by FD Distributors, 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
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<PAGE> 806
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 FD Distributors 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 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 purchases of Retail A Shares of the Fund by the following
categories of investors or in the following types of transactions:
o reinvestment of dividends and distributions;
o purchases by any retirement account, including but not
limited to SIMPLE, IRA, SEP, Keogh and Roth accounts;
o 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;
o purchases by directors, officers and employees of broker-dealers
having agreements with FD Distributors pertaining to the sale of
Retail A Shares to the extent permitted by such organizations;
o investors who purchase pursuant to a "wrap fee" program offered by
any broker-dealer or other financial institution or financial
planning organization;
o purchases made with redemption proceeds from another mutual fund
complex on which a front-end or back-end sales charge has been paid,
provided the purchase is made within 60 days after the redemption;
o purchases by current and retired members of Galaxy's
Board of Trustees and members of their immediate
families;
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<PAGE> 807
o purchases by officers, directors, employees and retirees
of Fleet Financial Group, Inc. and any of its affiliates
and members of their immediate families;
o purchases by officers, directors, employees and retirees of First
Data Corporation and any of its affiliates and members of their
immediate families;
o purchases by persons who are also plan participants in any employee
benefit plan which is the record or beneficial holder of Trust Shares
of any of the portfolios offered by Galaxy; and
o any purchase 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 FD Distributors 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%
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<PAGE> 808
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 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 FD
Distributors' 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.
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<PAGE> 809
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 FDISG,
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 FDISG as 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 as to 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.
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 FD
Distributors 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 FD Distributors 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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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. FD Distributors will not accept guarantees from notaries
public. FD Distributors 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
FD Distributors 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 FD Distributors of the redemption request.
Questions with respect to the proper form for redemption requests should be
directed to FD Distributors at 1-800-628-0414.
Redemption by Telephone. Direct investors may redeem Retail A Shares by
calling 1-800-628-0414 and instructing FD Distributors 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 FD Distributors 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. FD Distributors 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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same bank and account as designated on the application or in written
instructions subsequently received by FD Distributors. To request redemption of
Retail A Shares by wire, Direct Investors should call FD Distributors at
1-800-628-0414.
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 FD
Distributors. 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 FD Distributors 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.
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<PAGE> 812
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 FD Distributors. On a
Business Day when the Exchange closes early due to partial holiday or otherwise,
Galaxy will advance the time at which redemption orders must be received in
order to be processed on that Business Day. 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 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 portfolio offered by Galaxy or otherwise advised by Fleet, except for
the Institutional Government Money Market Fund, 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
Government Money Market Fund is $2 million.
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<PAGE> 813
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. 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 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 1-800-628-0414. Customers of Institutions should call their
Institution for such information. Customers exercising the exchange privilege
into other portfolios should request and review these portfolios' prospectuses
prior to making an exchange. Telephone 1-800-628-0414 for a prospectus or to
make an exchange. 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 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 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.
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<PAGE> 814
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, 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 FDISG, Galaxy's 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 A Shares of the Fund 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
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<PAGE> 815
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 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 FD Distributors (call
1-800-628-0414).
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 FD Distributors at 1-800-628-0414.
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
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<PAGE> 816
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
redemptions and exchanges. These transactions are subject to the terms and
conditions described under "How To Purchase and Redeem Shares" and "Investor
Programs" above. To access the Voice Response System, just call 1-800-628-0414
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 1-800-628-0414.
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
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<PAGE> 817
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 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 applicable to corporations.
Corporate shareholders must also take all exempt-interest dividends into
account in determining certain adjustments for federal alternative minimum 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, mid-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
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<PAGE> 818
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.
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 forthcoming distribution payment, although in effect a return of capital,
generally will be subject to tax.
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 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 (as
defined above) 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 A Shares of
the Fund.
The Fund will be subject to the Rhode Island business corporation tax on
its "gross income" apportioned to the State of Rhode Island. 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
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<PAGE> 819
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 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 75 State Street, Boston, Massachusetts
02109, 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,
1997. 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.
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,
Fleet 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.
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<PAGE> 820
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 Bank or
other subsidiaries of Fleet Financial Group, Inc., in consideration for
administrative and/or shareholder 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, 1997, Fleet received advisory fees (after fee waivers) at
the effective annual rate of ___% of the Fund's average daily net assets. In
addition to the fee waivers, Fleet reimbursed the Fund during the fiscal year
ended October 31, 1997 for certain operating expenses, which reimbursement may
be revised or discontinued at any time.
The organizational arrangements of Fleet require that all investment
decisions with respect to the Fund be made by Fleet's Tax-Exempt Investment
Policy Committee, and no one person is primarily responsible for making
recommendations to that committee.
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 A
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. Fleet, the 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 its net asset value per share or result in financial losses to any
shareholder.
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<PAGE> 821
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. 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 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. In addition, FDISG also receives a separate
annual fee from each Portfolio for certain fund accounting services. From time
to time, FDISG may waive voluntarily all or a portion of the administration fee
payable to it by the Fund. For the fiscal year ended October 31, 1997, FDISG
received 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 each 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 portfolios, which are offered through separate
prospectuses, contact FD Distributors 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.
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<PAGE> 822
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 investment portfolio 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 investment portfolio 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 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 FD
Distributors; 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> 823
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 One 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.
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 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
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<PAGE> 824
insurance premiums; outside auditing and legal expenses; costs of independent
pricing services; costs of shareholders' reports and meetings; and any
extraordinary expenses. The Fund also pays for brokerage fees and commissions in
connection with the purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that 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 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 of the Fund. Performance data 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
payment of federal income taxes at a stated tax rate. The Fund's tax-equivalent
yield will always be higher than its yield.
The Fund may also advertise its performance using "average annual total
return" figures 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
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<PAGE> 825
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 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.
The performance of the Fund will fluctuate and any quotation of
performance 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 data
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 directly by Institutions to accounts of
Customers that have invested in Retail A Shares of the Fund will not be included
in performance calculations.
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 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 the Fund means, with respect to the approval of an
investment advisory agreement or a change in an investment objective or
fundamental investment
-49-
<PAGE> 826
policy, the affirmative vote of the holders of the lesser of (a) more than 50%
of the outstanding shares of the Fund, or (b) 67% or more of the shares of the
Fund present at a meeting if more than 50% of the outstanding shares of the Fund
are represented at the meeting in person or by proxy.
-50-
<PAGE> 827
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 Jersey Municipal Bond Fund
New York Municipal Bond Fund
Connecticut Municipal Bond Fund
Massachusetts Municipal Bond Fund
Rhode Island Municipal Bond Fund
February ___ , 1998
<PAGE> 828
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 Jersey Municipal Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds, each dated February , 1998, 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 Distributors, Inc., 4400 Computer Drive, Westboro,
Massachusetts 01581 or by calling Galaxy at 1-800-628-0414.
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.
<PAGE> 829
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 ............................................ 1
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 .............................................. 7
Foreign Currency Exchange Transactions ............................. 7
Special Considerations Relating to New York Municipal
Securities ......................................................... 11
Special Considerations Relating to Connecticut
Municipal Securities ............................................... 27
Additional Investment Limitations .................................. 31
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION .......................... 33
DESCRIPTION OF SHARES ................................................... 36
ADDITIONAL INFORMATION CONCERNING TAXES ................................. 38
In General ......................................................... 38
Tax-Exempt Bond Funds .............................................. 40
Taxable Bond Funds ................................................. 41
Taxation of Certain Financial Instruments .......................... 42
State Taxation ..................................................... 45
TRUSTEES AND OFFICERS ................................................... 45
Shareholder and Trustee Liability .................................. 49
ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER AGENCY
AGREEMENTS .............................................................. 50
Custodian and Transfer Agent ....................................... 54
PORTFOLIO TRANSACTIONS .................................................. 55
SHAREHOLDER SERVICES PLAN ............................................... 56
DISTRIBUTION AND SERVICES PLAN .......................................... 57
DISTRIBUTOR ............................................................. 59
AUDITORS ................................................................ 61
COUNSEL ................................................................. 62
PERFORMANCE AND YIELD INFORMATION ....................................... 62
Yield and Performance of the Funds ................................. 62
MISCELLANEOUS ........................................................... 68
APPENDIX A............................................................... A-1
APPENDIX B............................................................... B-1
FINANCIAL STATEMENTS..................................................... FS-1
</TABLE>
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<PAGE> 830
THE GALAXY FUND
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-seven investment
portfolios.
This Statement of Additional Information relates to ten of those
investment portfolios: the Short-Term Bond Fund, Intermediate Government Income
Fund, High Quality Bond Fund and Corporate Bond Fund (the "Taxable Bond Funds"),
and the Tax-Exempt Bond Fund, New Jersey Municipal 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"), 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.
ASSET-BACKED SECURITIES
Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership
<PAGE> 831
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 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
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<PAGE> 832
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, Inc. ("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 Municipal 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 of
interest on and principal of its Municipal Securities may be materially
adversely affected by litigation or other conditions.
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<PAGE> 833
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 will review the proceedings relating to the
issuance of Municipal Securities or the bases for such opinions.
-4-
<PAGE> 834
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 adversely 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 underlying Municipal Security, and may be sold, transferred or assigned
by the Fund only with respect to the underlying instruments.
-5-
<PAGE> 835
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, Fleet 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 portfolio 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 would be invested in high quality, short-term
"money market" instruments.
-6-
<PAGE> 836
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
specific securities transactions or changes in foreign currency exchange rates
that would adversely
-7-
<PAGE> 837
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 JERSEY MUNICIPAL SECURITIES.
The State of New Jersey and its political subdivisions, agencies and
public authorities are authorized to issue two general classes of indebtedness:
general obligation bonds and revenue bonds. Both classes of bonds may be
included in the New Jersey Municipal Bond Fund's portfolio. The repayment of
principal and interest on general obligation bonds is secured by the full faith
and credit of the issuer, backed by the issuer's taxing authority, without
recourse to any special project or source of revenue. Special obligation or
revenue bonds may be repaid only from revenues received in connection with the
project for which the bonds are issued, special excise taxes, or other special
revenue sources and generally are issued by entities without taxing power.
Neither the State of New Jersey nor any of its subdivisions is liable for the
repayment of principal or interest on revenue bonds except to the extent stated
in the preceding sentences.
General obligation bonds of the State are repaid from revenues obtained
through the State's general taxing authority. An inability to increase taxes may
adversely affect the State's ability to authorize or repay debt.
Public authorities, private non-profit corporations, agencies and
similar entities of New Jersey ("Authorities") are established for a variety of
beneficial purposes, including economic development, housing and mortgage
financing, health care facilities and public transportation. The Authorities are
not operating entities of the State of New Jersey, but are separate
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legal entities that are managed independently. The State oversees the
Authorities by appointing the governing boards, designating management, and by
significantly influencing operations. The Authorities are not subject to New
Jersey constitutional restrictions on the incurrence of debt, applicable to the
State of New Jersey itself, and may issue special obligation or private activity
bonds in legislatively authorized amounts.
An absence or reduction of revenue will affect a bond-issuing
Authority's ability to repay debt on special obligation bonds and no assurance
can be given that sufficient revenues will be obtained to make such payments,
although in some instances repayment may be guaranteed or otherwise secured.
Various Authorities have issued bonds for the construction of health
care facilities, transportation facilities, office buildings and related
facilities, housing facilities, pollution control facilities, water and sewage
facilities and power and electric facilities. Each of these facilities may incur
different difficulties in meeting its debt repayment obligations. Hospital
facilities, for example, are subject to changes in Medicare and Medicaid
reimbursement regulations, attempts by Federal and state legislatures to limit
the costs of health care and management's ability to complete construction
projects on a timely basis as well as to maintain projected rates of occupancy
and utilization. At any given time, there are several proposals pending on a
federal and state level concerning health care which may further affect a
hospital's debt service obligation.
Housing facilities may be subject to increases in operating costs,
management's ability to maintain occupancy levels, rent restrictions and
availability of federal or state subsidies, while power and electric facilities
may be subject to increased costs resulting from environmental restrictions,
fluctuations in fuel costs, delays in licensing procedures and the general
regulatory framework in which these facilities operate. All of these entities
are constructed and operated under rigid regulatory guidelines.
Some entities which financed facilities with proceeds of private
activity bonds issued by the New Jersey Economic Development Authority, a major
issuer of special obligation bonds, have defaulted on their debt service
obligations. Because these special obligation bonds were repayable only from
revenue received from the specific projects which they funded, the New Jersey
Economic Development Authority was unable to repay the debt service to
bondholders for such facilities. Each issue of special obligation bonds,
however, depends on its own revenue for repayment, and thus these defaults
should not affect the ability of the New Jersey Economic Development Authority
to repay obligations on other bonds that it issues in the future.
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The State has experienced a gradual economic recovery in the past five
years. While unemployment in manufacturing has declined, employment gains have
been recorded in business services, construction and retail sectors. Business
investment expenditures and consumer spending have also increased substantially
in the State as well as in the Nation. To the extent that any adverse conditions
exist in the future which affect the obligor's ability to repay debt, the value
of the New Jersey Municipal Bond Fund may be immediately and substantially
affected.
The following are cases presently pending or threatened in which the
State has a potential for either a significant loss of revenue or a significant
unanticipated expenditure: (1) several labor unions have challenged 1994
legislation mandating a revaluation of several public employee pension funds
which resulted in a refund of millions of dollars in public employer
contributions to the State and significant ongoing annual savings to the State;
(ii) several cases filed in the State courts challenged the basis on which
recoveries of certain costs for residents in State psychiatric hospitals and
other facilities are shared between the State Department of Human Services and
the State's county governments, and certain counties are seeking the recovery
from the Department of costs they have incurred for the maintenance of such
residents; (iii) the County of Passaic and other parties have filed suit
alleging the State violated a 1984 consent order concerning the construction of
a resource recovery facility in that county; (iv) several Medicaid eligible
children and the Association for Children of New Jersey have filed suit claiming
the Medicaid reimbursement rates for services rendered to such children are
inadequate under federal law; (v) a coalition of churches and church leaders in
Hudson County have filed suit asserting the State-owned Liberty State Park in
Jersey City violates environmental standards; (vi) representatives of the
trucking industry have filed a constitutional challenge to annual hazardous and
solid waste licensure renewal fees: (vii) the New Jersey Hospital Association
has filed a constitutional challenge to the State's failure to provide funding
for charity care costs, while requiring hospitals to treat all patients without
ability to pay; (viii) the Education Law Center filed a motion compelling the
State to close the spending gap between poor urban school districts and wealthy
rural school districts; (ix) a group of insurance companies have filed a
constitutional challenge to the State's assessment of monies pursuant to the
Fair Automobile Insurance Reform Act of 1990; (x) a class action consisting of
prisoners with serious mental disorders has been filed against officers of the
Department of Corrections, alleging sex discrimination, violation of the
Americans with Disabilities Act of 1990, and constitutional violations; (xi) a
class action has been brought in federal court challenging the State's method of
determining the monthly needs of a spouse of an institutionalized person under
the Medicare Catastrophic Act;
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(xii) several suits have been filed against the State in federal court alleging
that the State committed securities fraud and environmental violations in the
financing of a new Atlantic City highway and tunnel; (xiii) a class action has
been filed against the State alleging the State's breach of contract for not
paying certain Medicare co-insurance and deductibles; and (xiv) an action has
been filed challenging the State's issuance of bonds to fund the accrued
liability in its pension funds under the Pension Bond Financing Act of 1997.
Although the New Jersey Municipal Bond Fund generally intends to invest
its assets primarily in New Jersey Municipal Securities rated within the four
highest rating categories assigned by S&P or Moody's, there can be no assurance
that such ratings will remain in effect until such obligations mature or are
redeemed or will not be revised downward or withdrawn. Such revisions or
withdrawals may have an adverse affect on the market price of such securities.
Although there can be no assurance that such conditions will continue,
the State's general obligation bonds are currently rated "AA+" by S&P and "AA1"
by Moody's.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL SECURITIES
Some of the significant financial considerations relating to the
Fund's investments 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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State per capita personal income has historically been
significantly higher than the national average, although the ratio has varied
substantially. According to data published by the U.S. Bureau of Economic
Analysis, total personal income in the State has risen more slowly than the
national average since 1988. The total employment growth rate in the State has
been below the national average since 1987. The unemployment rate in the State
dipped below the national rate in the second half of 1981 and remained lower
until 1991; since then, it has been higher than the national rate.
There can be no assurance that the State economy will not
experience worse-than-predicted results in the 1997-1998 fiscal year, with
corresponding material and adverse effects on the State's projections of
receipts and disbursements.
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 monies 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 State's budget for the 1997-98 fiscal year was adopted by the
Legislature on August 4, 1997, more than four 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 State-supported debt
service. The State Financial Plan for the 1997-98 fiscal year was formulated on
August 11, 1997 and was based on the State's budget as enacted by the
Legislature, as well as actual results for the first quarter of the current
fiscal year (the "1997-98 State Financial Plan"). In recent years, the State has
failed to adopt a budget prior to the beginning of its fiscal year. There can be
no assurance that State budgets in future fiscal years will be adopted by the
April 1 statutory deadline.
The adopted 1997-98 budget projected an increase in General Fund
disbursements of $1.7 billion or 5.2 percent over 1996-97 levels. The General
Fund's average annual growth rate over the last three fiscal years was
approximately 1.2 percent. State Funds disbursements (excluding federal grants)
are
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projected to increase by 5.4 percent from the 1996-97 fiscal year. All
Governmental Funds projected disbursements increase by 7.0 percent over the
1996-97 fiscal year.
The 1997-98 State Financial Plan is projected to be balanced on a
cash basis. The Financial Plan projections include a reserve for future needs of
$530 million. As compared to the Governor's Executive Budget as amended in
February 1997, the State's adopted budget for 1997-98 increased General Fund
spending by $1.7 billion, primarily from increases for local assistance ($1.3
billion). Resources used to fund these additional expenditures include increased
revenues projected for the 1997-98 fiscal year, increased resources produced in
the 1996-97 fiscal year that will be utilized in 1997-98, re-estimates of
social service, fringe benefit and other spending, and certain non-recurring
resources.
The 1997-98 adopted budget includes multi-year reductions,
including a State-funded property and local income tax reduction program, estate
tax relief, utility gross receipts tax reductions, permanent reductions in the
State sales tax on clothing, and elimination of assessments on medical
providers. These reductions are intended to reduce the overall level of State
and local taxes in New York and to improve the State's competitive position
vis-a-vis other states. The various elements of the State and local tax and
assessments reductions have little or no impact on the 1997-98 State Financial
Plan, and do not begin to materially affect the outyear projections until the
State's 1999-2000 fiscal year.
The Division of the Budget estimates that the 1997-98 State
Financial Plan contains actions that provide non-recurring resources or savings
totaling approximately $270 million (or 0.7 percent of total General Fund
receipts). These include the use of $200 million in federal reimbursement funds
available from retroactive social service claims approved by the federal
government in April 1997. The balance is composed of various other actions,
primarily the transfer of unused special revenue fund balances to the General
Fund.
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 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. Actual results, however, could differ
materially and adversely from the
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projections set forth in the 1997-98 State Financial Plan, and those projections
may be changed materially and adversely from time to time.
In the past, the State has taken management actions and made use
of internal sources to address potential State financial plan shortfalls, and
the Division of Budget believes it could take similar actions should variances
occur in its projections for the current fiscal year.
In recent years, State actions affecting the level of receipts and
disbursements, the relative strength of the State and regional economy, actions
of the federal government and other factors have created structural budget gaps
for the State. These gaps resulted from a significant disparity between
recurring revenues and the costs of maintaining or increasing the level of
support for State programs. To address a potential imbalance in any given fiscal
year, the State would be required to take actions to increase receipts and/or
reduce disbursements as it enacts the budget for that year, and under the State
Constitution, the Governor is required to propose a balanced budget each year.
There can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.
Other actions taken in the 1997-98 adopted budget add further
pressure to future budget balance in New York State. For example, the fiscal
effects of tax reductions adopted in the 1997-98 budget are projected to grow
more substantially beyond the 1998-99 fiscal year, with incremental costs
averaging in excess of $1.3 billion annually over the last three years of the
tax reduction program. These incremental costs reflect the phase-in of
State-funded school property tax and local income tax relief, the phase-out of
the assessments on medical providers, and reductions in estate and gift levies,
utility gross receipts taxes, and the State sales tax on clothing. The full
annual cost of the enacted tax reduction package is estimated at approximately
$4.8 billion when fully effective in State fiscal year 2001-02. In addition, the
1997-98 budget included multi-year commitments for school aid and
pre-kindergarten early learning programs which could add as much as $1.4 billion
in costs when fully annualized in fiscal year 2001-02. These spending
commitments are subject to annual appropriation.
On September 11, 1997, the New York State Comptroller issued a
report which noted that the ability to deal with future budget gaps could become
a significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending,
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showed a gap in the 2000-2001 State fiscal year of $5.6 billion and of $7.4
billion in the 2001-2002 State fiscal year. The report noted that these gaps
would be smaller if recurring spending reductions produce savings in earlier
years. The State Comptroller has also stated that if Wall Street earnings
moderate and the State experiences a moderate recession, the gap for the
2001-2001 State fiscal year could grow to nearly $12 billion.
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.
Total General Fund receipts and transfers from other funds in the
1997-98 fiscal year are projected to be $35.09 billion, an increase of over $2
billion or approximately 6% from the $33.04 billion recorded in the prior fiscal
year. Total General Fund disbursements and transfers to other funds are
projected at $34.60 billion, an increase of $1.7 billion or approximately 5%
from the total in the prior fiscal year.
The State's financial position on a GAAP (generally accepted
accounting principles) basis as of March 31, 1997 showed a total equity balance
in its combined governmental funds of $826 million, reflecting assets of $15.87
billion and liabilities of $15.04 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 its
authorities and public benefit corporations ("Authorities"). Payments of debt
service on State general obligation and State-guaranteed bonds and notes are
legally enforceable obligations of the State of New York.
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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 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") to restructure the way the State makes certain
local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
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 the State's annual seasonal borrowing. The legislation empowered LGAC to
issue its bonds and notes in an amount to yield net proceeds not in excess of
$4.7 billion (exclusive of certain refunding bonds). Over a period of years, the
issuance of these long-term obligations, which were 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
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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 was
thus permitted in any fiscal year, it was 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.
On January 13, 1992, S&P 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. See Appendix "A" for an explanation of bond ratings. On August
28, 1997, S&P revised its ratings on the State's general obligation bonds from
A- to A and revised its ratings on the State's moral obligation, lease purchase,
guaranteed and contractual obligation debt. On January 6, 1992, 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 anticipates that its capital programs will be financed,
in part, by State and public authorities borrowings in the 1997-98 fiscal year.
The State expects to issue $605 million in general obligation bonds (including
$140 million for purposes of redeeming outstanding bond anticipation notes) and
$140 million in general obligation commercial paper. The Legislature has also
authorized the issuance of $311 million in certificates of participation
(including costs of issuance, reserve funds and other costs) during the State's
1997-98 fiscal year for equipment purchases. The projection of State borrowings
for the 1997-98 fiscal year is subject to change as market conditions, interest
rates and other factors vary throughout the fiscal year.
Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $1.9 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments for 1997-98 capital projects.
In the 1997 legislative session, the Legislature also approved two
new authorizations for lease-purchase and contractual obligation financings. An
aggregate $425 million was authorized for four public authorities for the
Community Enhancement Facility Program for economic development purposes. The
Legislature also authorized the issuance of up to $40 million
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to finance the expansion and improvement of facilities at the Albany County
airport.
Principal and interest payments on general obligation bonds and
interest payments on bond anticipation notes were $749.6 million for the 1996-97
fiscal year, and are estimated to be $720.9 million for the 1997-98 fiscal year.
Principal and interest payments on fixed rate and variable rate bonds issued by
LGAC were $329.5 million for the 1996-97 fiscal year, and are estimated to be
$329.6 million for the 1997-98 fiscal year. State lease-purchase and
contractual-obligation payments were $1.74 billion in fiscal year 1996-97, and
are estimated to be $2.21 billion in fiscal year 1997-98.
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) an 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 to
regulations promulgated by the Superintendent of Insurance establishing certain
excess medical malpractice premium rates; (7) challenges to certain aspects of
petroleum business taxes; (8) an action alleging damages resulting from the
failure by the State's Department of Environmental Conservation to timely
provide certain data; (9) challenges to the constitutionality of Public Health
Law 2807-d, which imposes a gross receipts tax from certain patient care
services; (10) an action seeking reimbursement from the State for certain costs
arising out of the provision of pre-school services and programs for disabled
children; (11) an action seeking enforcement of certain sales and excise taxes
and tobacco products and motor fuel sold to non-Indian consumers on Indian
reservations; and (12) a challenge to the constitutionality of Clean Water/Clean
Air Bond Act.
Several actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which
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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 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 year 1996-97, $193 million in fiscal year 1997-98,
peaking at $241 million in fiscal year 1998-99. Beginning in 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 was required to make aggregate payments of $351.4 million.
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 the treatment of certain monies 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 cure rights, tort, real property and contract claims
in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the 1997-98 fiscal year or
thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced financial plan. An adverse decision in any of these proceedings could
exceed the amount of the reserve established in the State's financial plan for
the payment of judgments and, therefore, could affect the ability of the State
to maintain a balanced financial plan. In its audited financial statements for
the 1996-97 fiscal year, the State reported its estimated liability for awarded
and anticipated unfavorable judgments to be $364 million, of which $134 million
is expected to be paid during the 1997-98 fiscal year.
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.
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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 is
State-supported or State-related. As of September 30, 1996, date of the latest
data available, there were 17 Authorities that had outstanding debt of $100
million or more. The aggregate outstanding debt, including refunding bonds, of
these 17 Authorities was $75.4 billion, only a portion of which constitutes
State-supported or State-related debt.
Authorities are generally supported by revenues generated by the
projects they finance or operate, 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 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. There can be no assurance that there will not be reductions in
State aid to the City from amounts currently projected or that State budgets
will be adopted by the April 1 statutory deadline or that any such reductions or
delays will not have adverse effects on the City's cash flow or expenditures. In
addition, the Federal budget negotiation process could result in a reduction in
or a delay in the receipt of Federal grants which
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could have additional adverse effects on the City's cash flow or revenues.
For each of the 1981 through 1996 fiscal years, the City achieved
balanced operating results as reported in accordance with then applicable GAAP.
The City was required to close substantial budget gaps in recent years in order
to maintain balanced operating results. There can be no assurance that the City
will continue to maintain balanced operating results. There can be no assurance
that the City will continue to maintain a balanced budget as required by State
law without additional tax or other revenue increases or additional reductions
in City services or entitlement programs, which could adversely affect the
City's economic base.
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 the public credit markets. The City was not able to sell
short-term notes to the public again until 1979.
In 1975, S&P 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 S&P. On July 2, 1985, S&P revised its rating
of City bonds upward to BBB+ and on November 19, 1987, to A-. Moody's ratings of
City bonds were revised in November 1981 from B (in effect since 1977) to 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, S&P downgraded its rating on the City's
$23 billion of outstanding general obligation bonds to "BBB+" from "A-", citing
the City's chronic structural budget problems and weak economic outlook. S&P
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.
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
its 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
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<PAGE> 851
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 June 30, 1997, MAC had
outstanding an aggregate of approximately $4.267 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 through the 1997 fiscal year in the event the
City fails to provide such financing.
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 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.
The most recent quarterly modification to the City's financial
plan for the 1997 fiscal year, which was submitted to the Control Board on June
10, 1997 (the "1997 Modification"), projected a balanced budget in accordance
with GAAP for the 1997 fiscal year, after taking into account an increase in
projected tax revenues of $1.2 billion during the 1997 fiscal year and a
discretionary prepayment in the 1997 fiscal year of $1.3 billion of debt service
due in the 1998 and 1999 fiscal years.
On June 10, 1997, the City submitted to the Control Board the
Financial Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal
years, relating to the City, the
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<PAGE> 852
Board of Education ("BOE") and the City University of New York and reflected the
City's expense and capital budgets for the 1998 fiscal year, which were adopted
on June 6, 1997. The 1998-2001 Financial Plan projected revenues and
expenditures for the 1998 fiscal year balanced in accordance with GAAP. The
financial plan included increased tax revenue projections; reduced debt service
costs; the assumed restoration of Federal funding for programs assisting certain
legal aliens; additional expenditures for textbooks, computers, improved
education programs and welfare reform, law enforcement, immigrant
naturalization, initiatives proposed by the City Council and other initiatives;
and a proposed discretionary transfer to the 1998 fiscal year of $300 million of
debt service due in the 1999 fiscal year for budget stabilization purposes. In
addition, the financial plan reflected the discretionary transfer to the 1997
fiscal year of $1.3 billion of debt service due in the 1998 and 1999 fiscal
years, and included actions to eliminate a previously projected budget gap for
the 1998 fiscal year. These gap-closing actions included (i) additional agency
actions totaling $621 million; (ii) the proposed sale of various assets; (iii)
additional State aid of $294 million, including a proposal that the State
accelerate a $142 million revenue sharing payment to the City from March 1999;
and (iv) entitlement savings of $128 million which would result from certain of
the reductions in Medicaid spending proposed in the Governor's 1997-1998
Executive Budget and the State making available to the City $77 million of
additional Federal block grant aid, as proposed in the Governor's 1997-1998
Executive Budget. The 1998-2001 Financial Plan also set forth projections for
the 1999 through 2001 fiscal years and projected gaps of $1.8 billion, $2.8
billion and $2.6 billion for the 1999 through 2001 fiscal years, respectively.
The 1998-2001 Financial Plan assumed approval by the State
Legislature and the Governor of (i) a tax reduction program proposed by the City
totaling $272 million, $435 million, $465 million and $481 million in the 1998
through 2001 fiscal years, respectively, which includes a proposed elimination
of the 4% City sales tax on clothing items under $500 as of December 1, 1997,
and (ii) a proposed State tax relief program, which would reduce the City
property tax and personal income tax, and which the 1998-2001 Financial Plan
assumed will be offset by proposed increased State aid totaling $47 million,
$254 million, $472 million and $722 million in the 1998 through 2001 fiscal
years, respectively.
The 1998-2001 Financial Plan also assumed (i) approval by the
Governor and the State Legislature of the extension of the 14% personal income
tax surcharge, which is scheduled to expire on December 31, 1999 and the
extension of which is projected to provide revenue of $166 million and $494
million in the 2000 and 2001 fiscal years, respectively, and of the extension of
the 12.5% personal income tax surcharge, which is scheduled to
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<PAGE> 853
expire on December 31, 1998 and the extension of which is projected to provide
revenues of $188 million, $527 million and $554 million in the 1999 through 2001
fiscal years, respectively; (ii) collection of the projected rent payments for
the City's airports, totaling $385 million, $175 million, and $170 million in
the 1999, 2000 and 2001 fiscal years, respectively, which may depend on the
successful completion of negotiations with the Port Authority or the enforcement
of the City's rights under the existing leases through pending legal actions;
and (iii) State approval of the costs containment initiatives and State aid
proposed by the City for the 1998 fiscal year, and $115 million in State aid
which is assumed in the 1998-2001 Financial Plan but was not provided for in the
Governor's 1997-1998 Executive Budget. The 1998-2001 Financial Plan reflected
the increased costs which the City is prepared to incur as a result of welfare
legislation recently enacted by Congress. The 1998-2001 Financial Plan provided
no additional wage increases for City employees after their contracts expire in
fiscal years 2000 and 2001.
Since the preparation of the 1998-2001 Financial Plan, the State
has adopted its budget for the 1997-1998 fiscal year. The State budget (1)
enacted a smaller sales tax reduction than the tax reduction program assumed by
the City in the Financial Plan, which will increase projected City sales tax
revenues; (2) provided for State aid to the City which was less than assumed in
the Financial Plan; and enacted a State-funded tax relief program which begins a
year later than reflected in the financial plan. In addition, the net effect of
tax law changes made in the Federal Balanced Budget Act of 1997 are expected to
increase tax revenues in the 1998 fiscal year.
Although the City has maintained balanced budgets in each of its
last sixteen fiscal years and is projected to achieve balanced operating results
for the 1997 fiscal year, there can be no assurance that the gap-closing actions
proposed in the 1998-2001 Financial Plan can be successfully implemented or
that the City will maintain a balanced budget in future years without additional
State aid, revenue increases or expenditure reductions. Additional tax increases
and reductions in essential City services could adversely affect the City's
economic base.
The projections set forth in the 1998-2001 Financial Plan were
based on various assumptions and contingencies which are uncertain and which may
not materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City employees
consistent with those assumed in the 1998-2001 Financial Plan, employment
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<PAGE> 854
growth, the ability to implement proposed reductions in City personnel and other
cost reduction initiatives, the ability of the Health and Hospitals Corporation
and the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent
upon the City's ability to market its securities successfully. The City's
financing program for fiscal years 1998 through 2001 contemplates the issuance
of $5.7 billion of general obligation bonds and $5.7 billion of bonds to be
issued by the proposed New York City Transitional Finance Authority (the
"Finance Authority") to finance City capital projects. The Finance Authority was
created as part of the City's effort to assist in keeping the City's
indebtedness within the forecast level of the constitutional restrictions on the
amount of debt the City is authorized to incur. Despite this additional
financing mechanism, the City currently projects that, if no further action is
taken, it will reach its debt limit in City fiscal year 1999-2000. Indebtedness
subject to the constitutional debt limit includes liability on capital contracts
that are expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.
The City Comptroller and other agencies and public officials have
issued reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
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. Although the City's current financial plan
projects $2.4 billion of seasonal financing for the 1998 fiscal year, the City
expects to undertake only approximately $1.4 billion of seasonal
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<PAGE> 855
financing. The City issued $2.4 billion of short-term obligations in fiscal year
1997. Seasonal financing requirements for the 1996 fiscal year increased to $2.4
billion from $2.2 billion and $1.75 billion in the 1995 and 1994 fiscal years,
respectively. Seasonal financing requirements were $1.4 billion in the 1993
fiscal year. The delay in the adoption of the State's budget in certain past
fiscal years has required the City to issue short-term notes in amounts
exceeding those expected early in such fiscal years.
Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several State fiscal years. The potential impact on
the State of any future requests by localities for additional assistance is not
included in the State's projections of its receipts and disbursements for the
1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the re-establishment 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 State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
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. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance during
the 1996 legislative session through $50 million in special appropriations
targeted for distressed cities, and that was largely continued in 1997.
Twenty-eight municipalities are scheduled to share in more than $32 million in
targeted unrestricted aid allocated in the 1997-98 State budget. An additional
$21 million will be dispersed among all cities, towns and villages, a 3.97%
increase in General Purpose State Aid.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1995, the total indebtedness of all
localities in New York State other than New York City was approximately $19
billion. A small portion (approximately $102.3 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant
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<PAGE> 856
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.
Eighteen localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1995.
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 following information is a brief summary of factors affecting the
economies and financial strengths of the State of Connecticut, its
municipalities and its political subdivisions and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based primarily upon one or more publicly available offering
statements relating to debt offerings of this State of Connecticut that were
available prior to the date of this Statement of Additional Information. The
accuracy and completeness of the information contained in such offering
statements have not been independently verified.
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 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
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<PAGE> 857
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.
Manufacturing has historically been of prime economic importance to
Connecticut. The State's manufacturing industry is diversified, with
transportation equipment (primarily aircraft engines, helicopters and
submarines) the dominant industry, followed by non-electrical machinery,
fabricated metal products and electrical machinery. As a result of a rise in
employment in service-related industries and a decline in manufacturing
employment, manufacturing accounted for only 17.39% of total non-agricultural
employment in Connecticut in 1996. Defense-related business represents a
relatively high proportion of the manufacturing sector. On a per capita basis,
defense awards to Connecticut have traditionally been among the highest in the
nation, and reductions in defense spending have had a substantial adverse impact
on Connecticut's economy.
From 1986 through 1996, Connecticut's unemployment rate was generally
lower than the unemployment rate for the U.S. as a whole, and average per capita
personal income of Connecticut residents was higher than that of residents of
other states. The average unemployment rate in Connecticut increased from a low
of 3.0% in 1988 to a high of 7.5% in 1992 and, after a number of important
changes in the method of calculation, was reported to be 5.7% in 1996. Average
per capita personal income of Connecticut residents increased in every year from
1987 to 1996, rising from $21,235 to $33,189. However, pockets of significant
unemployment and poverty exist in some Connecticut cities and towns.
At the end of the 1990-1991 fiscal year, the General Fund had an
accumulated unappropriated deficit of $965,712,000. For the six fiscal years
ended June 30, 1997, the General Fund ran operating surpluses, based on the
State's budgetary method of accounting, of approximately $110,200,000,
$113,500,000, $19,700,000, $80,500,000, $250,000,000, and $262,600,000,
respectively. General Fund budgets for the biennium ending June 30, 1999, were
adopted in 1997. General Fund expenditures and revenues are budgeted to be
approximately $9,550,000,000 and $9,700,000,000 for the 1997-1998 and 1998-1999
fiscal years, respectively, an increase of more than 35% from the budgeted
expenditures of approximately $7,008,000,000 for the fiscal year 1991-1992.
During 1991 the State issued a total of $965,710,000 Economic Recovery
Notes, of which $157,055,000 were outstanding
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<PAGE> 858
as of August 1, 1997. The notes were to be payable no later than June 30, 1996,
but as part of the budget adopted for the biennium ending June 30, 1997, payment
of the notes scheduled to be paid during the 1995-96 fiscal year was rescheduled
to be made over the four fiscal years ending June 30, 1999.
The State's primary method for financing capital projects is through
the sale of general obligation bonds. These bonds are backed by the full faith
and credit of the State. As of August 1, 1997, the State had authorized direct
general obligation bond indebtedness totaling $11,469,639,000, of which
$9,990,468,000 had been approved for issuance by the State Bond Commission and
$8,897,072,000 had been issued. As of August 1, 1997, State direct general
obligation indebtedness outstanding was $6,733,149,000.
In 1995, the State established the University of Connecticut as a
separate corporate entity to issue bonds and construct certain infrastructure
improvements. The University is authorized to issue $962,000,000 bonds to
finance the improvements. The University's bonds will be secured by a State debt
service commitment, the aggregate amount of which is limited to $382,000,000 for
the four fiscal years ending June 30, 1999, and $580,000,000 for the six fiscal
years ending June 30, 2005.
In addition, the State has limited or contingent liability on a
significant amount of other bonds. Such bonds have been issued by the following
quasi-public agencies: the Connecticut Housing Finance Authority, the
Connecticut Development Authority, the Connecticut Higher Education Supplemental
Loan Authority, the Connecticut Resources Recovery Authority and the Connecticut
Health and Educational Facilities Authority. Such bonds have also been issued by
the cities of Bridgeport and West Haven and the Southeastern Connecticut Water
Authority. As of October 15, 1996, the amount of bonds outstanding on which the
State has limited or contingent liability totaled $3,985,400,000.
In 1984, the State established a program to plan, construct and improve
the State's transportation system (other than Bradley International Airport).
The total cost of the program through June 30, 2000, is currently estimated to
be $11.2 billion, to be met from federal, state, and local funds. The State
expects to finance most of its $4.7 billion share of such cost by issuing $4.2
billion of special tax obligation ("STO") bonds. The STO bonds are payable
solely from specified motor fuel taxes, motor vehicle receipts, and license,
permit and fee revenues pledged therefor and credited to the Special
Transportation Fund, which was established to budget and account for such
revenues.
As of October 15, 1996, the General Assembly had authorized
$4,157.900,000 of such STO bonds, of which $3,594,700,000 new money borrowings
had been issued. It is anticipated that
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<PAGE> 859
additional STO bonds will be authorized annually in amounts necessary to finance
and to complete the infrastructure program. Such additional bonds may have equal
rank with the outstanding bonds provided certain pledged revenue coverage
requirements are met. The State expects to continue to offer bonds for this
program.
The State's general obligation bonds are rated AA- by Standard & Poors
and Aa3 by Moody's. On March 17, 1995, Fitch reduced its ratings of the Sate's
general obligation bonds from AA+ to AA.
The State, its officers and its employees are defendants in numerous
lawsuits. Although it is not possible to determine the outcome of these
lawsuits, the Attorney General has opined that an adverse decision in any of the
following cases might have a significant impact on the State's financial
position: (i) a class action by the Connecticut Criminal Defense Lawyers
Association claiming a campaign of illegal surveillance activity and seeking
damages and injunctive relief; (ii) an action on behalf of all persons with
traumatic brain injury who have been placed in certain State hospitals, claiming
that their constitutional rights are violated by placement in State hospitals
alleged not to provide adequate treatment and training, and seeking placement in
community residential settings with appropriate support services; and (iii)
litigation involving claims by Indian tribes to a portion of the State's land
area.
As a result of litigation on behalf of black and Hispanic school
children in the City of Hartford seeking "integrated education" within the
Greater Hartford metropolitan area, on July 9, 1996, the State Supreme Court
directed the legislature to develop appropriate measures to remedy the racial
and ethnic segregation in the Hartford public schools. The fiscal impact of this
decision might be significant but is not determinable at this time.
General obligation bonds issued by municipalities are payable primarily
from ad valorem taxes on property located in the municipality. A municipality's
property tax base is subject to many factors outside the control of the
municipality, including the decline in Connecticut's manufacturing industry. In
recent years, certain Connecticut municipalities have experienced severe fiscal
difficulties and have reported operating and accumulated deficits. The most
notable of these 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 has 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. State legislation
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<PAGE> 860
enacted in 1993 prohibits municipal bankruptcy filings without the prior written
consent of the Governor.
In addition to general obligation bonds backed by the full faith and
credit of the municipality, certain municipal authorities finance projects by
issuing bonds that are not considered to be debts of the municipality. Such
bonds may be repaid only from revenues of the financed project, the revenues
from which may be insufficient to service the related debt obligations.
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.
Regional economic difficulties, reduction in revenues and increases in
expenses could lead to further fiscal problems for the State and its political
subdivisions, authorities and agencies. Difficulties in payment of debt service
on borrowings could result in declines, possibly severe, 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.
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 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.
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<PAGE> 861
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 each Tax-Exempt
Bond 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; provided however, that the
Tax-Exempt Bond Funds may enter into municipal bond index
futures contracts, and each 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 Fund and Corporate Bond Fund 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 each Fund may
acquire such securities in accordance with the 1940 Act.
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
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<PAGE> 862
Provincial Governments in accordance with each Fund's
investment objective and policies.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by First Data
Distributors, Inc. ("FD Distributors"), and FD Distributors 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 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. A deferred sales
charge of up to 1.00% is assessed on certain redemptions of Retail A Shares that
are purchased with no initial sales charge as part of an investment of $500,000
or more. 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.
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, 1997 (with respect
to the Corporate Bond Fund and New Jersey
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<PAGE> 863
Municipal Bond Fund, based on the projected value of each Fund's net assets and
the projected number of outstanding Retail A Shares of each Fund on the date
such Shares are first offered for sale to public investors) and the maximum
front-end sales charge of 3.75%, 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 Price to Public $ $
</TABLE>
<TABLE>
<CAPTION>
High Quality Corporate
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 Price to Public $ $
</TABLE>
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<PAGE> 864
<TABLE>
<CAPTION>
Tax-Exempt New Jersey Municipal
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 Price to Public $ $
</TABLE>
<TABLE>
<CAPTION>
New York Municipal Connecticut Municipal
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 Price to Public $ $
</TABLE>
<TABLE>
<CAPTION>
Massachusetts Rhode Island
Municipal Bond Municipal
Fund Bond Fund
-------------- ------------
<S> <C> <C>
Net Assets .............. $ $
Outstanding Shares
Net Asset Value Per
Share ................... $ $
Sales Charge (3.75% of
the offering price) ..... $ $
Offering Price to Public $ $
</TABLE>
-35-
<PAGE> 865
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-seven 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 Government Money Market Fund, Equity
Value Fund, Equity Growth Fund, Equity Income Fund, International Equity Fund,
Small Company Equity Fund, MidCap Equity Fund, Asset Allocation Fund, Growth and
Income Fund, Small Cap Value Fund, Special Equity Fund, Short-Term Bond Fund,
Intermediate Government Income Fund, High Quality Bond Fund, Corporate Bond
Fund, Tax-Exempt Bond Fund, New Jersey Municipal 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
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<PAGE> 866
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 CDSC 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 FD Distributors 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 CDSC 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
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<PAGE> 867
investment advisory agreement or any change in an investment objective or a
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% in 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.
-38-
<PAGE> 868
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 "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 "Income Requirement").
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
-39-
<PAGE> 869
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.
Substantially all of each Fund's net capital gain (excess of net
long-term capital gain over net short-term capital loss), if any, will be
distributed at least annually to Fund shareholders. A Fund will generally have
no tax liability with respect to such gains and the distributions will be
taxable to Fund shareholders who are not currently exempt from federal income
taxes as mid-term or other long-term capital gain, regardless of how long the
shareholders have held Fund shares and whether such gains are received in cash
or reinvested in additional shares.
Each Fund will designate the tax status of any distribution in a
written notice mailed to shareholders within 60 days after the close of its
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 on
stocks and securities are taxable at a maximum nominal rate of 20%, except that
"mid-term gains" (i.e., gains on capital assets held more than 12 months, but
not more than 18 months) are taxable at a maximum nominal rate of 28%. For
corporations, long term capital gains and ordinary income are both taxable at a
maximum average rate of 35% (a maximum effective marginal rate of 39% applies in
the case of corporations having taxable income between $100,000 and $335,000).
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to distribute with respect to each calender year at least
98% of their ordinary taxable income and capital gain net income (excess of
capital gains over capital losses) for the 1-year period ending on October 31 of
such calender year. The balance of such income must be distributed during the
next calender year. 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
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<PAGE> 870
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 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.
-41-
<PAGE> 871
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.
TAXABLE 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) of the shareholder itemizes deductions, to deduct such portion from
their U.S taxable income, if any, should the shareholder so choose. 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. 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> 872
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 Distribution Requirement, and on the
income or gain qualifying under the Income Requirement.
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. 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 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
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<PAGE> 873
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 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
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<PAGE> 874
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> 875
<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 64 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 53 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 57 Religious Communities
Trust; Trustee, The
Galaxy VIP Fund; Trustee,
Galaxy Fund II.
</TABLE>
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<PAGE> 876
<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 services);
33436 Director/Trustee,
Age 72 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 56 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 66 1991; President, Pingree
Associates, Inc.
(timberland management),
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> 877
<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 LLP, Philadelphia,
Broad & Chestnut Sts. Pennsylvania.
Philadelphia, PA 19107
Age 54
Jylanne Dunne Vice First Data Investor
First Data Investor President Services Group, Inc.,
Services Group, Inc. and 1990 to present.
4400 Computer Drive Assistant
Westboro, MA 01581 Treasurer
Age 38
</TABLE>
- -------------------------
1. An interested person within the definition set forth in Section
2(a)(19) of the 1940 Act.
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 II") (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.
Effective March 1, 1996, each trustee became 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
-48-
<PAGE> 878
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, 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.
<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 $
-49-
<PAGE> 879
accrued during Galaxy's fiscal year ended October 31, 1997 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 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.
-50-
<PAGE> 880
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. Fleet 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, 1995, October 31, 1996 and
October 31, 1997, Fleet received advisory fees (net of fee waivers) of $293,801,
$531,062 and $_____, respectively, with respect to the Short-Term Bond Fund;
$1,467,085, $1,653,803 and $_____, respectively, with respect to the
Intermediate Government Income Fund; $783,564, $932,381 and $_____,
respectively, with respect to the High Quality Bond Fund; $568,671, $696,116 and
$_____, respectively, with respect to the Tax-Exempt Bond Fund; and $240,943,
$360,298 and $_____, respectively, with respect to the New York Municipal Bond
Fund.
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Fleet waived advisory fees of $130,062, $193,702 and $_____,
respectively, with respect to the Short-Term Bond Fund; $557,058, $608,385 and
$_____, respectively, with respect to the Intermediate Government Income Fund;
$297,640, $339,047 and $_____, respectively, with respect to the High Quality
Bond Fund; $238,933, $253,133 and $_____, respectively, with respect to the
Tax-Exempt Bond Fund; and $126,783, $131,020 and $_____, respectively, with
respect to the New York Municipal Bond Fund.
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Fleet reimbursed advisory fees of $65,354, $40,375 and $_____,
respectively, with respect to the Short-Term Bond Fund; $60,356, $0 and
$________, respectively, with respect to the Intermediate Government Income
Fund; and $34,946, $2,956 and $_____, respectively, with respect to the High
Quality Bond Fund.
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Fleet reimbursed advisory fees of $88,394, $62,854 and $_____,
respectively, with respect to the Tax-Exempt Bond Fund; and $107,711, $123,317
and $_____, respectively, with respect to the New York Municipal Bond Fund.
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Fleet received advisory fees (net of fee waivers) of $29,758,
$67,091 and $_____, respectively, with respect to the Connecticut Municipal Bond
Fund; and
-51-
<PAGE> 881
$161,226, $78,783 and $_____, respectively, with respect to the Massachusetts
Municipal Bond Fund.
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Fleet waived advisory fees of $125,384, $163,904 and $_____,
respectively, with respect to the Connecticut Municipal Bond Fund; and $128,981,
$191,624 and $_____, respectively, with respect to the Massachusetts Municipal
Bond Fund.
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Fleet reimbursed advisory fees of $1,528, $0 and $_____,
respectively, with respect to the Connecticut Municipal Bond Fund; and $14,041,
$0 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 years ended October 31, 1996 and October 31,
1997, Fleet received advisory fees (net of fee waivers) of $171,959, $604,322
and $_____, respectively, with respect to the Corporate Bond Fund. For the same
periods, Fleet waived advisory fees of $62,531, $219,753 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 years ended October 31, 1996 and October 31,
1997, Fleet received advisory fees (net of fee waivers) of $0, $38,943 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 years ended October 31, 1996 and October 31,
1997, Fleet reimbursed advisory fees of $71,657, $15,079 and $_____,
respectively, and waived advisory fees of $32,013, $60,030 and $_____,
respectively, with respect to the Rhode Island Municipal Bond Fund.
The advisory agreement provides that Fleet 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 Fleet 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
-52-
<PAGE> 882
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 Fleet, 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, 1997, there were
approximately _____ defined contribution plan participant sub-accounts invested
in Trust Shares of the Taxable Bond 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 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 SEC, 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.
-53-
<PAGE> 883
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, FDISG and/or its predecessors received administration fees of
$57,153, $82,440 and $_____, respectively, with respect to the Short-Term Bond
Fund; $244,446, $256,059 and $_____, respectively, with respect to the
Intermediate Government Income Fund; $130,250, $143,905 and $_____,
respectively, with respect to the High Quality Bond Fund; $104,560, $108,062 and
$______, respectively, with respect to the Tax-Exempt Bond Fund and $55,482,
$55,624 and $_____, respectively, with respect to the New York Municipal Bond
Fund.
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, 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, 1995, October 31, 1996 and October 31, 1997, FDISG and/or its
predecessors waived administration fees of $39,479, $46,559 and $_____,
respectively, with respect to the Connecticut Municipal Bond Fund; and $39,900,
$46,772 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 years ended October 31, 1996 and October 31,
1997, FDISG and/or its predecessors received administration fees of $27,410,
$93,185 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 years ended October 31, 1996 and October 31,
1997, FDISG and/or its predecessors received administration fees of $4,850,
$11,196 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,
-54-
<PAGE> 884
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 and Services 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.
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,
-55-
<PAGE> 885
or sell securities to, Fleet, 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, 1997, .
Investment decisions for each Fund are made independently from those
for the other Funds and portfolios of Galaxy 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 Galaxy's other Funds and
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, 1997, 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.
-56-
<PAGE> 886
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, payments to Service Organizations totaled $45,148, $54,596 and
$_____ , respectively, with respect to Retail A Shares of the Short-Term Bond
Fund; $122,743, $122,781 and $_____, respectively, with respect to Retail A
Shares of the Intermediate Government Income Fund; $39,826, $45,938 and $_____,
respectively, with respect to Retail A Shares of the High Quality Bond Fund;
$47,093, $42,210 and $_____, respectively, with respect to Retail A Shares of
the Tax-Exempt Bond Fund; $60,513, $57,674 and $_____, respectively, with
respect to Retail A Shares of the New York Municipal Bond Fund; $25,383, $36,878
and $_____, respectively, with respect to Retail A Shares of the Connecticut
Municipal Bond Fund; $22,206, $38,823 and $_____, respectively, with respect to
Retail A Shares of the Massachusetts Municipal Bond Fund; and $0, $0 and $_____,
respectively, with respect to Retail A Shares of the Rhode Island Municipal Bond
Fund. As of the date of this Statement of Additional Information, Galaxy has not
offered Retail A Shares of the Corporate Bond and New Jersey Municipal Bond
Funds.
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.
-57-
<PAGE> 887
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 .15% (annualized) and .15% (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 .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 fiscal year ended October 31, 1997, 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
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<PAGE> 888
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, 1997, all amounts paid under the 12b-1 Plan were attributable to payments to
broker-dealers.
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: $822 in
distribution fees and $190 in shareholder servicing fees with respect to Retail
B Shares of the Short-Term Bond Fund; $1,580 in distribution fees and $365 in
shareholder servicing fees with respect to Retail B Shares of the High Quality
Bond Fund; and $300 in distribution fees and $0 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 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 FD Distributors 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
First Data Distributors, Inc. ("FD Distributors"), 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 FD Distributors. Prior to
that time, FD Distributors was a wholly-owned subsidiary of 440 Financial Group
of Worcester, Inc. and an indirect subsidiary of State Mutual Life Assurance
Company of America.
-59-
<PAGE> 889
Unless otherwise terminated, the Distribution Agreement between Galaxy
and FD Distributors, remains in effect until May 31, 1998, 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.
FD Distributors 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 fiscal year ended October 31, 1997, 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, FD Distributors 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; $_____ 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.
FD Distributors is also entitled to the payment of contingent deferred
sales charges upon the redemption of Retail B Shares of the CDSC Funds. For the
fiscal year ended October 31, 1997, FD Distributors 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 FD Distributors directly or indirectly from the Funds
during the fiscal year ended October 31, 1997:
-60-
<PAGE> 890
<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 $ $ $
Government
Income
High Quality $ $ $ $
Bond
Corporate Bond $ $ $
Tax-Exempt $ $ $ $
Bond
New York $ $ $
Municipal
Bond
Connecticut $ $ $
Municipal
Bond
Massachusetts $ $ $
Municipal
Bond
Rhode Island $ $ $
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 during the fiscal year ended October 31,
1997, which includes fees accrued in the fiscal year ended October 31,
1996 which were paid in 1997 (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
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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 the periods included in
their report thereon which appears therein.
COUNSEL
Drinker Biddle & Reath, LLP (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, will pass upon
certain legal matters on its behalf, and has reviewed the portion of this
Statement of Additional Information and the Prospectuses with respect to the New
Jersey Municipal Bond Fund concerning New Jersey taxes and the description of
special considerations relating to New Jersey Municipal Securities. 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
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of shares in each Fund in accordance with the method prescribed by the SEC for
mutual funds:
a - b
YIELD = 2[( - - - +1 )exponent 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 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).
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<PAGE> 893
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.
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 Jersey Municipal Bond, 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, 1997 were _____%, _____%, _____%, _____%,
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<PAGE> 894
_____%, _____%, _____% 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, 1997 were _____%,
_____%, _____%, _____% and _____%, respectively. Retail A Shares of the
Corporate Bond Fund were not offered during the fiscal year ended October 31,
1997. The New Jersey Municipal Bond Fund did not conduct investment operations
during the fiscal year ended October 31, 1997.
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, 1997 were _____%, _____% and _____%,
respectively, and (ii) the tax- equivalent yield for Retail B Shares of the
Tax-Exempt Bond Fund for the 30-day period ended October 31, 1997 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, 1997 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, 1997 were _____%, _____%, _____% and _____%, respectively. Trust Shares of
the Rhode Island Municipal Bond Fund were not offered during the fiscal year
ended October 31, 1997. The New Jersey Municipal Bond Fund did not conduct
investment operations during the fiscal year ended October 31, 1997.
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);
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<PAGE> 895
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. In addition, the Funds' average annual total return and
aggregate total returns will reflect the deduction of the maximum sales load
charged in connection with purchases of Retail A Shares or redemptions of
Retail B Shares, as the case may be.
Aggregate total return for Retail A Shares of the Intermediate
Government Income Fund for the period September 1, 1988 (inception) to October
31, 1997 was _____%. From September 1, 1988 (inception) to October 31, 1997, 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,
1997, 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, 1997 was _____%. From
December 14, 1990 (inception) to October 31, 1997, the average annual total
return for Retail A Shares of the High Quality Bond Fund was _____%. For the
one-year and five-year periods ended October 31, 1997, the average annual total
returns for Retail A Shares of the High Quality Bond Fund were _____% and
_____%, respectively.
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, 1997 were _____%, _____% and _____%, respectively.
From December 30, 1991 (inception) to October 31, 1997, average annual total
returns for Retail A Shares of the Short-Term Bond, Tax-Exempt Bond and New York
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<PAGE> 896
Municipal Bond Funds were _____%, _____% and _____$, respectively. For the
one-year and five-year periods ended October 31, 1997, 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 _____%, _____% and _____%, and _____% and
_____%, respectively.
Aggregate total return for Retail A Shares of the Connecticut Municipal
Bond Fund from March 16, 1993 (inception) to October 31, 1997 was _____%; and
for Retail A Shares of the Massachusetts Municipal Bond Fund from March 12, 1993
(inception) to October 31, 1997 was _____%. From March 16, 1993 (inception) to
October 31, 1997, average annual total return for Retail A Shares of the
Connecticut Municipal Bond Fund was _____%. From March 12, 1993 (inception) to
October 31, 1997, average annual total return for Retail A Shares of the
Massachusetts Municipal Bond Fund was _____%. For the one-year period ending
October 31, 1997, the average annual total returns for Retail A Shares of the
Connecticut Municipal Bond and 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, 1997 was
_____%. From December 20, 1994 (inception) to October 31, 1997, average annual
total return for Retail A Shares of the Rhode Island Municipal Bond Fund was
_____%. For the one-year period ended October 31, 1997, the average annual
return for Retail A Shares of the Rhode Island Municipal Bond Fund was _____%.
Aggregate total returns for Retail B Shares of the Short- Term Bond,
High Quality Bond and Tax-Exempt Bond Funds from March 4, 1996 (date of initial
public offering) through October 31, 1997 were _____%, _____% and _____%,
respectively. From March 4, 1996 (date of initial public offering) through
October 31, 1997, average annual total returns for Retail B Shares of the
Short-Term Bond, High Quality Bond and Tax-Exempt Bond Funds were _____%, _____%
and _____%, respectively. For the one-year period ended October 31, 1997, the
average annual returns for Retail B Shares of the Short-Term Bond, High Quality
Bond and Tax-Exempt Bond Funds were _____%, _____% and _____%, respectively.
Aggregate total return for Trust Shares of the Intermediate Government
Income Fund for the period September 1, 1988 (inception) to October 31, 1997 was
%. From September 1, 1988 (inception) to October 31, 1997, 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, 1997, the average
annual total returns for Trust
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<PAGE> 897
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, 1997 was _____%. From December
14, 1990 (inception) to October 31, 1997, average annual total return for Trust
Shares of the High Quality Bond Fund was _____%. For the one-year and five-year
periods ended October 31, 1997, the average annual total returns for Trust
Shares of the High Quality Bond Fund were _____% and ____%, respectively.
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, 1997 were _____%, _____% and _____%, respectively.
From December 30, 1991 (inception) to October 31, 1997, 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 and five-year periods ended October 31, 1997, the average annual total
returns for Trust Shares of the Short-Term Bond, Tax-Exempt Bond and New York
Municipal Bond Funds were _____% and _____%, _____% and _____%, and _____% and
______%, respectively.
Aggregate total returns for Trust Shares of the Connecticut Municipal
Bond Fund from March 16, 1993 (inception) to October 31, 1997 was _____% and for
Trust Shares of the Massachusetts Municipal Bond Fund from March 12, 1993
(inception) to October 31, 1997 was _____%. From March 16, 1993 (inception) to
October 31, 1997, the average annual total return for Trust Shares of the
Connecticut Municipal Bond Fund was _____%. From March 12, 1993 (inception) to
October 31, 1997, 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 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, 1997 was _____%. From December 12,
1994 (inception) to October 31, 1997, average annual total return for Trust
Shares of the Corporate Bond Fund was _____%. For the one-year period ended
October 31, 1997, the average annual total return for Trust Shares of the
Corporate Bond Fund was _____%.
As stated in the Prospectuses, the Funds may also calculate total
return quotations without deducting the maximum sales load imposed in purchases
of Retail A Shares or redemptions of Retail B Shares. The effect of not
deducting the sales charge will be to increase the total return reflected.
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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 _______________, 1998, 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 _______________, 1998, 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:
____________________________
As of _______________, 1998, the name, address and share ownership of
the entities or persons that held beneficially more than 5% of the outstanding
Trust Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Government Money Market Fund) were as follows:____________________
FINANCIAL STATEMENTS
Galaxy's Annual Reports to Shareholders with respect to the Funds for
the fiscal year ended October 31, 1997 [_____________] with the Securities and
Exchange Commission. The financial statements in such Annual Reports (the
"Financial Statements") [___________________] this Statement of Additional
Information. The Financial Statements included in the Annual Reports for the
Funds for the fiscal year ended October 31, 1997 have been audited by Galaxy's
independent accountants,
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<PAGE> 899
[________________] 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, 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> 901
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> 902
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> 903
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
A-4
<PAGE> 904
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> 905
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> 906
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> 907
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> 908
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> 909
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 Jersey Municipal Bond, 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
B-4
<PAGE> 910
protect against declines 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> 911
<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.
Cash Market Futures Market
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
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> 912
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
Fleet.
B-7
<PAGE> 913
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> 914
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> 915
TRUST
THE GALAXY FUND
Equity Value Fund
Prospectus
February __, 1998
<PAGE> 916
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
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. 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 ...............................................
Authority to Act as Investment Adviser............................
Administrator.....................................................
DESCRIPTION OF GALAXY AND ITS SHARES......................................
Shareholder Services Plan.........................................
Agreements for Sub-Account Services...............................
CUSTODIAN AND TRANSFER AGENT..............................................
EXPENSES..................................................................
PERFORMANCE REPORTING.....................................................
MISCELLANEOUS.............................................................
<PAGE> 917
THE GALAXY FUND
For an application and information
regarding purchases, redemptions
4400 Computer Drive exchanges and other shareholder
Westboro, Massachusetts services or for current performance
01581-5108 call 1-800-628-0414.
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 primarily 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 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.
("Fleet") and sponsored and distributed by First Data Distributors, Inc., which
is unaffiliated with Fleet and its parent, Fleet Financial Group, Inc., and
affiliates.
<PAGE> 918
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
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.
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.
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 __, 1998
-2-
<PAGE> 919
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 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 expense reimbursements by Fleet, Advisory Fees would be ___%, 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 [______________] into the
Statement of Additional Information relating to the Fund. Any fees that are
charged by affiliates of Fleet or other institutions directly to
-3-
<PAGE> 920
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 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, 1997 (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 number or address provided above.
-4-
<PAGE> 921
EQUITY VALUE FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, PERIOD
1997 1996 1995 1994 YEAR ENDED OCTOBER 31,(2) ENDED
-------------------------------- -------------------------------------------------- OCTOBER 31,
TRUST SHARES 1993 1992 1991 1990 1989 1988(1,2)
-------------------------------- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period .................. $ 14.33 $ 13.32 $ 13.12 $ 11.41 $ 11.52 $ 9.45 $ 11.51 $ 10.41 $10.00
-------- -------- -------- --------- --------- -------- -------- -------- ------
Income from Investment
Operations:
Net Investment Income .... 0.21 0.28 0.19 0.19 0.26 0.37 0.39 0.36 0.03
Net realized and
unrealized gain
(loss) on investments .... 2.74 2.24 0.45 2.14 0.33 2.41 (1.37) 1.10 0.38
-------- -------- -------- --------- --------- -------- -------- -------- -----
Total from Investment
Operations: ......... 2.95 2.52 0.64 2.33 0.59 2.78 (0.98) 1.46 0.41
-------- -------- -------- --------- --------- -------- -------- -------- -----
Less Dividends:
Dividends from net
investment
income ............... (0.21) (0.30) (0.16) (0.20) (0.27) (0.37) (0.38) (0.36) --
Dividends from net
realized capital
gains ................ (1.11) (1.21) (0.28) (0.42) (0.43) (0.34) (0.70) -- --
-------- -------- -------- --------- --------- -------- -------- -------- -----
Total Dividends: ..... (1.32) (1.51) (0.44) (0.62) (0.70) (0.71) (1.08) (0.36) --
-------- -------- -------- --------- --------- -------- -------- -------- -----
Net increase (decrease)
in net asset value ......... 1.63 1.01 0.20 1.71 (0.11) 2.07 (2.06) 1.10 0.41
-------- -------- -------- --------- --------- -------- -------- -------- -----
Net Asset Value, End
of Period .................. $ 15.96 $ 14.33 $ 13.32 $ 13.12 $ 11.41 $ 11.52 $ 9.45 $ 11.51 $ 10.41
======== ======== ======== ========= ========= ======== ======== ======== =====
Total Return ................. 22.05% 21.31% 5.05% 21.18% 5.66% 30.45% (9.43)% 14.19% 4.10%(3)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's) .................... $194,827 $165,330 $154,403 $176,107 $ 133,578 $ 99,601 $ 92,893 $ 92,366 $75,774
Ratios to average net
assets:
Net investment income
including reimbursement/
waiver ................. 1.42% 2.10% 1.46% 1.52% 2.24% 3.25% 3.66% 3.25% 1.89%(4)
Operating expenses
including reimbursement/
waiver ................. 1.03% 1.02% 1.06% 0.97% 0.94% 0.94% 0.95% 0.97% 0.95%(4)
Operating expenses
excluding
reimbursement/waiver ... 1.03% 1.02% 1.06% 0.97% 0.94% 0.94% 0.95% 0.98% 0.95%(4)
Portfolio Turnover Rate ...... 116% 76% 71% 50% 136% 40% 94% 44% 4%(3)
Average Commission Rate Paid(5) $ 0.0605 N/A N/A N/A 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 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.
(5) Required for fiscal years beginning on or after September 1, 1995.
-5-
<PAGE> 922
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. ("Fleet"), the Fund's 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, Fleet
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 (the "S&P 500").
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 Fleet 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 Fleet's opinion, 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 Fleet, 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"). In addition, the
Fund may invest in securities issued by foreign branches of U.S. banks and
foreign banks. See "Special Risk Considerations -- Foreign Securities" and
"Other Investment Policies and Risk Considerations -- American and European
Depository Receipts" below. The Fund may also write covered call options. See
"Other Investment Policies and Risk Considerations -- Covered Call Options" and
"Other Investment Policies and Risk Considerations
-6-
<PAGE> 923
- -- Derivative Securities" below. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Fund.
Fleet 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 other 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> 924
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 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
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 Fleet. 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 then is the case for higher rated obligations.
U.S. Government Obligations and Money Market Instruments
-8-
<PAGE> 925
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 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 FDIC. 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. 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 net 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.
-9-
<PAGE> 926
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 -- Foreign Securities." The
Fund will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet 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" below.
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 Fleet 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
-10-
<PAGE> 927
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 Fleet to be of good standing and only when, in
Fleet'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)
-11-
<PAGE> 928
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 Fleet.
REITs
The Fund may invest up to 10% of its net assets in real estate
investment trusts ("REITs"). Equity REITs invest directly in real property while
mortgage REITs invest in mortgages on real property. REITs may be subject to
certain risks associated with the direct ownership of real estate, including
declines in the value of real estate, risks related to general and local
economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, and variations in rental income.
Generally, increases in interest rates will decrease the value of high yielding
securities and increase the costs of obtaining financing, which could decrease
the value of a REIT's investments. In addition, equity REITs may be affected by
changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified and are
subject to the risks of financing projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital. See
"Taxes."
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
-12-
<PAGE> 929
call option, the Fund foregoes 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
Fleet 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 Securities."
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.
-13-
<PAGE> 930
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, such 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 or other liquid assets 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 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
-14-
<PAGE> 931
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 Fleet'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, Fleet 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, Fleet 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, covered call options and foreign currency exchange contracts.
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.
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<PAGE> 932
Fleet 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
Fleet'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 relating to the Fund for additional information.
Portfolio Turnover
The Fund may sell a portfolio investment soon after its acquisition
if Fleet 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
rate of 100% or more is considered high although the rate of 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 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
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<PAGE> 933
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 that each Fund
may borrow 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 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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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, as amended, 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 Fleet 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, 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
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<PAGE> 935
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 Fleet 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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors 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 FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors 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> 936
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 FD Distributors, Galaxy's custodian and the purchasing Institution are
open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors 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 per
share 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 FD Distributors 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 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.
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<PAGE> 937
On a Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which redemption orders
must be received in order to be processed on that Business Day.
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 FD Distributors 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 FD Distributors. On a Business Day
when the Exchange closes early due to a partial holiday or otherwise, Galaxy
will advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors 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
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<PAGE> 938
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.
Distribution by the Fund of "net capital gain" (the excess of its
net long-term capital gain over its net short-term capital loss), if any, and
the portion of such net capital gain that constitutes mid-term capital gain, is
taxable to shareholders as long-term or mid-term capital gain, as the case may
be, 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.
The dividends received deduction is not available for dividends
attributable to distributions made by a REIT to the Fund. In addition,
distributions paid by REITs often include a "return of capital." The Code
requires a REIT to distribute at least 95% of its taxable income to investors.
In many cases, however, because of "non-cash" expenses such as property
depreciation, an equity REIT's cash flow will exceed its taxable income. The
REIT may distribute this excess cash to offer a more
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competitive yield. This portion of the distribution is deemed a return of
capital and is generally not taxable to shareholders.
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.
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 75 State Street, Boston,
Massachusetts 02109, 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, 1997. Fleet, which commenced operations in 1984, also provides
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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 Government Money Market
Fund, Equity Growth, Equity Income, International Equity, Asset Allocation,
Small Company Equity, MidCap Equity, Small Cap Value, Growth and Income, Special
Equity, Short-Term Bond, Intermediate Government Income, High Quality Bond,
Corporate Bond, Tax-Exempt Bond, New Jersey Municipal 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, Fleet 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 Bank or other subsidiaries of Fleet Financial Group,
Inc., in consideration for administrative and/or shareholder support services
which they provide to beneficial shareholders. For the fiscal year ended October
31, 1997, 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, 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
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<PAGE> 941
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. Fleet, the 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.
FDISG generally assists the Fund in its administration and
operation. FDISG also serves as administrator to the other portfolios of Galaxy.
For 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 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. In addition, FDISG also receives a separate
annual fee from each Portfolio for certain fund accounting services. From time
to time, FDISG may waive voluntarily all or a portion of the administration fee
payable to it by the Fund. For the fiscal year ended October 31, 1997, the Fund
paid administration fees to FDISG 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 C shares
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<PAGE> 942
(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 FD Distributors 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 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 investment portfolio 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 investment portfolio 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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<PAGE> 943
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 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
and processing purchase and redemption requests and placing net purchase and
redemption orders with FD Distributors; 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
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<PAGE> 944
schedule of any fees that they may charge in connection with Customer
investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may entered into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
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. Such entities are 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 One 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 fees; costs of preparing and
printing prospectuses for regulatory purposes and
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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 shareholder reports and meetings; and any extraordinary expenses. The
Fund also pays for brokerage fees and commissions in connection with the
purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders,
the performance of the Fund may be quoted and compared to that 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 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 of the Fund. Performance 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" figures 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
-29-
<PAGE> 946
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.
The performance of the Fund will fluctuate and any quotation of
performance should not be considered as representative of the 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 data 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 performance calculations.
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 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 the Fund or (b) 67% or more of
the shares of the Fund present at a meeting if more than 50% of the outstanding
shares of the Fund are represented at the meeting in person or by proxy.
-30-
<PAGE> 947
TRUST
THE GALAXY FUND
Equity Growth Fund
Prospectus
February __, 1998
<PAGE> 948
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
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. 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 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................................................................ 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
Agreements for Sub-Account Services............................ 27
CUSTODIAN AND TRANSFER AGENT......................................... 28
EXPENSES............................................................. 28
PERFORMANCE REPORTING................................................ 29
MISCELLANEOUS........................................................ 30
</TABLE>
<PAGE> 949
THE GALAXY FUND
For an application and information
4400 Computer Drive regarding purchases, redemptions,
Westboro, Massachusetts exchanges and other shareholder
01581-5108 services or for current performance
call 1-800-628-0414.
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 primarily 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. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is
unaffiliated with Fleet and its parent, Fleet Financial Group, Inc., and
affiliates.
<PAGE> 950
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
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.
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.
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 __, 1998
-2-
<PAGE> 951
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
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
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 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
expense reimbursements by Fleet, Advisory Fees would be ___%, 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 [_______________________] into
the Statement of Additional Information relating to the Fund. Any fees that are
charged by affiliates of Fleet or other institutions directly to
-3-
<PAGE> 952
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 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, 1997 (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 number or address provided above.
-4-
<PAGE> 953
EQUITY GROWTH FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, YEAR ENDED
1997 1996 1995 1994 OCTOBER 31,(2) PERIOD ENDED
-------------------------------------- --------------------- OCTOBER 31,
TRUST SHARES 1993 1992 1991(1,2)
-------------------------------------- --------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .... $ 17.30 $ 14.19 $ 13.76 $ 12.90 $ 11.99 $ 10.00
-------- -------- -------- -------- -------- ---------
Income from Investment Operations:
Net Investment Income(5)............... 0.17 0.20 0.18 0.15 0.17 0.16
Net realized and unrealized gain (loss)
on investments ...................... 3.40 3.28 0.47 0.95 0.91 1.97
-------- -------- -------- -------- -------- ---------
Total from Investment Operations: ... 3.57 3.48 0.65 1.10 1.08 2.13
-------- -------- -------- -------- -------- ---------
Less Dividends:
Dividends from net investment income .. (0.18) (0.20) (0.16) (0.15) (0.17) (0.14)
Dividends from net realized capital
gains ............................... (0.30) (0.17) (0.06) (0.09) -- --
-------- -------- -------- -------- -------- ---------
Total Dividends: .................... (0.48) (0.37) (0.22) (0.24) (0.17) (0.14)
-------- -------- -------- -------- -------- ---------
Net increase (decrease) in net asset
value ................................. 3.09 3.11 0.43 0.86 0.91 1.99
-------- -------- -------- -------- -------- ---------
Net Asset Value, End of Period .......... $ 20.39 $ 17.30 $ 14.19 $ 13.76 $ 12.90 $ 11.99
======== ======== ======== ======== ======== =========
Total Return ............................ 21.03% 25.08% 4.80% 8.58% 9.10% 21.39%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ....... $562,419 $420,016 $362,094 $427,298 $224,630 $ 92,224
Ratios to average net assets:
Net investment income
including reimbursement/waiver ...... 0.92% 1.31% 1.27% 1.20% 1.37% 1.46%(4)
Operating expenses
including reimbursement/waiver ...... 0.98% 1.00% 0.93% 0.97% 0.95% 0.83%(4)
Operating expenses excluding
reimbursement/waiver ................ 0.98% 1.00% 0.93% 0.97% 0.95% 0.83%(4)
Portfolio Turnover Rate ................. 36% 14% 18% 16% 22% 16%(3)
Average Commission Rate Paid(6).......... $ 0.0615 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.
5 Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31,
1997, 1996 and 1995 was $____, $0.17 and $0.20 respectively.
6 Required for fiscal years beginning on or after September 1, 1995.
-5-
<PAGE> 954
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. ("Fleet"),
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. See "Other Investment Policies
and Risk Considerations -- Convertible Securities" below.
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 -- Foreign Securities"
and "Other Investment Policies and Risk Considerations -- American and European
Depository" below. The Fund may also purchase put options and call options and
write covered call options. See "Other Investment Policies and Risk
Considerations -- Options" 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 Fleet's opinion,
prevailing market or economic conditions warrant. See "Other Investment Policies
and Risk Considerations" below for information regarding additional investment
policies of the Fund.
Fleet will use its best efforts to achieve the Fund's investment
objective, although its achievement cannot be assured.
-6-
<PAGE> 955
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 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 other 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> 956
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 Fleet. 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 rated debt securities.
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,
-8-
<PAGE> 957
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 FDIC. 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. 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 net 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 -- Foreign Securities." The
Fund will invest in the obligations of U.S. branches of foreign banks
-9-
<PAGE> 958
or foreign branches of U.S. banks only when Fleet 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" below.
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 Fleet 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.
-10-
<PAGE> 959
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 Fleet to be of good standing and only when, in Fleet'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 Fleet.
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REITs
The Fund may invest up to 10% of its net assets in real estate
investment trusts ("REITs"). Equity REITs invest directly in real property while
mortgage REITs invest in mortgages on real property. REITs may be subject to
certain risks associated with the direct ownership of real estate, including
declines in the value of real estate, risks related to general and local
economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, and variations in rental income.
Generally, increases in interest rates will decrease the value of high yielding
securities and increase the costs of obtaining financing, which could decrease
the value of a REIT's investments. In addition, equity REITs may be affected by
changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified and are
subject to the risks of financing projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital. See
"Taxes".
Options
The Fund may purchase put options and call options on securities
and securities indices. A put option gives the buyer the right to sell, and the
writer the obligation to buy, the underlying security at the stated exercise
price at any time prior to the expiration of the option. A call option gives
the buyer the right to buy the underlying security at the stated exercise price
at any time prior to the expiration of the option. Options involving securities
indices provide the holder with the right to make or receive a cash settlement
upon exercise of the option based on movements in the relevant index.
The Fund may also write covered call options on securities which it
owns and may enter into closing purchase transactions with respect to such
options. Writing a covered call option means that the Fund owns the underlying
security subject to call at the stated exercise price at all times during the
option period. 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 Fleet does not
anticipate
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significant short-term capital appreciation.
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 Securities."
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
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<PAGE> 962
of short duration, generally between one and twelve months, such 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 or other liquid assets 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 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
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<PAGE> 963
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 Fleet's opinion, the
investment characteristics of the underlying common stock 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,
Fleet 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, Fleet 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 contract.
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.
Fleet 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 Fleet'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
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<PAGE> 964
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 Fleet 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
rate of 100% or more is considered high, although the rate of 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 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 that each Fund
may borrow 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
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<PAGE> 965
(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 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,
as amended, for resales of certain securities to
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<PAGE> 966
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 Fleet 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-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 Fleet 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> 967
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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors 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 FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors 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 FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors 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 per
share determined on
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<PAGE> 968
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 FD Distributors 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.
On a Business Day when the Exchange closes early due to a partial
holding or otherwise, Galaxy will advance the time at which purchase orders must
be received in order to be processed on that Business day.
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 FD
Distributors and
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<PAGE> 969
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 FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors 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 will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
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<PAGE> 970
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 "net capital gain" (the excess of its
net long-term capital gain over its net short-term capital loss), if any, and
the portion of such net capital gain that constitutes mid-term capital gain, is
taxable to shareholders as long-term or mid-term capital gain, as the case may
be, 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.
The dividends received deduction is not available for dividends
attributable to distributions made by a REIT to the Fund. In addition,
distributions paid by REITs often include a "return of capital." The Code
requires a REIT to distribute at least 95% of its taxable income to investors.
In many cases, however, because of "non-cash" expenses such as property
depreciation, an equity REIT's cash flow will exceed its taxable income. The
REIT may distribute this excess cash to offer a more competitive yield. This
portion of the distribution is deemed a return of capital and is generally not
taxable to shareholders.
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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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 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 75 State Street, Boston,
Massachusetts 02109, 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 $___ billion at
December 31, 1997. 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 Government Money
Market, Equity Value, Equity Income, International Equity, Asset Allocation,
Small Company Equity, MidCap Equity, Small Cap Value, Growth and Income, Special
Equity, Short-Term Bond, Intermediate Government Income, High Quality Bond,
Corporate Bond, Tax-Exempt Bond, New Jersey Municipal Bond, New York
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<PAGE> 972
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, Fleet 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 Bank or other subsidiaries of Fleet Financial Group,
Inc., in consideration for administrative and/or shareholder support services
which they provide to beneficial shareholders. For the fiscal year ended October
31, 1997, 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 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. Fleet, the 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
-24-
<PAGE> 973
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.
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 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. 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. For the fiscal year ended October
31, 1997, 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
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 FD Distributors at 1-800-628-0414.
-25-
<PAGE> 974
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.
Each share of Galaxy (irrespective of series designation) has a par
value of $.001 per share, represents an equal proportionate interest in the
related investment portfolio 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 investment portfolio 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
-26-
<PAGE> 975
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 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 FD Distributors; 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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities agree to perform 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;
-27-
<PAGE> 976
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. Such entities are 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 One 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 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 shareholder reports and meetings; and any extraordinary expenses. The
Fund also pays for brokerage fees and commissions in connection with the
purchase of portfolio securities.
-28-
<PAGE> 977
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders,
the performance of the Fund may be quoted and compared to that 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 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 of the Fund. Performance 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" figures 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.
The performance of the Fund will fluctuate and any quotation of
performance should not be considered as representative of the future performance
of the Fund. Since
-29-
<PAGE> 978
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 data 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
performance calculations.
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 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 the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
-30-
<PAGE> 979
TRUST
THE GALAXY FUND
Equity Income Fund
Prospectus
February __, 1998
<PAGE> 980
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
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
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................................................
Authority to Act as Investment Adviser............................
Administrator.....................................................
DESCRIPTION OF GALAXY AND ITS SHARES........................................
Shareholder Services Plan.........................................
Agreements for Sub-Account Services...............................
CUSTODIAN AND TRANSFER AGENT................................................
EXPENSES....................................................................
PERFORMANCE REPORTING.......................................................
MISCELLANEOUS...............................................................
</TABLE>
<PAGE> 981
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts regarding purchases, current
01581-5108 performance, redemptions,
exchanges and other shareholder
services, call 1-800-628-0414.
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. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is
unaffiliated with Fleet 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
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and
<PAGE> 982
Exchange Commission. The current Statement of Additional Information is
available upon request without charge by contacting Galaxy at its telephone
number 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.
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.
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 __, 1998
-2-
<PAGE> 983
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 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
expense reimbursements by Fleet, Advisory Fees would be ___%, 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 [_______________________] into
the Statement of Additional Information relating to the Fund. Any fees that are
charged by affiliates of Fleet or other institutions directly to
-3-
<PAGE> 984
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.
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, 1997 (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 number or address provided above.
-4-
<PAGE> 985
EQUITY INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, YEAR ENDED PERIOD ENDED
1997 1996 1995 1994 OCTOBER 31,(2) OCTOBER 31,
-------- ---------- ---------- ------- ------------------------- -----------
TRUST SHARES 1993 1992 1991(1,2)
--------------------------------------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $ 14.99 $ 12.75 $ 12.85 $ 11.85 $ 11.29 $ 10.00
----------- ---------- ---------- ----------- ---------- ---------
Income from Investment Operations:
Net Investment Income(3) ............ 0.37 0.36 0.31 0.30 0.30 0.29
Net realized and unrealized
gain (loss) on investments ...... 2.48 2.45 0.07 1.09 0.76 1.26
----------- ---------- ---------- ----------- ---------- ---------
Total from Investment Operations: 2.85 2.81 0.38 1.39 1.06 1.55
----------- ---------- ---------- ----------- ---------- ---------
Less Dividends:
Dividends from net investment income (0.37) (0.36) (0.29) (0.28) (0.30) (0.26)
Dividends from net realized
capital gains ..................... (0.54) (0.21) (0.19) (0.11) (0.20) --
----------- ---------- ---------- ----------- ---------- ---------
Total Dividends: ................ (0.91) (0.57) (0.48) (0.39) (0.50) (0.26)
----------- ---------- ---------- ----------- ---------- ---------
Net increase (decrease) in net
asset value ......................... 1.94 2.24 (0.10) 1.00 0.56 1.29
----------- ---------- ---------- ----------- ---------- ---------
Net Asset Value, End of Period ........ $ 16.93 $ 14.99 $ 12.75 $ 12.85 $ 11.85 $ 11.29
=========== ========== ========== =========== ========== =========
Total Return .......................... 19.65% 22.81% 3.02% 11.85% 9.71% 15.61%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ..... $ 106,094 $ 87,819 $ 78,880 $ 123,970 $ 21,778 $ 7,096
Ratios to average net assets:
Net investment income including
reimbursement/waiver .............. 2.32% 2.60% 2.49% 2.34% 2.84% 2.72%(5)
Operating expenses including
reimbursement/waiver .............. 0.94% 0.98% 1.07% 1.16% 1.03% 0.85%(5)
Operating expenses excluding
reimbursement/waiver .............. 0.94% 1.00% 1.07% 1.22% 1.54% 1.39%(5)
Portfolio Turnover Rate ............... 45% 21% 31% 27% 18% 77%(4)
Average Commission Rate Paid(6) ....... $ 0.0620 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
Fleet and/or the Fund's administrator for the years ended October 31, 1993
and 1992 and for the period ended October 31, 1991 was $0.29, $0.25 and
$0.23, respectively.
(4) Not Annualized.
(5) Annualized.
(6) Required for fiscal years beginning on or after September 1, 1995.
-5-
<PAGE> 986
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.
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
and Risk Considerations -- American and European Depository Receipts" below. The
Fund may also purchase put options and call options and write covered call
options. See "Other Investment Policies and Risk Considerations -- Options" 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 Fleet
Investment Advisors Inc. ("Fleet"), the Fund's investment adviser, prevailing
market or economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Fund.
Fleet 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.
-6-
<PAGE> 987
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 other 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
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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 Fleet. 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 then is the case for higher rated debt securities.
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
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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 FDIC. 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. 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 net 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 -- Foreign Securities." The
Fund will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet 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
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<PAGE> 990
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 Fleet 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.
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<PAGE> 991
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 Fleet to be of good standing and only when, in Fleet'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 Fleet.
REITs
The Fund may invest up to 10% of its net assets in real estate
investment trusts ("REITs"). Equity REITs invest directly in real property while
mortgage REITs invest in mortgages on real property. REITs may be subject to
certain risks associated with the direct ownership of real estate, including
declines in the value of real estate, risks related to general and local
economic conditions, overbuilding and increased competition, increases in
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<PAGE> 992
property taxes and operating expenses, and variations in rental income.
Generally, increases in interest rates will decrease the value of high yielding
securities and increase the costs of obtaining financing, which could decrease
the value of a REIT's investments. In addition, equity REITs may be affected by
changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified and are
subject to the risks of financing projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital See
"Taxes".
Options
The Fund may purchase put options and call options on securities and
securities indices. A put option gives the buyer the right to sell, and the
writer the obligation to buy, the underlying security at the stated exercise
price at any time prior to the expiration of the option. A call option gives the
buyer the right to buy the underlying security at the stated exercise price at
any time prior to the expiration or the option. Options involving securities
indices provide the holder with the right to make or receive a cash settlement
upon exercise of the option based on movements in the relevant index.
The Fund may also write covered call options on securities which it owns
and may enter into closing purchase transactions with respect to such options.
Writing a covered call option means that the Fund owns the underlying security
subject to call at the stated exercise price at all times during the option
period.
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 Fleet does not anticipate significant
short-term capital appreciation.
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.
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<PAGE> 993
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 Securities."
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, such 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
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<PAGE> 994
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 or other
liquid assets 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 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 Fleet's opinion,
the investment characteristics of the underlying common stock 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, Fleet evaluates the investment characteristics of the convertible security
as a fixed income instrument, and the investment potential of the underlying
equity security for
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<PAGE> 995
capital appreciation. In evaluating these matters with respect to a particular
convertible security, Fleet 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 contracts.
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.
Fleet 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 Fleet'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
Fleet believes that such a disposition is consistent with the Fund's investment
objective. Portfolio
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<PAGE> 996
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."
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 that the Fund may
borrow 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
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<PAGE> 997
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 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,
as amended, 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 Fleet has determined, in accordance
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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-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 Fleet 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
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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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors 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 FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors 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 FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors 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 per
share 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
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Customer on a non-Business Day, the order will not be executed until it is
received and accepted by FD Distributors 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 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.
On a Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which redemption orders
must be received in order to be processed on that Business Day.
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 FD
Distributors 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 FD
-20-
<PAGE> 1001
Distributors. On a Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which redemption orders
must be received in order to be processed on that Business Day. Payment for
redemption orders received by FD Distributors 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 "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.
-21-
<PAGE> 1002
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 "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, and the
portion of such net capital gain that constitutes mid-term capital gain, is
taxable to shareholders as long-term or mid-term capital gain, as the case may
be, 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.
The dividends received deduction is not available for dividends
attributable to distributions made by a REIT to the Fund. In addition,
distributions paid by a REIT often include a "return of capital." The Code
requires a REIT to distribute at least 95% of its taxable income to investors.
In many cases, however, because of "non-cash" expenses such as property
depreciation, an equity REIT's cash flow will exceed its taxable income. The
REIT may distribute this excess cash to offer a more competitive yield. This
portion of the distribution is deemed a return of capital and is generally not
taxable to shareholders.
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, 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.
-22-
<PAGE> 1003
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 75 State Street, Boston, Massachusetts,
02109, 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,
1997. 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 Government Money Market, Equity Value,
Equity Growth, International Equity, Asset Allocation, Growth and Income,
Special Equity, Small Company Equity, MidCap Equity, Small Cap Value, Short-Term
Bond, Intermediate Government Income, High Quality Bond, Corporate Bond,
Tax-Exempt Bond, New Jersey Municipal 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,
Fleet is entitled to receive advisory fees,
-23-
<PAGE> 1004
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 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 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 Bank or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders. For the fiscal year ended October 31, 1997,
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, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Klisiewicz, a Senior Vice President of Fleet, 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 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. Fleet, the 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.
-24-
<PAGE> 1005
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. 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 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. In addition, FDISG also receives a separate
annual fee from each Portfolio for certain fund accounting services. From time
to time, FDISG may waive voluntarily 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, 1997, 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 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 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 FD Distributors 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
-25-
<PAGE> 1006
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 investment portfolio 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 investment portfolios 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 .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 FD Distributors; 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
-26-
<PAGE> 1007
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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities agree to perform 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. Such entities are 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.
-27-
<PAGE> 1008
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One 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 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 shareholder reports and meetings; and any
extraordinary expenses. The Fund also pays for brokerage fees and commissions in
connection with the purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to
shareholders, the performance of the Fund may be quoted and compared to that 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.
-28-
<PAGE> 1009
Performance 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 of the Fund. Performance 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" figures 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.
The performance of the Fund will fluctuate and any quotation of
performance should not be considered as representative of the 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 data 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 performance calculations.
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
-29-
<PAGE> 1010
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 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 the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
-30-
<PAGE> 1011
TRUST
THE GALAXY FUND
International Equity Fund
Prospectus
February ___, 1998
<PAGE> 1012
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 FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. 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.......................................... 8
Other Investment Policies and Risk Considerations.................... 9
INVESTMENT LIMITATIONS..................................................... 18
PRICING OF SHARES.......................................................... 20
HOW TO PURCHASE AND REDEEM SHARES.......................................... 21
Distributor.......................................................... 21
Purchase of Shares................................................... 21
Redemption of Shares................................................. 23
DIVIDENDS AND DISTRIBUTIONS................................................ 23
TAXES...................................................................... 24
Federal.............................................................. 24
State and Local...................................................... 25
MANAGEMENT OF THE FUND..................................................... 26
Investment Adviser and Sub-Adviser................................... 26
Authority to Act as Investment Adviser............................... 28
Administrator........................................................ 28
DESCRIPTION OF GALAXY AND ITS SHARES....................................... 29
Shareholder Services Plan............................................ 30
Agreements for Sub-Account Services.................................. 31
CUSTODIAN AND TRANSFER AGENT............................................... 31
EXPENSES................................................................... 31
PERFORMANCE REPORTING...................................................... 32
MISCELLANEOUS.............................................................. 33
<PAGE> 1013
THE GALAXY FUND
For an application and information
regarding purchases, redemptions,
4400 Computer Drive exchanges and other shareholder
Westboro, Massachusetts services or for current
01581-5108 performance, call 1-800-628-0414.
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 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. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is
unaffiliated with Fleet and its parent, Fleet Financial Group, Inc., and
affiliates. Oechsle International Advisors, L.P. serves as the sub-adviser to
the Fund.
<PAGE> 1014
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
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.
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.
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 __, 1998
-2-
<PAGE> 1015
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
-------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
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 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>
International 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
expense reimbursements by Fleet, Advisory Fees would be ____%, Other Expenses
would be ____% and
-3-
<PAGE> 1016
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 [_______________________] into the Statement of
Additional Information relating to the Fund. 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.
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, 1997 (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 number or address
provided above.
-4-
<PAGE> 1017
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,
---------------------- ----------- -----------
1997 1996 1995 1994 1993(2) 1992(1)(2)
-------------------------------------------- ----------- ------------
TRUST SHARES
--------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period ......................... $ 12.98 $ 13.20 $ 12.13 $ 9.66 $ 10.00
--------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income(3) ....... 0.17 0.16 0.06 0.02 0.06
Net realized and unrealized gain
(loss) on investments ........ 1.30 (0.18) 1.02 2.51 (0.40)
--------- -------- -------- -------- --------
Total from Investment
Operations: .......... 1.47 (0.02) 1.08 2.53 (0.34)
--------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment
income ....................... (0.20) (0.04) (0.01) (0.06) --
Dividends from net realized
capital gains ................ (0.24) (0.16) -- -- --
--------- -------- -------- -------- --------
Total Dividends: ......... (0.44) (0.20) (0.01) (0.06) --
--------- -------- -------- -------- --------
Net increase (decrease) in net
asset value .................... 1.03 (0.22) 1.07 2.47 (0.34)
--------- -------- -------- -------- --------
Net Asset Value, End of Period ... $ 14.01 $ 12.98 $ 13.20 $ 12.13 $ 9.66
========= ======== ======== ======== ========
Total Return ..................... 11.51% (0.02)% 8.91% 26.36% (3.40)%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $ 172,561 $ 89,614 $ 82,350 $ 39,246 $ 12,584
Ratios to average net assets:
Net investment income including
reimbursement/waiver ......... 1.40% 1.36% 0.74% 0.37% 1.19%(5)
Operating expenses including
reimbursement/waiver ......... 1.08% 1.22% 1.43% 1.57% 1.61%(5)
Operating expenses excluding
reimbursement/waiver ......... 1.36% 1.48% 1.72% 2.04% 2.79%(5)
Portfolio Turnover Rate .......... 146% 48% 39% 29% 21%(4)
Average Commission Rate Paid(6) .. $ 0.0381 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
Fleet and/or the Fund's administrator for the years ended October 31,
1997, 1996, 1995, 1994 and 1993 and for the period ended October 31,
1992 was $________, $0.13, $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> 1018
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 20% 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 and Risk Considerations -- 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.
-6-
<PAGE> 1019
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 and Risk Considerations -- 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 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 U.S. issuers. See "Other Investment Policies and Risk Considerations" below
regarding additional investment policies of the International Equity Fund.
Fleet Investment Advisors Inc. ("Fleet"), the Fund's investment
adviser, and Oechsle International Advisors, L.P. ("Oechsle"), the Fund's
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 outstanding shares (as defined under
-7-
<PAGE> 1020
"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 other 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
-8-
<PAGE> 1021
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 Fleet and/or Oechsle 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 such debt is 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
-9-
<PAGE> 1022
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 FDIC. 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. 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 net 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 -- Foreign Securities." The
Fund will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet and/or Oechsle believes that the credit
risk with respect to the instrument is minimal.
-10-
<PAGE> 1023
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" below.
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 Fleet and/or Oechsle 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
-11-
<PAGE> 1024
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 Fleet and/or Oechsle to be of good standing and only when,
in Fleet's and/or Oechsle'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
-12-
<PAGE> 1025
aggregate by the Fund, other investment portfolios of Galaxy, or any other
investment companies advised by Fleet or Oechsle.
REITs
The Fund may invest up to 10% of its net assets in real estate
investment trusts ("REITs"). Equity REITs invest directly in real property while
mortgage REITs invest in mortgages on real property. REITs may be subject to
certain risks associated with the direct ownership of real estate, including
declines in the value of real estate, risks related to general and local
economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, and variations in rental income.
Generally, increases in interest rates will decrease the value of high yielding
securities and increase the costs of obtaining financing, which could decrease
the value of a REIT's investment. In addition, equity REITs may be affected by
changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified and are
subject to the risks of financing projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pays dividends
to their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital. See
"Taxes".
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
-13-
<PAGE> 1026
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 Fleet and/or Oechsle 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 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 a stock index option 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
relating to the Fund.
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
-14-
<PAGE> 1027
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 Securities."
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, such 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
-15-
<PAGE> 1028
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 or other liquid assets 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 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 nonconvertible 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 Fleet's and/or
Oechsle's opinion, the investment characteristics of the underlying common stock
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, Fleet and/or Oechsle 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, Fleet and/or Oechsle considers
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<PAGE> 1029
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, covered call options, options on foreign stock indices and foreign
currency exchange contracts.
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.
Fleet and/or Oechsle 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
Fleet's and/or Oechsle'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 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
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<PAGE> 1030
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
Fleet and/or Oechsle 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
rate of 100% or more is considered high although the rate of 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 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.
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<PAGE> 1031
2. Borrow money or issue senior securities, except that the
Fund may borrow 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, nonnegotiable 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 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
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<PAGE> 1032
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,
as amended, 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 Fleet and/or Oechsle 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, 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
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<PAGE> 1033
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.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors 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 FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors 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
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<PAGE> 1034
be sent to the appropriate Institution. Purchases of Trust Shares will be
effected only on days on which FD Distributors, Galaxy's custodian and the
purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors 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 per
share 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 FD Distributors 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 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 Oechsle.
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<PAGE> 1035
On a Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which purchase orders must
be received in order to be processed on that Business Day.
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 FD
Distributors 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 FD Distributors. On a business day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which purchase orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors 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
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.
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<PAGE> 1036
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.
Distribution by the Fund of "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, and the
portion of such net capital gain that constitutes mid-term capital gain, is
taxable to shareholders as long-term or mid-term capital gain, as the case may
be, 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.
The dividends received deduction is not available for dividends
attributable to distributions made by a REIT to the Fund. In addition,
distributions paid by REITs often include a "return of capital." The Code
requires a REIT to distribute at least 95% of its taxable income to investors.
In many cases, however, because of "non-cash" expenses such as property
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<PAGE> 1037
depreciation, an equity REIT's cash flow will exceed its taxable income. The
REIT may distribute this excess cash to offer a more competitive yield. This
portion of the distribution is deemed a return of capital and is generally not
taxable to shareholders.
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 should they so choose.
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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<PAGE> 1038
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 applicable 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 75 State Street, Boston,
Massachusetts, 02109, 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, 1997. 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 Government Money Market, Equity Value,
Equity Growth, Equity Income, Asset Allocation, Small Company Equity, MidCap
Equity, Small Cap Value, Growth and Income, Special Equity, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New Jersey Municipal 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 Oechsle, the Fund's sub-adviser, as
described below).
For the services provided and expenses assumed with respect to the
Fund, Fleet is entitled to receive advisory fees, computed daily and paid
monthly, at an 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
-26-
<PAGE> 1039
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 Bank or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders. For the fiscal year ended October 31, 1997,
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 $___ billion in assets.
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 Fleet with foreign broker research and a quarterly review of
international economic and investment developments. Fleet, among other things,
assists and consults with Oechsle in connection with the Fund's continuous
investment program; approves lists of foreign countries recommended by Oechsle
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 Oechsle 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 Fund's
average daily net assets, plus .35% of average daily net assets in excess of $50
million. For the fiscal year ended October 31, 1997, Oechsle received
sub-advisory fees from Fleet at the effective annual rate of ___% of the Fund's
average daily net assets.
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<PAGE> 1040
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. Fleet, the 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.
FDISG generally assists the Fund in its administration and operation.
FDISG also serves as administrator to the other portfolios of Galaxy. For the
services provided by the Fund, FDISG is entitled to receive administration fees,
computed daily
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<PAGE> 1041
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
the combined average daily net assets and .075% 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 voluntarily all or a portion of the administration fee payable
to it by the Fund. For the fiscal year ended October 31, 1997, 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 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 FD
Distributors 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 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 investment portfolio
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<PAGE> 1042
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
investment portfolio 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 .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 FD Distributors; 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
-30-
<PAGE> 1043
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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities agree to perform 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. Such entities are 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 One 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.
-31-
<PAGE> 1044
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 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 shareholder reports and meetings; and any
extraordinary expenses. The Fund also pays for brokerage fees and commissions in
connection with the purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that 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 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 of the Fund. Performance 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
-32-
<PAGE> 1045
(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" figures 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.
The performance of the Fund will fluctuate and any quotation of
performance should not be considered as representative of the 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 data 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 performance calculations.
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.
-33-
<PAGE> 1046
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 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 the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
-34-
<PAGE> 1047
TRUST
THE GALAXY FUND
Small Company Equity Fund
Prospectus
February __, 1998
<PAGE> 1048
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 FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. 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 ......................................
Authority to Act as Investment Adviser ..................
Administrator ...........................................
DESCRIPTION OF GALAXY AND ITS SHARES .............................
Shareholder Services Plan ...............................
Agreements for Sub-Account Services .....................
CUSTODIAN AND TRANSFER AGENT .....................................
EXPENSES .........................................................
PERFORMANCE REPORTING ............................................
MISCELLANEOUS ....................................................
<PAGE> 1049
THE GALAXY FUND
4400 Computer Drive For an application and
Westboro, Massachusetts information regarding
01581-5108 purchases, redemptions,
exchanges and other
shareholder services or
for current performance, call
1-800-628-0414.
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 market value capitalizations of $750 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 market value capitalizations of $750 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 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.
("Fleet") and sponsored and distributed by First Data Distributors, Inc., which
is unaffiliated with Fleet and its parent, Fleet Financial Group, Inc., and
affiliates.
<PAGE> 1050
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
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.
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.
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 __, 1998
-2-
<PAGE> 1051
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 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 expense reimbursements by Fleet, Advisory Fees would be ___%, 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> 1052
and notes [_______________________] into the Statement of Additional Information
relating to the Fund. 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.
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 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,
1997 (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 number or
address provided above.
-4-
<PAGE> 1053
SMALL COMPANY EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996 1995 1994 YEAR ENDED PERIOD ENDED
---------------------------------------------- OCTOBER 31, OCTOBER 31,
TRUST SHARES 1993(2) 1992(1,2)
---------------------------------------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.......... $ 16.38 $ 12.36 $ 12.41 $ 8.79 $ 10.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net Investment Income (loss)(3)............. (0.09) (0.04) -- (0.04) (0.03)
Net realized and unrealized gain (loss)
on investments.......................... 4.08 4.25 -- 3.66 (1.18)
-------- -------- -------- -------- --------
Total from Investment Operations:.... 3.99 4.21 -- 3.62 (1.21)
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income........ -- -- -- --
Dividends from net realized capital gains... (0.17) (0.19) (0.05) -- --
-------- -------- -------- -------- --------
Total Dividends:...................... (0.17) (0.19) (0.05) -- --
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value.... 3.82 4.02 (0.05) 3.62 (1.21)
-------- -------- -------- -------- --------
Net Asset Value, End of Period................ $ 20.20 $ 16.38 $ 12.36 $ 12.41 $ 8.79
======== ======== ======== ======== ========
Total Return.................................. 24.69% 34.73% 0.02% 41.18% (12.10)%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............. $174,990 $ 94,831 $ 66,462 $ 55,683 $ 29,072
Ratios to average net assets:
Net investment income (loss) including
reimbursement/waiver........................ (0.60)% (0.37)% (0.35)% (0.66)% (0.63)%(5)
Operating expenses including
reimbursement/waiver...................... 1.14% 1.12% 1.27% 1.18% 1.06%(5)
Operating expenses excluding
reimbursement/waiver...................... 1.14% 1.12% 1.27% 1.22% 1.33%(5)
Portfolio Turnover Rate....................... 82% 54% 35% 57% 87%(4)
Average Commission Rate Paid(6)............... $ 0.0531 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 Fleet and/or the Fund's administrator for the period ended
October 31, 1992 was $(0.05).
(4) Not Annualized.
(5) Annualized.
(6) Required for fiscal years beginning on or after September 1, 1995.
-5-
<PAGE> 1054
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 market value capitalizations of $750 million
or less ("Small Capitalization Securities") that Fleet Investment Advisors Inc.
("Fleet"), 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 market value capitalizations of $750 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 -- Foreign Securities" and "Other Investment Policies and Risk
Considerations -- American and European Depository Receipts" below.
The Fund may purchase put options and call options 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 "Other
Investment Policies and Risk Considerations--Derivative Securities" below.
-6-
<PAGE> 1055
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 Fleet,
prevailing market or economic conditions warrant. See "Other Investment Policies
and Risk Considerations" below for information regarding additional investment
policies of the Fund.
Fleet 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 other 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
-7-
<PAGE> 1056
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 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 Fleet. 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 then is the case for higher rated debt obligations.
-8-
<PAGE> 1057
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 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 FDIC. 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. 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 net 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.
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<PAGE> 1058
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 -- Foreign Securities." The
Fund will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet 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" below.
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 Fleet 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
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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 Fleet to be of good standing and only when, in
Fleet'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)
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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 Fleet.
REITs
The Fund may invest up to 10% of its net assets in real estate
investment trusts ("REITs"). Equity REITs invest directly in real property while
mortgage REITs invest in mortgages on real property. REITs may be subject to
certain risks associated with the direct ownership of real estate, including
declines in the value of real estate, risks related to general and local
economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, and variations in rental income.
Generally, increases in interest rates will decrease the value of high yielding
securities and increase the costs of obtaining financing, which could decrease
the value of a REIT's investments. In addition, equity REITs may be affected by
changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified and are
subject to the risks of financing projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital See
"Taxes".
Options
The Fund may purchase put options and call options on securities
and securities indices. A put option gives the buyer the right to sell, and the
writer the obligation to buy, the underlying security at the stated exercise
price at any time prior to the expiration of the option. A call option gives the
buyer the right to buy the underlying security at the stated exercise price at
any time prior to the expiration of the option. Options involving securities
indices provide the holder with the right to make or receive a cash settlement
upon exercise of the option based on movements in the relevant index.
The Fund may also write covered call options on securities which
it owns and may enter into closing purchase transactions with respect to such
options. Writing a covered call option means that the Fund owns the underlying
security subject to call at the stated exercise price at all times during the
option period.
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<PAGE> 1061
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
Fleet does not anticipate significant short-term capital appreciation.
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 Securities."
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.
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<PAGE> 1062
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, such 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 or other liquid assets 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 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
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<PAGE> 1063
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 Fleet'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, Fleet 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, Fleet 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 contracts.
Derivative securities present, to varying degrees, market risk
that the performance of the underlying assets, interest or exchange 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.
-15-
<PAGE> 1064
Fleet 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
Fleet'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 Fleet 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."
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
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<PAGE> 1065
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 that the Fund
may borrow 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> 1066
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, as amended, 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 Fleet 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
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<PAGE> 1067
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 Fleet 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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors 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 collaterally as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors 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
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<PAGE> 1068
Shares will be effected only on days on which FD Distributors, Galaxy's
custodian and the purchasing Institution are open for business ("Business
Days").
A purchase order for Trust Shares received by FD Distributors 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 per
share 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 FD Distributors 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.
On a Business Day when the Exchange closes early due to
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<PAGE> 1069
a partial holiday or otherwise, Galaxy will advance the time at which redemption
orders must be received in order to be processed on that Business Day.
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 FD Distributors 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 FD Distributors. On a Business Day
when the Exchange closes early due to a partial holiday or otherwise, Galaxy
will advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors 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.
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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 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.
Distribution by the Fund of "net capital gain" (the excess of its
net long-term capital gain over its net short-term capital loss), if any, and
the portion of such net capital gain that constitutes mid-term capital gain, is
taxable to shareholders as long-term or mid-term capital gain, as the case may
be, 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.
The dividends received deduction is not available for dividends
attributable to distributions made by a REIT to the Fund. In addition,
distributions paid by REITs often include a "return of capital." The Code
requires a REIT to distribute at least 95% of its taxable income to investors.
In many cases, however, because of "non-cash" expenses such as property
-22-
<PAGE> 1071
depreciation, an equity REIT's cash flow will exceed its taxable income. The
REIT may distribute this excess cash to offer a more competitive yield. This
portion of the distribution is deemed a return of capital and is generally not
taxable to shareholders.
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.
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 75 State Street, Boston,
Massachusetts, 02109, 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
-23-
<PAGE> 1072
total assets of approximately $__ billion at December 31, 1997. 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 Government Money Market, Equity Value, Equity Growth,
Equity Income, International Equity, Asset Allocation, MidCap Equity, Small Cap
Value, Growth and Income, Special Equity, Short-Term Bond, Intermediate
Government Income, High Quality Bond, Corporate Bond, Tax-Exempt Bond, New
Jersey Municipal 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, Fleet 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 Bank or other subsidiaries of Fleet Financial Group,
Inc., in consideration for administrative and/or shareholder support services
which they provide to beneficial shareholders. For the fiscal year ended October
31, 1997, Fleet received advisory fees 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
-24-
<PAGE> 1073
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. Fleet, the 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.
FDISG generally assists the Fund in its administration and
operation. FDISG also serves as administrator to the other portfolios of Galaxy.
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 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. In addition, FDISG also
receives a separate annual fee from each Portfolio for certain fund accounting
services. From time to time, FDISG may waive voluntarily all or a portion of the
administration fee payable to it by the Fund. For the fiscal year ended October
31, 1997, 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
-25-
<PAGE> 1074
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 FD Distributors 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 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 maximum 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 investment portfolio 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 investment portfolio 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
-26-
<PAGE> 1075
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 FDSIG 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 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 FD Distributors; 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
-27-
<PAGE> 1076
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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
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. Such entities are 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 One 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
-28-
<PAGE> 1077
(including fees paid to its trustees and officers who are not affiliated with
FDISG); SEC fees; state securities 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 shareholder
reports and meetings; and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions in connection with the purchase of portfolio
securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to
shareholders, the performance and yield of the Fund may be quoted and compared
to that 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 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 of the Fund. Performance 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" figures 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
-29-
<PAGE> 1078
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.
The performance of the Fund will fluctuate and any quotation of
performance should not be considered as representative of the 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 data 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 performance calculations.
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 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 the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more
-30-
<PAGE> 1079
than 50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy.
-31-
<PAGE> 1080
TRUST
THE GALAXY FUND
MidCap Equity Fund
Prospectus
February __, 1998
<PAGE> 1081
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
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. 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 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 ................................................
Authority to Act as Investment Adviser.............................
Administrator......................................................
DESCRIPTION OF GALAXY AND ITS SHARES.........................................
Shareholder Services Plan..........................................
Agreements for Sub-Account
Services...........................................................
CUSTODIAN AND TRANSFER AGENT.................................................
EXPENSES.....................................................................
PERFORMANCE REPORTING........................................................
MISCELLANEOUS................................................................
</TABLE>
<PAGE> 1082
THE GALAXY FUND
For an application and information
regarding purchases, redemptions
4400 Computer Drive exchanges and other shareholder
Westboro, Massachusetts services or for current performance
01581-5108 call 1-800-628-0414.
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 MIDCAP 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 primarily
in the securities of companies with market value capitalizations of between $750
million and $3.5 billion that the Fund's investment adviser believes are
undervalued and represent the potential for future earnings growth. Under normal
market and economic conditions, the Fund will invest at least 65% of its total
assets in the equity securities of companies with market value capitalizations
of between $750 million and $3.5 billion.
This prospectus describes Trust Shares in the Fund. Trust Shares are
offered to investors maintaining qualified accounts primarily 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 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. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is
unaffiliated with Fleet and its parent, Fleet Financial Group, Inc., and
affiliates.
<PAGE> 1083
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
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.
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.
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 __, 1998
-2-
<PAGE> 1084
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>
MIDCAP
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 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
------ -------
<S> <C> <C>
</TABLE>
MidCap Equity Fund................................... $__ $__
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 which the Fund expects to incur during the current
fiscal year on its Trust Shares. Without voluntary fee waivers and expense
reimbursements by Fleet, Advisory Fees would be ___%, 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. 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.
-3-
<PAGE> 1085
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. THE FUND IS NEW AND ACTUAL EXPENSES AND
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN.
-4-
<PAGE> 1086
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 the securities of companies with market value capitalizations of
between $750 million and $3.5 billion that Fleet Investment Advisors Inc.
("Fleet"), the Fund's investment adviser, believes are undervalued and represent
the potential for future earnings growth. In selecting investments for the Fund,
Fleet uses a qualitative analysis which seeks to identify companies undergoing
positive fundamental changes, such as new product introductions, corporate
restructurings or management changes, which are likely to result in positive
earnings growth and improving valuation ratios. Industry position and economic
trends are also considered.
Under normal market and economic conditions, the Fund will invest at
least 65% of its total assets in the equity securities of companies with market
value capitalizations of between $750 million and $3.5 billion, including common
stocks, preferred stocks, securities convertible into common stock, rights and
warrants.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs").
See Special Risk Considerations -- Foreign Securities" and "Other Investment
Policies and Risk Considerations -- American, European and Global Depository
Receipts" 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.
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 in U.S. Government
obligations at such times and in such proportions as, in the opinion of Fleet,
prevailing market and economic conditions warrant. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the MidCap Equity Fund.
-5-
<PAGE> 1087
Fleet 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 other 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
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<PAGE> 1088
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
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 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 Fleet. 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 rated obligations.
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.
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<PAGE> 1089
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 FDIC. 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. 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 net 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
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<PAGE> 1090
accompanying direct investments in foreign securities. See "Special Risk
Considerations -- Foreign Securities." The Fund will invest in the obligations
of U.S. branches of foreign banks or foreign branches of U.S. banks only when
Fleet 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" below.
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 Fleet 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 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
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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 Fleet to be of good standing and only when, in Fleet'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. Except as provided
above, 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
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<PAGE> 1092
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 Fleet.
REITs
The Fund may invest up to 10% of its net assets in real estate
investment trusts ("REITs"). Equity REITs invest directly in real property while
mortgage REITs invest in mortgages on real property. REITs may be subject to
certain risks associated with the direct ownership of real estate, including
declines in the value of real estate, risks related to general and local
economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, and variations in rental income.
Generally, increases in interest rates will decrease the value of high yielding
securities and increase the costs of obtaining financing, which could decrease
the value of a REIT's investments. In addition, equity REITs may be affected by
changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified and are
subject to the risks of financing projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital. See
"Taxes."
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.
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<PAGE> 1093
Options and futures can be volatile investments, and involve certain
risks. If Fleet 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, liquid
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
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<PAGE> 1094
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
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 Securities."
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
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<PAGE> 1095
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, such
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 or other liquid assets 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 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
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<PAGE> 1096
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 Fleet'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, Fleet 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, Fleet 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, put and call options, stock index futures and options, indexed
securities and swap agreements, and foreign currency exchange contracts.
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.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Fund, and will determine,
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<PAGE> 1097
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 Fleet'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 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 Fleet 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
Fleet 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 rate of 100% or
more is considered high although the rate of 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 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." Although
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<PAGE> 1098
the Fund cannot accurately predict its annual portfolio turnover rate, it is not
expected to exceed 100%.
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 that each Fund may
borrow 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 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.
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<PAGE> 1099
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 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,
as amended, 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 Fleet 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). 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 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 Fleet 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> 1101
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors 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 FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors 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 FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors 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 per
share 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 FD Distributors on a
Business Day in accordance with the foregoing procedures.
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<PAGE> 1102
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 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.
On a Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which redemption orders
must be received in order to be processed on that Business Day.
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 FD
Distributors 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 FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders
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<PAGE> 1103
received by FD Distributors 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 intends 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> 1104
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 "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, and the
portion of such net capital gain that constitutes mid-term capital gain, is
taxable to shareholders as long-term or mid-term capital gain, as the case may
be, 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.
The dividends received deduction is not available for dividends
attributable to distributions made by a REIT to the Fund. In addition,
distributions paid by REITs often include a "return of capital." The Code
requires a REIT to distribute at least 95% of its taxable income to investors.
In many cases, however, because of "non-cash" expenses such as property
depreciation, an equity REIT's cash flow will exceed its taxable income. The
REIT may distribute this excess cash to offer a more competitive yield. This
portion of the distribution is deemed a return of capital and is generally not
taxable to shareholders.
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
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<PAGE> 1105
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 75 State Street, Boston, Massachusetts
02109, 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,
1997. 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 Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Asset Allocation, Small
Company Equity, Small Cap Value, Growth and Income, Special Equity, Short-Term
Bond, Intermediate Government Income, High Quality Bond, Corporate Bond,
Tax-Exempt Bond, New Jersey Municipal 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,
Fleet 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
-24-
<PAGE> 1106
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 Bank or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders.
The Fund's portfolio manager, Barbara C. Friedman, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Ms. Friedman, a Vice President, has been with Fleet since 1996 and prior thereto
was a portfolio manager at Loomis, Sayles & Company, a partner and portfolio
manager at Harvard Management Company and an economist at Wellington Management
Company. She has over 20 years of investment experience.
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. Fleet, the 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.
-25-
<PAGE> 1107
FDISG generally assists the Fund in its administration and operation.
FDISG also serves as administrator to the other portfolios of Galaxy. For
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 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. In addition, FDISG also receives a separate
annual fee from each Portfolio for certain fund accounting services. From time
to time, FDISG may waive voluntarily all or a portion of the administration fee
payable to it by the Fund.
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 Z - Series 1 shares (Trust
Shares), Class Z - Series 2 shares (Retail A Shares) and Class Z - 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 FD Distributors 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 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.
-26-
<PAGE> 1108
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 investment portfolio 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 investment portfolio 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 .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
and processing purchase and redemption requests and placing net purchase and
redemption orders with FD Distributors; 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
-27-
<PAGE> 1109
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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities agree to perform 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. Such entities are 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 One Chase
Manhattan Plaza, New York, New York 10081, a wholly-
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<PAGE> 1110
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 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 shareholder
reports and meetings; and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions in connection with the purchase of portfolio
securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that 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 data as reported in national financial publications
including, but not limited to, Money Magazine,
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<PAGE> 1111
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 of
the Fund. Performance 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" figures 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.
The performance of the Fund will fluctuate and any quotation of
performance should not be considered as representative of the 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 data 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 performance calculations.
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
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<PAGE> 1112
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 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 the Fund or (b) 67% or more of
the shares of the Fund present at a meeting if more than 50% of the outstanding
shares of the Fund are represented at the meeting in person or by proxy.
-31-
<PAGE> 1113
TRUST
THE GALAXY FUND
Asset Allocation Fund
Prospectus
February __, 1998
<PAGE> 1114
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
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. 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................................................... 18
PRICING OF SHARES........................................................ 20
HOW TO PURCHASE AND REDEEM SHARES........................................ 21
Distributor..................................................... 21
Purchase of Shares.............................................. 21
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
Agreements for Sub-Account Services............................. 30
CUSTODIAN AND TRANSFER AGENT............................................. 30
EXPENSES................................................................. 31
PERFORMANCE REPORTING.................................................... 31
MISCELLANEOUS............................................................ 32
<PAGE> 1115
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts regarding purchases, redemptions,
01581-5108 exchanges and other shareholder
services or for current
performance, call 1-800-628-0414.
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 primarily 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.
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is
unaffiliated with Fleet and its parent, Fleet Financial Group, Inc., and
affiliates.
<PAGE> 1116
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
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.
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.
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 __, 1998
-2-
<PAGE> 1117
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 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
expense reimbursements by Fleet, Advisory Fees would be ___%, 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 [_______________________] into
the Statement of
-3-
<PAGE> 1118
Additional Information relating to the Fund. 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.
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, 1997 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, 1997 (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> 1119
ASSET ALLOCATION FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995 1994 YEAR ENDED PERIOD ENDED
--------------------------------------------- OCTOBER 31, OCTOBER 31,
TRUST SHARES 1993(2) 1992(1),(2)
--------------------------------------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.......... $ 12.83 $ 10.68 $ 11.15 $ 10.16 $ 10.00
-------- -------- -------- -------- -------
Income from Investment Operations:
Net Investment Income(3).................... 0.33 0.32 0.28 0.25 0.15
Net realized and unrealized gain (loss)
on investments.......................... 1.83 2.16 (0.49) 0.99 0.13
-------- -------- -------- -------- -------
Total from Investment Operations:.... 2.16 2.48 (0.21) 1.24 0.28
-------- -------- -------- -------- -------
Less Dividends:
Dividends from net investment income........ (0.33) (0.33) (0.26) (0.25) (0.12)
Dividends from net realized capital gains... (0.13) -- -- -- --
-------- -------- -------- -------- -------
Total Dividends:...................... (0.46) (0.33) (0.26) (0.25) (0.12)
-------- -------- -------- -------- -------
Net increase (decrease) in net asset value.... 1.70 2.15 (0.47) 0.99 0.16
-------- -------- -------- -------- -------
Net Asset Value, End of Period................ $ 14.53 $ 12.83 $ 10.68 $ 11.15 $ 10.16
======== ======== ======== ======== =======
Total Return.................................. 17.19% 23.68% (1.93)% 12.37% 2.85%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............. $123,603 $ 76,771 $ 65,464 $ 92,348 $11,555
Ratios to average net assets:
Net investment income including
reimbursement/waiver...................... 2.52% 2.74% 2.70% 2.59% 2.80%(5)
Operating expenses including
reimbursement/waiver...................... 1.19% 1.26% 1.18% 1.14% 1.11%(5)
Operating expenses excluding
reimbursement/waiver...................... 1.21% 1.30% 1.18% 1.25% 2.39%(5)
Portfolio Turnover Rate....................... 48% 41% 23% 7% 2%(4)
Average Commission Rate Paid(6)............... $ 0.0635 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
Fleet and/or the Fund's administrator for the year ended October 31,
1993 and for the period ended October 31, 1992 was $0.24 and $0.08,
respectively.
(4) Not Annualized.
(5) Annualized.
(6) Required for fiscal years beginning on or after September 1, 1995.
-5-
<PAGE> 1120
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. ("Fleet") the Fund's
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 Standard & Poor's 500 Composite Stock Price Index (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 Fleet'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, Fleet 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
commitments will be undertaken or met in the future. See "Special Risk
Considerations -- Foreign Securities" and "Other Investment Policies and Risk
Considerations -- American and European Depository Receipts" 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 purchase put
options and call options and 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."
-6-
<PAGE> 1121
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 Fleet,
prevailing market and economic conditions warrant. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the Fund.
Fleet 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 to a significant degree 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 other 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
-7-
<PAGE> 1122
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 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 Fleet. 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 rated debt obligations.
-8-
<PAGE> 1123
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 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 FDIC. 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. 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 net 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.
-9-
<PAGE> 1124
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 -- Foreign Securities." The
Fund will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet 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" below.
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 Fleet 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
-10-
<PAGE> 1125
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 Fleet to be of good standing and only when, in Fleet'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)
-11-
<PAGE> 1126
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 Fleet.
REITs
The Fund may invest up to 10% of its net assets in real estate
investment trusts ("REITs"). Equity REITs invest directly in real property while
mortgage REITs invest in mortgages on real property. REITs may be subject to
certain risks associated with the direct ownership of real estate, including
declines in the value of real estate, risks related to general and local
economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, and variations in rental income.
Generally, increases in interest rates will decrease the value of high yielding
securities and increase the costs of obtaining financing, which could decrease
the value of a REIT's investments. In addition, equity REITs may be affected by
changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified and are
subject to the risks of financing projects. REITs are also subject to heave cash
flow dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital. See
"Taxes."
Options
The Fund may purchase put options and call options on securities
and securities indices. A put option gives the buyer the right to sell, and the
writer the obligation to buy, the underlying security at the stated exercise
price at any time prior to the expiration of the option. A call option gives
the buyer the right to buy the underlying security at the stated exercise price
at any time prior to the expiration of the option. Options involving securities
indices provide the holder with the right to make or receive a cash settlement
upon exercise of the option based on movements in the relevant index.
The Fund may also write covered call options on securities which it
owns and may enter into closing purchase transactions with respect to such
options. Writing a covered call option means that the Fund owns the underlying
security subject to call at the stated exercise price at all times during the
option period.
-12-
<PAGE> 1127
By writing a covered call option, the Fund foregoes 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 Fleet does not anticipate significant
short-term capital appreciation.
All options must be listed on a national securities exchange and
issued by the Options Clearing Corporation. The aggregate value of options
purchased by the Fund may not exceed 5%, and the aggregate value of covered call
options written by the Fund may not exceed 25%, of the value of the Fund's net
assets. 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 Securities."
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.
-13-
<PAGE> 1128
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, such 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 or other liquid assets 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
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"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, 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, 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.
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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 or
other liquid assets 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 the
instrument which the Fund originally held. Successful use of mortgage dollar
rolls may depend upon Fleet'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
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the Fund may invest may take the form of convertible preferred stock and
convertible bonds or debentures.
Convertible bonds and convertible preferred stocks 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 Fleet'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, Fleet 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, Fleet 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, foreign currency exchange contracts 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 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
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<PAGE> 1132
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.
Fleet 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 Fleet'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 Fleet 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
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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 that the Fund
may borrow 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
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<PAGE> 1134
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,
as amended, 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 Fleet 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
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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 Fleet 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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors 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
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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 FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors 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 FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors 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 per
share 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 FD Distributors 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 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 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.
On a Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which redemption orders
must be received in order to be processed on that Business Day.
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 FD
Distributors 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 FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors 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.
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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.
Distribution by the Fund of "net capital gain" (the excess of its
net long-term capital gain over its net short-term capital loss), if any, and
the portion of such net capital gain that constitutes mid-term capital gain, is
taxable to shareholders as long-term or mid-term capital gain, as the case may
be, regardless of how long the shareholder has held shares and whether such
gains are received in cash or reinvested in
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<PAGE> 1139
additional Trust Shares. Such distributions are not eligible for the dividends
received deduction.
The dividends received deduction is not available for dividends
attributable to distributions made by a REIT to the Fund. In addition,
distributions paid by REITs often include a "return of capital." The Code
requires a REIT to distribute at least 95% of its taxable income to investors.
In many cases, however, because of "non-cash" expenses such as property
depreciation, an equity REIT's cash flow will exceed its taxable income. The
REIT may distribute this excess cash to offer a more competitive yield. This
portion of the distribution is deemed a return of capital and is generally not
taxable to shareholders.
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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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 75 State Street, Boston,
Massachusetts 02109, 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, 1997. 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 Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Small Company Equity, MidCap
Equity, Small Cap Value, Growth and Income, Special Equity, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New Jersey Municipal 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, Fleet 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 Bank or other subsidiaries of Fleet Financial Group,
Inc., in consideration for administrative and/or shareholder support services
which they provide to beneficial shareholders. For the fiscal year ended October
31, 1997, Fleet received advisory
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<PAGE> 1141
fees 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 and has
been the Fund's portfolio manager since May 1, 1995. 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 January 1997.
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. Fleet, the 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.
FDISG generally assists the Fund in its administration and
operation. FDISG also serves as administrator to the other
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portfolios of Galaxy. 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 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. In
addition, FDISG also receives a separate annual fee from each Portfolio for
certain fund accounting services. From time to time, FDISG may waive voluntarily
all or a portion of the administration fee payable to it by the Fund. For the
fiscal year ended October 31, 1997, 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 FD Distributors 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 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.
-28-
<PAGE> 1143
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 5.00% 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 investment portfolio 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 investment portfolio 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 purchase and
redemption orders with FD Distributors; 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
-29-
<PAGE> 1144
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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities perform 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. Such entities are 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 One Chase
Manhattan Plaza, New York, New York 10081, a
-30-
<PAGE> 1145
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 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 shareholder
reports and meetings; and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions in connection with the purchase of portfolio
securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to
shareholders, the performance of the Fund may be quoted and compared to that 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 data as reported in national financial publications
including, but not limited to, Money Magazine,
-31-
<PAGE> 1146
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 of
the Fund. Performance 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" figures 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.
The performance of the Fund will fluctuate and any quotation of
performance should not be considered as representative of the 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 data 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 performance calculations.
The portfolio managers 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-
-32-
<PAGE> 1147
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 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 the Fund (b) 67% or more of
the shares of the Fund present at a meeting if more than 50% of the outstanding
shares of the Fund are represented at the meeting in person or by proxy.
-33-
<PAGE> 1148
TRUST
THE GALAXY FUND
Small Cap Value Fund
Prospectus
February __, 1998
<PAGE> 1149
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
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. 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.................................................................. 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 FUND............................................................. 26
Investment Adviser.......................................................... 26
Authority to Act as Investment Adviser...................................... 28
Administrator............................................................... 28
DESCRIPTION OF GALAXY AND ITS SHARES............................................... 29
Shareholder Service Plan....................................................
Agreements for Sub-Account Services.........................................
CUSTODIAN AND TRANSFER AGENT....................................................... 31
EXPENSES........................................................................... 31
PERFORMANCE REPORTING.............................................................. 32
MISCELLANEOUS...................................................................... 33
</TABLE>
<PAGE> 1150
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts regarding purchases, performance,
01581-5108 redemptions, exchanges and other
shareholder services or for current
performance, call 1-800-628-0414.
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. ("Fleet")
and sponsored and distributed by First Data Distributors, Inc., which is
unaffiliated with Fleet 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 Fund, contained in the Statement of Additional Information relating to the
Fund and
<PAGE> 1151
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
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.
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.
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 __, 1998
-2-
<PAGE> 1152
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
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 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 expenses which the Fund expects to
incur during the current fiscal year on its Trust Shares. Without voluntary fee
waivers and expense reimbursements by Fleet, Advisory Fees would be ___%, 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 [___________________] into the
-3-
<PAGE> 1153
Statement of Additional Information relating to the Fund. 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.
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 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 years ended October 31, 1997 and 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 years ended October 31,
1997 and 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, 1997 (the "Annual Report").
The 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'
-4-
<PAGE> 1154
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 number or address
provided above.
-5-
<PAGE> 1155
SMALL CAP VALUE FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Period Ended
October 31, October 31, October 31, October 31, October 31,
1997 1996(2) 1995 1994 1993(1)
----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 12.71 $ 11.07 $ 11.21 $ 10.00
------- --------- -------- ---------
Income from Investment Operations:
Net Investment Income (3,4,5)......... 0.05 0.01 0.02 --
Net realized and unrealized gain/(loss)
on investments.................... 2.97 2.21 0.17 1.21
-------- --------- -------- ---------
Total from Investment Operations: 3.02 2.22 0.19 1.21
-------- --------- -------- ---------
Less Dividends:
Dividends from net
investment income(3).............. (0.05) (0.01) (0.01) --
Dividends in excess of net
investment income................. (0.01) -- -- --
Dividends from net realized
capital gains..................... (0.91) (0.57) (0.32) --
-------- --------- -------- ---------
Total Dividends(3).............. (0.97) (0.58) (0.33) --
-------- --------- -------- ---------
Net increase (decrease) in net asset value 2.05 1.64 (0.14) 1.21
-------- --------- -------- ---------
Net Asset Value, End of Period.......... $ 14.76 $ 12.71 $ 11.07 $ 11.21
======== ========= ======== =========
Total Return............................ 25.22% 21.52% 1.86% 12.12%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)....... $ 137,341 $ 121,364 $101,905 $ 100,382
Ratios to average net assets:
Net investment income including
reimbursement/waiver................ 0.45% 0.07% 0.15% 0.02%(6)
Operating expenses including
reimbursement/waiver................ 1.05% 1.10% 1.06% 1.01%(6)
Operating expenses excluding
reimbursement/waiver................ 1.06% 1.35% 1.34% 1.29%(6)
Portfolio Turnover Rate................. 39% 32% 29% 29%(7)
Average Commission Rate Paid(8)......... $0.0559 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. The
Predecessor Fund began offering Investment Shares on February 12, 1993.
(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 shareholders of
the Predecessor Fund exchanged Investment Shares and Trust Shares for
Retail A Shares and Trust Shares, respectively, in the Fund.
(3) Represents less than $0.01 per share for the year 1993.
(4) Net investment income per share before reimbursement/waiver of fees by
other parties for the fiscal years ended October 31, 1995 and 1994 was
$(0.03) and $(0.01), respectively (unaudited).
(5) Net investment income per share does not reflect the tax
reclassifications arising in the current period.
(6) Annualized.
(7) Not Annualized.
-6-
<PAGE> 1156
(8) Required for fiscal years beginning on or after September 1, 1995.
-7-
<PAGE> 1157
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 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.
Small capitalization stocks have historically been more volatile
in price than larger capitalization stocks, such as those included in the
Standard & Poor's 500 Composite Stock Price Index (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 up to 20% of its total assets 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"), European Depository Receipts ("EDRs") and Global Depository Receipts
("GDRs"). 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 Fleet Investment
Advisors Inc. ("Fleet"), the Fund's investment adviser, to be substantial. See
"Special Risk Considerations --
-8-
<PAGE> 1158
Foreign Securities" and "Other Investment Policies and Risk Considerations --
American, European and Global Depository Receipts" below.
As a temporary defensive measure, in such proportions as, in the
judgment of Fleet, 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"); (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 Fund.
Fleet 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 other debt
securities fluctuate inversely with interest rate changes.
Foreign Securities
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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 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.
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 purchase convertible bonds rated "BB" or higher by
Standard & Poor's Ratings Group ("S&P) or Fitch
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<PAGE> 1160
Investors Services, L.P. ("Fitch"), or "Ba" or higher by Moody's Investor
Services, Inc. ("Moody's"), 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 "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 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 FDIC. 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. 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 net assets.
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<PAGE> 1161
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
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" below.
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 Fleet 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 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
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<PAGE> 1162
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 relating to the Fund.
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 Fleet to be of good
standing and only when, in Fleet'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. Except as provided
above, 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
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<PAGE> 1163
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 Fleet.
REITs
The Fund may invest up to 10% of its net assets in real estate
investment trusts ("REITs"). Equity REITs invest directly in real property while
mortgage REITs invest in mortgages on real property. REITs may be subject to
certain risks associated with the direct ownership of real estate, including
declines in the value of real estate, risks related to general and local
economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, and variations in rental income.
Generally, increases in interest rates will decrease the value of high yielding
securities and increase the costs of obtaining financing, which could decrease
the value of a REIT's investments. In addition, equity REITs may be affected by
changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified and are
subject to the risks of financing projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital. See
"Taxes".
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.
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<PAGE> 1164
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 Fleet 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, liquid
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
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<PAGE> 1165
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
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 Securities."
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.
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<PAGE> 1166
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, such 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 or other liquid assets 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 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 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
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<PAGE> 1167
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 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 Fleet'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, Fleet
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, Fleet 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
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 higher-rated, lower-yielding bonds.
Fleet will attempt to reduce the risks described above through diversification
of the Fund's portfolio and by credit analysis of each issuer, as well as by
monitoring broad
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<PAGE> 1168
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 its 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 of S&P, Moody's and Fitch 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 contracts.
Derivative securities present, to varying degrees, market risk
that the performance of the underlying assets, interest or exchange 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.
Fleet 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
Fleet'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.
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<PAGE> 1169
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 Fleet
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 Fleet 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
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<PAGE> 1170
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, as amended, (except for commercial paper
issued under Section 4(2) of the Securities Act of 1933, as
amended 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 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> 1171
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.
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, as amended, 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 Fleet 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.
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<PAGE> 1172
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 Fleet 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, First Data Distributors, Inc. ( "FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors 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
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<PAGE> 1173
Institutions. The Institution is responsible for transmitting to FD Distributors
orders for purchases of Trust Shares and for wiring required funds in payment to
Galaxy's custodian on a timely basis. FD Distributors 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 FD
Distributors, Galaxy's custodian and the purchasing Institution are open for
business ("Business Days").
A purchase order for Trust Shares received by FD Distributors 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 per
share 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 FD Distributors 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.
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<PAGE> 1174
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.
On a Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which redemption orders
must be received in order to be processed on that Business Day.
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 FD Distributors 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 FD Distributors. On a Business Day
when the Exchange closes early due to a partial holiday or otherwise, Galaxy
will advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors 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,
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<PAGE> 1175
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 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 "net capital gains" (the excess of
its net long-term capital gain over its net short-term capital loss), if any,
and the portion of such net capital gain that constitutes mid-term capital gain,
is taxable to shareholders as long-term or mid-term capital gain, as the case
may be, 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.
The dividends received deduction is not available for dividends
attributable to distributions made by a REIT to the Fund. In addition,
distributions paid by REITs often include a
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<PAGE> 1176
"return of capital." The Code requires a REIT to distribute at least 95% of its
taxable income to investors. In many cases, however, because of "non-cash"
expenses such as property depreciation, an equity REIT's cash flow will exceed
its taxable income. The REIT may distribute this excess cash to offer a more
competitive yield. This portion of the distribution is deemed a return of
capital and is generally not taxable to shareholders.
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.
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.
-27-
<PAGE> 1177
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston,
Massachusetts 02109, 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, 1997. 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 Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Asset Allocation, Small
Company Equity, MidCap Equity, Growth and Income, Special Equity, Short-Term
Bond, Intermediate Government Income, High Quality Bond, Corporate Bond,
Tax-Exempt Bond, New Jersey Municipal 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, Fleet 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 Bank or other subsidiaries of Fleet Financial Group,
Inc., in consideration for administrative and/or shareholder support services
which they provide to beneficial shareholders. For the fiscal year through
October 31, 1997, Fleet received advisory fees at the effective annual rate of
___% of the Fund's average daily net assets. During the fiscal year ended
October 31, 1997, Fleet reimbursed the Fund for certain operating expenses,
which reimbursement may be revised or discontinued at any time.
The Fund's portfolio manager, Peter Larson, is primarily
responsible for the day-to-day management of the Fund's
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<PAGE> 1178
investment portfolio. Mr. Larson served as the portfolio manager of the
Predecessor Fund since its inception in 1992. Prior to joining Fleet in 1995, he
was associated with Shawmut Bank since 1963 and was a Vice President in charge
of its Small Cap Equity Management product since 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 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. Fleet, the 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-
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.
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 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
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 voluntarily all or a portion of the
administration fee payable to it by the Fund.
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<PAGE> 1179
For the fiscal year ended October 31, 1997, 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 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. 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 FD Distributors 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 investment portfolio
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
investment portfolio 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
-30-
<PAGE> 1180
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 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 FD Distributors; 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
-31-
<PAGE> 1181
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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such affiliates agree to
perform 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. Such entities are
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 One
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 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 01581-5180.
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
-32-
<PAGE> 1182
(including fees paid to its trustees and officers who are not affiliated with
FDISG); SEC fees; state securities 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 shareholder reports and meetings; and any
extraordinary expenses. The Fund also pays for brokerage fees and commissions in
connection with the purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to
shareholders, the performance of the Fund may be quoted and compared to that 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 Exchange.
Performance 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 of the Fund. Performance 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" figures 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
-33-
<PAGE> 1183
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.
The performance of the Fund will fluctuate and any quotation of
performance should not be considered as representative of the 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 data 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 performance calculations.
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 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 or the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more
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<PAGE> 1184
than 50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy.
-35-
<PAGE> 1185
TRUST
THE GALAXY FUND
Growth and Income Fund
Prospectus
February __, 1998
<PAGE> 1186
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
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. 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
REITs.............................................................................. 13
INVESTMENT LIMITATIONS............................................................. 20
PRICING OF SHARES.................................................................. 21
HOW TO PURCHASE AND REDEEM SHARES.................................................. 22
Distributor................................................................. 22
Purchase of Shares.......................................................... 23
Redemption of Shares........................................................ 24
DIVIDENDS AND DISTRIBUTIONS........................................................ 25
TAXES.............................................................................. 25
Federal..................................................................... 25
State and Local............................................................. 26
MANAGEMENT OF THE FUND............................................................. 27
Investment Adviser.......................................................... 27
Authority to Act as Investment Adviser...................................... 28
Administrator............................................................... 28
DESCRIPTION OF GALAXY AND ITS SHARES............................................... 29
Shareholder Services Plan................................................... 30
Agreements for Sub-Account Services......................................... 31
CUSTODIAN AND TRANSFER AGENT....................................................... 31
EXPENSES........................................................................... 32
PERFORMANCE REPORTING.............................................................. 32
MISCELLANEOUS...................................................................... 34
</TABLE>
<PAGE> 1187
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts regarding purchases, current
01581-5108 redemptions, exchanges and other
shareholder services or for current
performance call 1-800-628-0414.
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 primarily in 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 common stocks, preferred stocks, common stock warrants and securities
convertible into common stock.
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.
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet")
and sponsored and distributed by First Data Distributors, Inc., which is
unaffiliated with Fleet and its parent, Fleet Financial Group, Inc., and
affiliates.
<PAGE> 1188
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
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.
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.
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 __, 1998
-2-
<PAGE> 1189
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>
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 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 expenses the Fund expects to incur during
the current fiscal year on its Trust Shares. Without voluntary fee waivers and
expense reimbursements by Fleet, Advisory Fees would be ___%, 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 [_______________________] into
the Statement of Additional Information relating to the Fund. Any fees that are
charged by affiliates of Fleet or other institutions directly to their customer
accounts for services
-3-
<PAGE> 1190
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) 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 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 Fund's Trust Shares for
the fiscal years ended October 31, 1997 and 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 years ended October 31, 1997 and
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, 1997 (the "Annual Report"). The
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
-4-
<PAGE> 1191
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 number or address provided
above.
-5-
<PAGE> 1192
GROWTH AND INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended Year Ended Period Ended
October 31, October 31, October 31, October 31, October 31,
1997 1996(2) 1995 1994 1993(1)
----------- ----------- ----------- ----------- ---------
Net Asset Value, Beginning of Period.... $ 12.35 $ 11.15 $ 10.69 $ 10.00
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Income from Investment Operations:
Net Investment Income(3) (4).......... 0.27 0.28 0.25 0.18
Net realized and unrealized gain/(loss)
on investments.................... 2.16 1.69 0.72 0.69
----------- ----------- ----------- ---------
Total from Investment Operations: 2.43 1.97 0.97 0.87
----------- ----------- ----------- ---------
Less Dividends:
Dividends from net investment income.. (0.25) (0.28) (0.23) (0.18)
Dividend from net realized capital
gains..................... (0.73) (0.49) (0.28) -
----------- ----------- ----------- ---------
Total Dividends................. (0.98) (0.77) (0.51) (0.18)
----------- ----------- ------------ ---------
Net increase (decrease) in net asset
value................................... 1.45 1.20 0.46 0.69
----------- ----------- ------------ ---------
$ 13.80 $ 12.35 $ 11.15 $ 10.69
=========== =========== ============ =========
Net Asset Value, End of Period..........
Total Return............................ 20.77% 18.80% 9.45% 8.80%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)....... $186,708 $189,011 $156,827 $147,090
Ratio to average net assets:
Net investment income including
reimbursement/waiver................ 2.01% 2.42% 2.31% 2.11%(5)
Operating expenses including
reimbursement/waiver................ 1.02% 1.07% 1.04% 0.98%(5)
Operating expenses excluding
reimbursement/waiver................ 1.03% 1.27% 1.24% 1.25%(5)
Portfolio Turnover Rate................. .59% 51% 73% 38%(6)
Average Commission Rate Paid(7)......... $0.0654 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, shareholders of the
Predecessor Fund exchanged Investment Shares and Trust Shares for Retail
A Shares and Trust Shares, respectively, in the Fund.
(3) Net investment income per share before reimbursement/waiver of fees by
other parties for the fiscal years ended October 31, 1995 and 1994 and
the fiscal period ended October 31, 1993 was $0.25, $0.22 and $0.15,
respectively (unaudited).
(4) Net investment income per share does not reflect the tax
reclassifications arising in the current period.
(5) Annualized.
(6) Not Annualized.
(7) Required for fiscal years beginning on or after September 1, 1995.
-6-
<PAGE> 1193
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 primarily in 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 common stocks,
preferred stocks, common stock warrants and securities convertible into common
stock.
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 Standard & Poor's 500
Composite Stock Index (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 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 Consideration --
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 up to 20% of its total assets 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"), European Depository Receipts ("EDRs") and Global Depository Receipts
("GDRs"). Securities of a foreign issuer may present greater risks in the form
of nationalization, confiscation, domestic
-7-
<PAGE> 1194
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 Fleet Investment Advisors Inc. ("Fleet"), the Fund's
investment adviser, to be substantial. See "Special Risk Considerations --
Foreign Securities" and "Other Investment Policies and Risk Considerations --
American, European and Global Depository Receipts" below.
As a temporary defensive measure, in such proportions as, in the
judgment of Fleet, 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"); (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.
Fleet 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> 1195
Generally, the prices of bonds and other 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.
-9-
<PAGE> 1196
Ratings
The Fund may purchase convertible bonds rated "BB" or higher by
Standard & Poor's Ratings Group ("S&P) or Fitch Investors Services, L.P.
("Fitch"), or "Ba" or higher by Moody's Investors Service, Inc. ("Moody's"), 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 "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 FDIC. Investments in bank obligations are limited to the
obligations of financial
-10-
<PAGE> 1197
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 15% of the
Fund's net 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
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" below.
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 Fleet 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 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
-11-
<PAGE> 1198
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. Additional information regarding the Fund's policies with
respect to reverse repurchase agreements is contained in the Statement of
Additional Information relating to the Fund.
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 Fleet to be of good
standing and only when, in Fleet'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. Except as provided
above, 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
-12-
<PAGE> 1199
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 Fund, other
investment portfolios of Galaxy, or any other investment companies advised by
Fleet.
REITs
The Fund may invest up to 10% of its net assets in real estate
investment trusts ("REITs"). Equity REITs invest directly in real property while
mortgage REITs invest in mortgages on real property. REITs may be subject to
certain risks associated with the direct ownership of real estate, including
declines in the value of real estate, risks related to general and local
economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, and variations in rental income.
Generally, increases in interest rates will decrease the value of high yielding
securities and increase the costs of obtaining financing, which could decrease
the value of a REIT's investments. In addition, equity REITs may be affected by
changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified and are
subject to the risks of financing projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital. See
"Taxes."
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
-13-
<PAGE> 1200
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 Fleet 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, liquid
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
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<PAGE> 1201
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
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 Securities."
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
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<PAGE> 1202
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, such 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 or other liquid assets 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 debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities.
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<PAGE> 1203
Convertible bonds and convertible preferred stocks 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 Fleet'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, Fleet
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, Fleet 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
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
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<PAGE> 1204
credit quality. In addition, lower-rated bonds may be more difficult to dispose
of or to value than higher rated, lower-yielding bonds. Fleet will attempt to
reduce the risks described above through diversification of the Fund's 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 its 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 of
S&P, Moody's and Fitch 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 contracts.
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.
Fleet 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
Fleet's evaluations will prove to be inaccurate or incomplete and, even when
accurate and complete, it is possible that the Fund will,
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<PAGE> 1205
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 Fleet
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 Fleet 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
rate of 100% or more is considered high although the rate of 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 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> 1206
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, as amended, (except for commercial paper
issued under Section 4(2) of the Securities Act of 1933, as
amended, 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 the U.S.
Government, its agencies or instrumentalities, (b)
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<PAGE> 1207
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.
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, as amended, 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 Fleet 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
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<PAGE> 1208
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 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 Fleet 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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors is a
registered broker/dealer with principal offices located at 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
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<PAGE> 1209
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 FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors 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 FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors 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 per
share 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 FD Distributors 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
-23-
<PAGE> 1210
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.
On a Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which redemption orders
must be received in order to be processed on that Business Day.
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 FD Distributors 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 FD Distributors. On a Business Day
when the Exchange closes early due to a partial holiday or otherwise, Galaxy
will advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors 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
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<PAGE> 1211
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.
Distribution by the Fund of "net capital gain", (the excess of
its net long-term capital gain over its net short-term capital loss), if any,
and the protion of such net capital gain
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<PAGE> 1212
that constitutes mid-term capital gain, is taxable to shareholders as long-term
or mid-term capital gain, as the case may be, 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.
The dividends received deduction is not available for dividends
attributable to distributions made by a REIT to the Fund. In addition,
distributions paid by REITs often include a "return of capital." The Code
requires a REIT to distribute at least 95% of its taxable income to investors.
In many cases, however, because of "non-cash expenses such as property
depreciation, an equity REIT's cash flow will exceed its taxable income. The
REIT may distribute this excess cash to offer a more competitive yield. This
portion of the distribution is deemed a return of capital and is generally not
taxable to shareholders.
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> 1213
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 75 State Street, Boston,
Massachusetts 02109, 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, 1997. 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 Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Asset Allocation, Small
Company Equity, MidCap Equity, Small Cap Value, Special Equity, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New Jersey Municipal 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, Fleet 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 Bank or other subsidiaries of Fleet Financial Group,
Inc., in consideration for administrative and/or shareholder support services
which they provide to beneficial shareholders. For the fiscal year ended October
31, 1997, Fleet received
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<PAGE> 1214
advisory fees (after fee waivers) at the effective annual rate of ___% of the
Fund's average daily net assets. During the fiscal year ended October 31, 1997
Fleet also reimbursed the Fund for certain operating expenses, which
reimbursement may be revised or discontinued at any time.
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 Fund since its
inception in 1992. Prior to joining Fleet in 1995, he was associated with
Shawmut Bank and its predecessor since 1965 and was a Vice President since 1978.
While at Shawmut Bank, he served as manager of its 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. Fleet, the 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-
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.
For the services provided to the Fund, FDISG is entitled to receive
administration fees, computed daily
-28-
<PAGE> 1215
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
the combined average daily net assets and .075% 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 voluntarily all or a portion of the administration fee payable
to it by the Fund. For the fiscal year ended October 31, 1997, 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 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 FD Distributors 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 paid 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
-29-
<PAGE> 1216
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 investment portfolio 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 investment portfolio 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 .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 FD Distributors; 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
-30-
<PAGE> 1217
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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
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. Such entities are 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 One
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
-31-
<PAGE> 1218
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 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 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 meetings; and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions in connection with the purchase of portfolio
securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to
shareholders, the performance of the Fund may be quoted and compared to that 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 Exchange.
Performance 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 of the Fund. Performance data will be
-32-
<PAGE> 1219
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" figures 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.
The performance of the Fund will fluctuate and any quotation of
performance should not be considered as representative of the 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 data 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 performance calculations.
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
-33-
<PAGE> 1220
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 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 the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
-34-
<PAGE> 1221
TRUST
THE GALAXY FUND
Special Equity Fund
Prospectus
February __, 1998
<PAGE> 1222
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
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. 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 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 ................................................
Authority to Act as Investment Adviser.............................
Administrator......................................................
DESCRIPTION OF GALAXY AND ITS SHARES.........................................
Shareholder Services Plan..........................................
Agreements for Sub-Account Services................................
CUSTODIAN AND TRANSFER AGENT.................................................
EXPENSES.....................................................................
PERFORMANCE REPORTING........................................................
Other Performance Information-Special Equity Fund Only.............
MISCELLANEOUS................................................................
</TABLE>
<PAGE> 1223
THE GALAXY FUND
For an application and information
regarding purchases, redemptions
4400 Computer Drive exchanges and other shareholder
Westboro, Massachusetts services or for current performance
01581-5108 call 1-800-628-0414.
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 SPECIAL 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 primarily
in the securities of companies that the Fund's investment adviser believes are
reasonably priced and offer favorable return potential relative to other
securities. Under normal market and economic conditions, the Fund will invest at
least 75% of its total assets in common stocks, preferred stocks, securities
convertible into common stock, rights and warrants.
This prospectus describes Trust Shares in the Fund. Trust Shares are
offered to investors maintaining qualified accounts primarily 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 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. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is
unaffiliated with Fleet and its parent, Fleet Financial Group, Inc., and
affiliates.
<PAGE> 1224
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
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.
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.
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 __, 1998
-2-
<PAGE> 1225
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 SPECIAL 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 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
------ -------
<S> <C> <C>
Special 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 which the Fund expects to incur during the current
fiscal year on its Trust Shares. Without voluntary fee waivers and expense
reimbursements by Fleet, Advisory Fees would be ___%, 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. 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.
-3-
<PAGE> 1226
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. THE FUND IS NEW AND ACTUAL EXPENSES AND
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN.
-4-
<PAGE> 1227
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 the securities of companies that Fleet believes are reasonably
priced and offer favorable return potential relative to other securities. In
selecting investments for the Fund, Fleet uses a fundamental analysis which
focuses on intermediate and long-term return forecasts for a broad universe of
between 300 and 400 large and mid-capitalization stocks. Under normal market and
economic conditions, the Fund will invest at least 75% of its total assets in
common stocks, preferred stocks, securities convertible into common stock,
rights and warrants.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs").
See Special Risk Considerations -- Foreign Securities" and "Other Investment
Policies and Risk Considerations -- American, European and Global Depository
Receipts" 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.
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 in U.S. Government
obligations at such times and in such proportions as, in the opinion of Fleet,
prevailing market and economic conditions warrant. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the Special Equity Fund.
Fleet 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
-5-
<PAGE> 1228
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 other 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 value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of
-6-
<PAGE> 1229
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
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 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 Fleet. 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 rated obligations.
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
-7-
<PAGE> 1230
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 FDIC. 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. 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 net 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 -- Foreign Securities." The
Fund will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet believes that the credit risk with
respect to the instrument is minimal.
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<PAGE> 1231
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" below.
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 Fleet 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 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
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<PAGE> 1232
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 Fleet to be of good standing and only when, in Fleet'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. Except as provided
above, 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 Fleet.
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<PAGE> 1233
REITs
The Fund may invest up to 10% of its net assets in real estate
investment trusts ("REITs"). Equity REITs invest directly in real property while
mortgage REITs invest in mortgages on real property. REITs may be subject to
certain risks associated with the direct ownership of real estate, including
declines in the value of real estate, risks related to general and local
economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, and variations in rental income.
Generally, increases in interest rates will decrease the value of high yielding
securities and increase the costs of obtaining financing, which could decrease
the value of a REIT's investments. In addition, equity REITs may be affected by
changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified and are
subject to the risks of financing projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital. See
"Taxes."
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 Fleet applies a hedge at an inappropriate time or judges market
conditions incorrectly, options and futures may lower the Fund's individual
return. The
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<PAGE> 1234
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, liquid
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.
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<PAGE> 1235
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 Securities."
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
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<PAGE> 1236
of short duration, generally between one and twelve months, such 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 or other liquid assets 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 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
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<PAGE> 1237
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 Fleet'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,
Fleet 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, Fleet 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, put and call options, stock index futures and options, indexed
securities and swap agreements, and foreign currency exchange contracts.
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.
Fleet 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 Fleet's evaluations
will prove to be inaccurate or incomplete and, even
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<PAGE> 1238
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 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 Fleet 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
Fleet 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 rate of 100% or
more is considered high although the rate of 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 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." Although the Fund cannot
accurately predict its annual portfolio turnover rate, it is not expected to
exceed 100%.
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<PAGE> 1239
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 that each Fund may
borrow 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 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
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<PAGE> 1240
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 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,
as amended, 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 Fleet 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> 1241
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 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 Fleet 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> 1242
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's
distributor, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors 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 FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors 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 FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors 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 per
share 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 FD Distributors on a
Business Day in accordance with the foregoing procedures.
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<PAGE> 1243
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 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.
On a Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which redemption orders
must be received in order to be processed on that Business Day.
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 FD
Distributors 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 FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders
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<PAGE> 1244
received by FD Distributors 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 intends 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> 1245
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 "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, and the
portion of such net capital gain that constitutes mid-term capital gain, is
taxable to shareholders as long-term or mid-term capital gain, as the case may
be, 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.
The dividends received deduction is not available for dividends
attributable to distributions made by a REIT to the Fund. In addition,
distributions paid by REITs often include a "return of capital." The Code
requires a REIT to distribute at least 95% of its taxable income to investors.
In many cases, however, because of "non-cash" expenses such as property
depreciation, an equity REIT's cash flow will exceed its taxable income. The
REIT may distribute this excess cash to offer a more competitive yield. This
portion of the distribution is deemed a return of capital and is generally not
taxable to shareholders.
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
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<PAGE> 1246
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 75 State Street, Boston, Massachusetts
02109, 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,
1997. 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 Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Asset Allocation, Small
Company Equity, MidCap Equity, Small Cap Value, Growth and Income, Short-Term
Bond, Intermediate Government Income, High Quality Bond, Corporate Bond,
Tax-Exempt Bond, New Jersey Municipal 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,
Fleet 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
-24-
<PAGE> 1247
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 Bank or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders.
The Fund's portfolio manager, Peter B. Hathaway, is primarily
responsible for the day-to-day management of the Fund's portfolio. Mr. Hathaway,
a Vice President, has been associated with Fleet since 1995. Prior to joining
Fleet, he was with Shawmut Investment Advisors and its predecessors as an
institutional fund manager. He has over 30 years of investment experience.
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. Fleet, the 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.
FDISG generally assists the Fund in its administration and operation.
FDISG also serves as administrator to the other
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<PAGE> 1248
portfolios of Galaxy. For 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 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. In
addition, FDISG also receives a separate annual fee from each Portfolio for
certain fund accounting services. From time to time, FDISG may waive voluntarily
all or a portion of the administration fee payable to it by the Fund.
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 AA - Series 1 shares (Trust
Shares), Class AA - Series 2 shares (Retail A Shares) and Class AA - 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 FD Distributors 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 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
-26-
<PAGE> 1249
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 investment portfolio 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 investment portfolio 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 .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
and processing purchase and redemption requests and placing net purchase and
redemption orders with FD Distributors; 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
-27-
<PAGE> 1250
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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities agree to perform 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. Such entities are 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 One 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
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<PAGE> 1251
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 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 shareholder
reports and meetings; and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions in connection with the purchase of portfolio
securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that 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 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 of the Fund. Performance data will be
-29-
<PAGE> 1252
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" figures 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.
The performance of the Fund will fluctuate and any quotation of
performance should not be considered as representative of the 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 data 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 performance calculations.
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> 1253
capital markets; investment strategies and techniques; investment products; and
tax, retirement and investment planning.
Other Performance Information - Special Equity Fund Only
Set forth below is certain performance information provided by
Fleet, the investment adviser for the Special Equity Fund, relating to
historical performance of a composite of value driven growth equity accounts
(the "Value Driven Growth Composite")1 managed by Fleet.2 The accounts in the
Value Driven Growth Composite had the same investment objective as the Special
Equity Fund and were managed by Peter Hathaway, who manages the Special Equity
Fund, using substantially similar, although not identical, investment
strategies, policies and techniques as those contemplated for use by the Special
Equity Fund. This information is provided to illustrate the past performance of
Fleet in managing similar accounts as measured against the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500"), a standard equity investment
benchmark.3 The accounts that are included in the Value Driven Growth Composite
are not subject to the same types of expenses and liquidity requirements to
which the Special Equity Fund is subject nor to the diversification
requirements, specific tax restrictions and investment limitations imposed by
the 1940 Act or the Code. Consequently, the performance results for the Value
Driven Growth Composite could have been adversely effected if the accounts
included in the Composite had been regulated as investment companies. The
performance of the Value Driven Growth Composite shown below does not represent
the performance of the Special Equity Fund. Investors should not consider this
past performance as an indication of future performance of the Special Equity
Fund or of Mr. Hathaway or Fleet.
The results presented below may not necessarily equate with
the returns experienced by any particular account of Fleet or shareholder of the
Special Equity Fund as a result of timing of investments and redemptions. In
addition, the effect of taxes on any client or shareholder will depend on such
person's tax status, and the results have not been reduced to reflect any income
tax that may have been payable.
<TABLE>
<CAPTION>
For Periods Ended September 30, 1997
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Annualized
Total Return4
S&P 500
</TABLE>
1. The value driven growth style, also referred to as "growth at
reasonable price", invests predominantly in a broad universe of large
and medium-sized stocks having investment characteristics similar to
the S&P 500 Composite Stock Price Index. The style strives for high
relative returns with below market risks and has a value bias. The
investment time horizon is one to three years and stock selection is
market-oriented, leading to sector rotation and shifts in emphasis
between growth stocks and value stocks. The Value Driven Growth
Composite includes institutional, separately invested, fee-paying,
discretionary accounts managed by Fleet using the value driven growth
style. No non-fee- paying accounts are included. An account is included
in the Value Driven Growth Composite the first full month it is managed
in the value driven growth style. The Value Driven Growth Composite
also includes equity segments of balanced accounts.
2. Fleet represents the consolidation of Shawmut Investment Advisers, Inc.
("Shawmut"), a subsidiary of Shawmut National Corporation, and Fleet,
which were merged on November 30, 1995. Performance results prior to
December 31,1995 represent the performance of Shawmut. Shawmut
represents the consolidation of the Trust and Investment Divisions of
Shawmut Bank and Connecticut National Bank, which merged in 1988. The
investment philosophy and approach were integrated at the time of the
systems integration in 1990. Performance history prior to 1990 reflects
the approach of the predecessor organizations, with history for the
value driven growth style coming from Shawmut.
3. The S&P 500 is an unmanaged index consisting of 500 U.S. industrial,
transportation, utility and financial companies. The S&P 500 is
capitalization-weighted calculated on a total return basis with
dividends reinvested. The S&P 500 is used for comparison purposes only
and is not necessarily intended to parallel the risk or investment
style of accounts included in the Value Driven Growth Composite. The
investment portfolio underlying the S&P 500 is different from the
investment portfolios of the accounts managed by Fleet and included in
the Value Driven Growth Composite.
4. For the period from January 1, 1993 through September 30, 1997, the
Value Driven Growth Composite performance results have been calculated
in accordance with methods set forth by AIMR. The Value Driven Growth
Composite results are time- weighted rates of return net of commissions
and transaction costs, and have been presented gross of investment
advisory fees. Performance results will be reduced by Fleet's
investment advisory fee.
The account breakdown in the Composite as of September 30, 1997 was as
follows:
<TABLE>
<CAPTION>
Strategy Number of Accounts Assets
-------- ------------------ ------
<S> <C> <C> <C>
Value Driven Growth -- $___Million
</TABLE>
Fleet consistently values all portfolios each month on a trade date
basis. Monthly composite returns are calculated by weighting each
account's monthly return by the sum of its beginning market value,
beginning accrual, and weighted cash flows. Quarterly composite returns
are calculated by geometrically linking the weighted monthly composite
returns. Annual composite returns are calculated by geometrically
linking the quarterly composite returns.
The annualized compound rate of return is equivalent to the annual rate
of return which, if earned in each year of the indicated multi-year
period, would produce the actual cumulative rate of return over the
time period.
For the period from January 1, 1993 through September 30, 1997, all
balanced accounts included in the Composite have had cash allocated
monthly to the equity segment in accordance with Fleet's firm-wide
asset allocation policy in effect at the beginning of each month,
except where individual clients have required a different asset
allocation. In these cases, cash is allocated in accordance with the
client's required asset allocation. Prior to January 1, 1993, all
balanced accounts included in the Composite have had cash allocated
monthly to the equity segment according to actual diversification.
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 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 the Fund or (b) 67% or more of
the shares of the Fund present at a meeting if more than 50% of the outstanding
shares of the Fund are represented at the meeting in person or by proxy.
-31-
<PAGE> 1254
TRUST
THE GALAXY FUND
Equity Value Fund
Equity Growth Fund
Equity Income Fund
International Equity Fund
Small Company Equity Fund
MidCap Equity Fund
Asset Allocation Fund
Small Cap Value Fund
Growth and Income Fund
Special Equity Fund
Prospectus
February __, 1998
<PAGE> 1255
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 FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
EXPENSE SUMMARY............................................. 5
FINANCIAL HIGHLIGHTS ....................................... 7
INVESTMENT OBJECTIVES AND POLICIES.......................... 17
Equity Value Fund.................................. 17
Equity Growth Fund................................. 18
Equity Income Fund................................. 19
International Equity Fund.......................... 20
Small Company Equity Fund.......................... 21
MidCap Equity Fund................................. 22
Asset Allocation Fund.............................. 23
Small Cap Value Fund............................... 24
Growth and Income Fund............................. 26
Special Equity Fund................................ 27
Special Risk Considerations........................ 28
Other Investment Policies and Risk Considerations.. 29
INVESTMENT LIMITATIONS...................................... 44
PRICING OF SHARES........................................... 47
HOW TO PURCHASE AND REDEEM SHARES........................... 49
Distributor........................................ 49
Purchase of Shares................................. 49
Redemption of Shares............................... 50
DIVIDENDS AND DISTRIBUTIONS................................. 51
TAXES....................................................... 52
Federal............................................ 52
State and Local.................................... 53
MANAGEMENT OF THE FUNDS..................................... 54
Investment Adviser and Sub-Adviser................. 54
Authority to Act as Investment Adviser............. 57
Administrator...................................... 58
DESCRIPTION OF GALAXY AND ITS SHARES........................ 58
Shareholder Services Plan.......................... 60
Agreements for Sub-Account Services................ 61
CUSTODIAN AND TRANSFER AGENT................................ 62
EXPENSES.................................................... 62
PERFORMANCE REPORTING....................................... 62
Other Performance Information-Special
Equity Fund Only...................................
MISCELLANEOUS............................................... 64
</TABLE>
<PAGE> 1256
THE GALAXY FUND
4400 Computer Drive For an application and
Westboro, Massachusetts information regarding
01581-5108 purchases, redemptions,
exchanges and other
shareholder services or
for current performance,
call 1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment
company. This Prospectus describes ten series of Galaxy's shares (collectively,
the "Trust Shares") which represent interests in ten 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 $750 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
<PAGE> 1257
assets in the equity securities of companies with capitalizations of $750
million or less.
The MIDCAP EQUITY FUND'S investment objective is to seek long-term
capital appreciation. The Fund attempts to achieve this objective by investing
primarily in the securities of companies with capitalizations of between $750
million and $3.5 billion that the Fund's investment adviser believes are
undervalued and represent the potential for future earnings growth. Under normal
market and economic conditions, the Fund will invest at least 65% of its total
assets in the equity securities of companies with capitalizations of between
$750 million and $3.5 billion.
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 primarily in
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 common stocks, preferred stocks, common stock
warrants and securities convertible into common stock.
The SPECIAL EQUITY FUND'S investment objective is to seek long-term
capital appreciation. The Fund attempts to achieve this objective by investing
primarily in the securities of companies that the Fund's investment adviser
believes are reasonably priced and offer favorable return potential relative to
other securities. Under normal market and economic conditions, the Fund will
invest at least 75% of its total assets in common stocks, preferred stocks,
securities convertible into common stock, rights and warrants.
This Prospectus describes the Trust Shares in each Fund. Trust Shares
are offered to investors maintaining qualified
- 2 -
<PAGE> 1258
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, MidCap Equity Fund, Asset Allocation Fund,
Growth and Income Fund and Special Equity 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 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.
("Fleet") and sponsored and distributed by First Data Distributors, Inc., which
is unaffiliated with Fleet and its parent, Fleet Financial Group, Inc., and
affiliates. Oechsle International Advisors, L.P. serves as the sub-adviser to
the International Equity Fund.
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 number 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.
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
- 3 -
<PAGE> 1259
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 __, 1998
- 4 -
<PAGE> 1260
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
VALUE GROWTH INCOME EQUITY EQUITY
FUND FUND FUND FUND FUND
------ ------ ------ ------------- -------
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
<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
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Advisory Fees (After Fee
Waivers) ...................... % % % % %
---- ---- ---- ---- ----
12b-1 Fees ...................... None None None None None
Other Expenses(After
Fee Waivers) .................... % % % % %
---- ---- ---- ---- ----
Total Fund Operating
Expenses (After
Fee Waivers) ................ % % % % %
==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
MIDCAP ASSET SMALL CAP GROWTH AND SPECIAL
EQUITY ALLOCATION VALUE INCOME EQUITY
FUND FUND FUND FUND FUND
------ ---------- --------- ---------- -------
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
<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
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Advisory Fees (After Fee
Waivers) .................... % % % % %
---- ---- ---- ---- ----
12b-1 Fees .................... None None None None None
Other Expenses(After
Fee Waivers) ................ % % % % %
---- ---- ---- ---- ----
Total Fund Operating
Expenses (After
Fee Waivers)............... % % % % %
==== ==== ==== ==== ====
</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:
- 5 -
<PAGE> 1261
<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.. $ $ $ $
MidCap Equity Fund......... $ $ N/A N/A
Asset Allocation Fund...... $ $ $ $
Small Cap Value Fund....... $ $ $ $
Growth and Income Fund..... $ $ $ $
Special Equity Fund........ $ $ N/A N/A
</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 with respect to the Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity, Asset Allocation, Small Cap Value
and Growth and Income Funds 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 Trust Shares. The information
contained in the Expense Summary and Example with respect to the MidCap Equity
and Special Equity Funds is based on expenses which each Fund expects to incur
during the current fiscal year on its Trust Shares. Without voluntary fee
waivers and expense reimbursements by Fleet, Advisory Fees would be ___%, ___%,
___%, ___%, ___%, ___%, ___% ___%, ___% and ___%, Other Expenses would be ___%,
___%, ___%, ___%, ___%, ___%, ___% ___%, ___% and ___%, and Total Fund Operating
Expenses would be ___%, ___%, ___%, ___%, ___%, ___%, ___% ___%, ___% and ___%
for Trust Shares of the Equity Value Fund, Equity Growth Fund, Equity Income
Fund, International Equity Fund, Small Company Equity Fund, MidCap Equity Fund,
Asset Allocation Fund, Small Cap Value Fund, Growth and Income Fund and Special
Equity 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
[_____________] into the Statements of Additional Information relating to the
Funds. 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 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.
- 6 -
<PAGE> 1262
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, MidCap
Equity Fund, Asset Allocation Fund, Growth and Income Fund and Special Equity
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, 1997 (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 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). As of the date of this Prospectus, the MidCap Equity Fund and
Special Equity Fund had not commenced operations. 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.
- 7 -
<PAGE> 1263
EQUITY VALUE FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, PERIOD
1997 1996 1995 1994 YEAR ENDED OCTOBER 31,(2) ENDED
------------------------------------- ------------------------------------------------- OCTOBER 31,
TRUST SHARES 1993 1992 1991 1990 1989 1988(1)(2)
------------------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period..................... $14.33 $ 13.32 $13.12 $ 11.41 $ 11.52 $ 9.45 $ 11.51 $ 10.41 $ 10.00
-------- -------- -------- -------- -------- -------- -------- --------- --------
Income from Investment
Operations:
Net Investment Income....... 0.21 0.28 0.19 0.19 0.26 0.37 0.39 0.36 0.03
Net realized and
unrealized gain
(loss) on investments....... 2.74 2.24 0.45 2.14 0.33 2.41 (1.37) 1.10 0.38
-------- -------- -------- -------- -------- -------- -------- --------- --------
Total from Investment
Operations:............ 2.95 2.52 0.64 2.33 0.59 2.78 (0.98) 1.46 0.41
-------- -------- -------- -------- -------- -------- -------- --------- --------
Less Dividends:
Dividends from net
investment
income................... (0.21) (0.30) (0.16) (0.20) (0.27) (0.37) (0.38) (0.36) --
Dividends from net
realized capital
gains.................... (1.11) (1.21) (0.28) (0.42) (0.43) (0.34) (0.70) -- --
-------- -------- -------- -------- -------- -------- -------- --------- --------
Total Dividends:......... (1.32) (1.51) (0.44) (0.62) (0.70) (0.71) (1.08) (0.36) --
-------- -------- -------- -------- -------- -------- -------- --------- --------
Net increase (decrease)
in net asset value............. 1.63 1.01 0.20 1.71 (0.11) 2.07 (2.06) 1.10 0.41
-------- -------- -------- -------- -------- -------- -------- --------- --------
Net Asset Value, End
of Period...................... $15.96 $ 14.33 $ 13.32 $ 13.12 $ 11.41 $ 11.52 $ 9.45 $ 11.51 $ 10.41
======== ======== ======== ======== ======== ======== ======== ========= ========
Total Return..................... 22.05% 21.31% 5.05% 21.18% 5.66% 30.45% (9.43)% 14.19% 4.10%(3)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)........................ $194,827 $165,330 $154,403 $176,107 $133,578 $ 99,601 $ 92,893 $ 92,366 $ 75,774
Ratios to average net
assets:
Net investment income
including reimbursement/
waiver..................... 1.42% 2.10% 1.46% 1.52% 2.24% 3.25% 3.66% 3.25% 1.89%(4)
Operating expenses
including reimbursement/
waiver..................... 1.03% 1.02% 1.06% 0.97% 0.94% 0.94% 0.95% 0.97% 0.95%(4)
Operating expenses
excluding
reimbursement/waiver....... 1.03% 1.02% 1.06% 0.97% 0.94% 0.94% 0.95% 0.98% 0.95%(4)
Portfolio Turnover Rate.......... 116% 76% 71% 50% 136% 40% 94% 44% 4%(3)
Average Commission Rate Paid(5).. $0.0605 N/A N/A N/A 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
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.
(5) Required for fiscal years beginning on or after September 1, 1995.
- 8 -
<PAGE> 1264
EQUITY GROWTH FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, YEAR ENDED
1997 1996 1995 1994 OCTOBER 31,(2) PERIOD ENDED
------------------------------------------ ------------------- OCTOBER 31,
TRUST SHARES 1993 1992 1991(1)(2)
------------------------------------------ ------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........ $17.30 $14.19 $ 13.76 $ 12.90 $ 11.99 $ 10.00
-------- -------- -------- -------- -------- --------
Income from Investment Operations:
Net Investment Income..................... 0.17 0.20 0.18 0.15 0.17 0.16
Net realized and unrealized gain (loss)
on investments.......................... 3.40 3.28 0.47 0.95 0.91 1.97
-------- -------- -------- -------- -------- --------
Total from Investment Operations:....... 3.57 3.48 0.65 1.10 1.08 2.13
-------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income...... (0.18) (0.20) (0.16) (0.15) (0.17) (0.14)
Dividends from net realized capital
gains................................... (0.30) (0.17) (0.06) (0.09) -- --
-------- -------- -------- -------- -------- --------
Total Dividends:........................ (0.48) (0.37) (0.22) (0.24) (0.17) (0.14)
------ ----- -------- -------- -------- --------
Net increase (decrease) in net asset
value..................................... 3.09 3.11 0.43 0.86 0.91 1.99
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period.............. $20.39 $17.30 $ 14.19 $ 13.76 $ 12.90 $ 11.99
-------- -------- -------- -------- -------- --------
Total Return................................ 21.03% 25.08% 4.80% 8.58% 9.10% 21.39%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)........... $562,419 $420,016 $362,094 $427,298 $224,630 $ 92,224
Ratios to average net assets:
Net investment income
including reimbursement/waiver.......... 0.92% 1.31% 1.27% 1.20% 1.37% 1.46%(4)
Operating expenses
including reimbursement/waiver.......... 0.98% 1.00% 0.93% 0.97% 0.95% 0.83%(4)
Operating expenses excluding
reimbursement/waiver.................... 0.98% 1.00% 0.93% 0.97% 0.95% 0.83%(4)
Portfolio Turnover Rate..................... 36% 14% 18% 16% 22% 16%(3)
Average Commission Rate Paid(5)............. $0.0615 $0.0615 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.
(5) Required for fiscal years beginning on or after September 1, 1995.
- 9 -
<PAGE> 1265
EQUITY INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, YEAR ENDED
1997 1996 1995 1994 OCTOBER 31,(2) PERIOD ENDED
----------------------------------------- --------------------- OCTOBER 31,
TRUST SHARES 1993 1992 1991(1)(2)
--------------------------------------- --------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....... $14.99 $ 12.75 $ 12.85 $ 11.85 $ 11.29 $ 10.00
-------- -------- -------- -------- -------- --------
Income from Investment Operations:
Net Investment Income(3)................. 0.37 0.36 0.31 0.30 0.30 0.29
Net realized and unrealized gain (loss)
on investments....................... 2.48 2.45 0.07 1.09 0.76 1.26
-------- -------- -------- -------- -------- --------
Total from Investment Operations:.... 2.85 2.81 0.38 1.39 1.06 1.55
-------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income..... (0.37) (0.36) (0.29) (0.28) (0.30) (0.26)
Dividends from net realized
capital gains.......................... (0.54) (0.21) (0.19) (0.11) (0.20) --
-------- -------- -------- -------- -------- --------
Total Dividends:..................... (0.91) (0.57) (0.48) (0.39) (0.50) (0.26)
------ ------- -------- -------- -------- --------
Net increase (decrease) in net asset
value.................................... 1.94 2.24 (0.10) 1.00 0.56 1.29
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period............. $ 16.93 $ 14.99 $ 12.75 $ 12.85 $ 11.85 $ 11.29
======== ======== ======== ======== ======== ========
Total Return............................... 19.65% 22.81% 3.02% 11.85% 9.71% 15.61%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's).......... $106,094 $ 87,819 $ 78,880 $123,970 $ 21,778 $ 7,096
Ratios to average net assets:
Net investment income including
reimbursement/waiver................... 2.32% 2.60% 2.49% 2.34% 2.84% 2.72%(5)
Operating expenses including
reimbursement/waiver................... 0.94% 0.98% 1.07% 1.16% 1.03% 0.85%(5)
Operating expenses excluding
reimbursement/waiver................... 0.94% 1.00% 1.07% 1.22% 1.54% 1.39%(5)
Portfolio Turnover Rate.................... 45% 21% 31% 27% 18% 77%(4)
Average Commission Rate Paid(6)............ $0.0620 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
Fleet and/or the Fund's administrator for the years ended October 31, 1993
and 1992 and for the period ended October 31, 1991 was $0.29, $0.25 and
$0.23, respectively.
(4) Not Annualized.
(5) Annualized.
(6) Required for fiscal years beginning on or after September 1, 1995.
- 10 -
<PAGE> 1266
INTERNATIONAL EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended
October 31, Year Ended Period Ended
1997 1996 1995 1994 October 31, October 31,
------------------------------------------------- ---------- ------------
Trust Shares 1993(2) 1992(1,2)
------------------------------------------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......... $12.98 $ 13.20 $ 12.13 $ 9.66 $ 10.00
-------- ------- ------- ------- -------
Income from Investment Operations:
Net Investment Income(3)................... 0.17 0.16 0.06 0.02 0.06
Net realized and unrealized gain (loss)
on investments......................... 1.30 (0.18) 1.02 2.51 (0.40)
-------- ------- ------- ------- -------
Total from Investment Operations:... 1.47 (0.02) 1.08 2.53 (0.34)
-------- ------- ------- ------- -------
Less Dividends:
Dividends from net investment income....... (0.20) (0.04) (0.01) (0.06) --
Dividends from net realized capital gains.. (0.24) (0.16) -- -- --
-------- ------- ------- ------- -------
Total Dividends:..................... (0.44) (0.20) (0.01) (0.06) --
-------- ------- ------- ------- -------
Net increase (decrease) in net asset value... 1.03 (0.22) 1.07 2.47 (0.34)
-------- ------- ------- ------- -------
Net Asset Value, End of Period............... $14.01 $ 12.98 $ 13.20 $ 12.13 $ 9.66
======== ======= ======= ======= =======
Total Return ............................... 11.51% (0.02)% 8.91% 26.36% (3.40)%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............ $172,561 $89,614 $82,350 $39,246 $12,584
Ratios to average net assets:
Net investment income including
reimbursement/waiver..................... 1.40% 1.36% 0.74% 0.37% 1.19%(5)
Operating expenses including
reimbursement/waiver..................... 1.08% 1.22% 1.43% 1.57% 1.61%(5)
Operating expenses excluding
reimbursement/waiver..................... 1.36% 1.48% 1.72% 2.04% 2.79%(5)
Portfolio Turnover Rate...................... 146% 48% 39% 29% 21%(4)
Average Commission Rate Paid(6).............. $0.0381 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
Fleet and/or the Fund's administrator for the years ended October 31, 1997,
1996, 1995, 1994 and 1993 and for the period ended October 31, 1992 was
$____, $0.13, $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.
- 11 -
<PAGE> 1267
SMALL COMPANY EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996 1995 1994 YEAR ENDED PERIOD ENDED
----------------------------------------
OCTOBER 31, OCTOBER 31,
TRUST SHARES 1993(2) 1992(1,2)
---------------------------------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.......... $16.38 $ 12.36 $ 12.41 $ 8.79 $ 10.00
-------- ------- -------- -------- --------
Income from Investment Operations:
Net Investment Income (loss)(3)............. (0.09) (0.04) -- (0.04) (0.03)
Net realized and unrealized gain (loss)
on investments........................... 4.08 4.25 -- 3.66 (1.18)
-------- ------- -------- -------- --------
Total from Investment Operations:....... 3.99 4.21 -- 3.62 (1.21)
-------- ------- -------- -------- --------
Less Dividends:
Dividends from net investment income........ -- -- -- -- --
Dividends from net realized capital gains... (0.17) (0.19) (0.05) -- --
-------- ------- -------- -------- --------
Total Dividends:........................ (0.17) (0.19) (0.05) -- --
-------- ------- -------- -------- --------
Net increase (decrease) in net asset value.... 3.82 4.02 (0.05) 3.62 (1.21)
-------- ------- -------- -------- --------
Net Asset Value, End of Period................ $20.20 $ 16.38 $ 12.36 $ 12.41 $ 8.79
======== ======= ======== ======== ========
Total Return ................................ 24.69% 34.73% 0.02% 41.18% (12.10)%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............. $174,990 $94,831 $ 66,462 $ 55,683 $ 29,072
Ratios to average net assets:
Net investment income (loss) including
reimbursement/waiver........................ (0.60)% (0.37)% (0.35)% (0.66)% (0.63)%(5)
Operating expenses including
reimbursement/waiver...................... 1.14% 1.12% 1.27% 1.18% 1.06%(5)
Operating expenses excluding
reimbursement/waiver...................... 1.14% 1.12% 1.27% 1.22% 1.33%(5)
Portfolio Turnover Rate....................... 82% 54% 35% 57% 87%(4)
Average Commission Rate Paid(6)............... $0.0531 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 Fleet and/or the Fund's administrator for the period ended October 31,
1992 was $(0.05).
(4) Not Annualized.
(5) Annualized.
(6) Required for fiscal years beginning on or after September 1, 1995.
- 12 -
<PAGE> 1268
ASSET ALLOCATION FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 1996 1995 1994 YEAR ENDED PERIOD ENDED
------------------------------------------------ OCTOBER 31, OCTOBER 31,
TRUST SHARES 1993(2) 1992(1,2)
------------------------------------------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ......... $ 12.83 $ 10.68 $ 11.15 $ 10.16 $ 10.00
--------- --------- --------- --------- ---------
Income from Investment Operations:
Net Investment Income(3) ................... 0.33 0.32 0.28 0.25 0.15
Net realized and unrealized gain (loss)
on investments ......................... 1.83 2.16 (0.49) 0.99 0.13
--------- --------- --------- --------- ---------
Total from Investment Operations: 2.16 2.48 (0.21) 1.24 0.28
--------- --------- --------- --------- ---------
Less Dividends:
Dividends from net investment income ....... (0.33) (0.33) (0.26) (0.25) (0.12)
Dividends from net realized capital gains... (0.13) -- -- -- --
--------- --------- --------- --------- ---------
Total Dividends: ..................... (0.46) (0.33) (0.26) (0.25) (0.12)
--------- --------- --------- --------- ---------
Net increase (decrease) in net asset value.... 1.70 2.15 (0.47) 0.99 0.16
--------- --------- --------- --------- ---------
Net Asset Value, End of Period ............... $ 14.53 $ 12.83 $ 10.68 $ 11.15 $ 10.16
========= ========= ========= ========= =========
Total Return ................................. 17.19% 23.68% (1.93)% 12.37% 2.85%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ............ $ 123,603 $ 76,771 $ 65,464 $ 92,348 $ 11,555
Ratios to average net assets:
Net investment income including
reimbursement/waiver ..................... 2.52% 2.74% 2.70% 2.59% 2.80%(5)
Operating expenses including
reimbursement/waiver ..................... 1.19% 1.26% 1.18% 1.14% 1.11%(5)
Operating expenses excluding
reimbursement/waiver ..................... 1.21% 1.30% 1.18% 1.25% 2.39%(5)
Portfolio Turnover Rate ...................... 48% 41% 23% 7% 2%(4)
Average Commission Rate Paid(6) .............. $ 0.0635 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
Fleet and/or the Fund's administrator for the year ended October 31, 1993
and for the period ended October 31, 1992 was $0.24 and $0.08,
respectively.
(4) Not Annualized.
(5) Annualized.
(6) Required for fiscal years beginning on or after September 1, 1995.
-13-
<PAGE> 1269
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 years ended October 31, 1997 and
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 years ended
October 31, 1997 and 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, 1997 (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 number or address provided
above.
-14-
<PAGE> 1270
SMALL CAP VALUE FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Period Ended
October 31, October 31, October 31, October 31, October 31,
1997 1996(2) 1995 1994 1993(1)
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....... $ 12.71 $ 11.07 $ 11.21 $ 10.00
--------- --------- --------- ---------
Income from Investment Operations:
Net Investment Income(3,4,5) ............. 0.05 0.01 0.02 --
Net realized and unrealized gain/(loss)
on investments ....................... 2.97 2.21 0.17 1.21
--------- --------- --------- ---------
Total from Investment Operations: 3.02 2.22 0.19 1.21
--------- --------- --------- ---------
Less Dividends:
Dividends from net
investment income(3) ................. (0.05) (0.01) (0.01) --
Dividends in excess of net
investment income .................... (0.01) -- -- --
Dividends from net realized
capital gains ........................ (0.91) (0.57) (0.32) --
Total Dividends(3) ................. (0.97) (0.58) (0.33) --
--------- --------- --------- ---------
Net increase (decrease) in net asset value.. 2.05 1.64 (0.14) 1.21
--------- --------- --------- ---------
Net Asset Value, End of Period ............. $ 14.76 $ 12.71 $ 11.07 $ 11.21
========= ========= ========= =========
Total Return ............................... 25.22% 21.52% 1.86% 12.12%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ........ $ 137,341 $ 121,364 $ 101,905 $ 100,382
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................... 0.45% 0.07% 0.15% 0.02%(6)
Operating expenses including
reimbursement/waiver ................... 1.05% 1.10% 1.06% 1.01%(6)
Operating expenses excluding
reimbursement/waiver ................... 1.06% 1.35% 1.34% 1.29%(6)
Portfolio Turnover Rate .................... 39% 32% 29% 29%(7)
Average Commission Rate Paid(8) .......... $ 0.0559 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, shareholders of
the Predecessor Fund exchanged Investment Shares and Trust Shares for
Retail A Shares and Trust Shares, respectively, in the 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 other parties for the fiscal years ended October 31, 1995 and
1994 was $(0.03) and $(0.01), respectively (unaudited).
(5) Net investment income per share does not reflect the tax
reclassifications arising in the current period.
(6) Annualized.
(7) Not Annualized.
(8) Required for fiscal years beginning on or after September 1, 1995.
-15-
<PAGE> 1271
GROWTH AND INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended Year Ended Period Ended
October 31, October 31, October 31, October 31, October 31,
1997 1996(2) 1995 1994 1993(1)
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ....... $ 12.35 $ 11.15 $ 10.69 $ 10.00
--------- --------- --------- ---------
Income from Investment Operations:
Net Investment Income(3,4) ............... 0.27 0.28 0.25 0.18
Net realized and unrealized gain/(loss)
on investments ....................... 2.16 1.69 0.72 0.69
--------- --------- --------- ---------
Total from Investment Operations: 2.43 1.97 0.97 0.87
--------- --------- --------- ---------
Less Dividends:
Dividends from net investment income ..... (0.25) (0.28) (0.23) (0.18)
Dividend from net realized capital
gains ................................ (0.73) (0.49) (0.28) --
--------- --------- --------- ---------
Total Dividends .................... (0.98) (0.77) (0.51) (0.18)
--------- --------- --------- ---------
Net increase (decrease) in net asset value.. 1.45 1.20 0.46 0.69
--------- --------- --------- ---------
Net Asset Value, End of Period ............. $ 13.80 $ 12.35 $ 11.15 $ 10.69
========= ========= ========= =========
Total Return ............................... 20.77% 18.80% 9.45% 8.80%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) .......... $ 186,708 $ 189,011 $ 156,827 $ 147,090
Ratio to average net assets:
Net investment income including
reimbursement/waiver ................... 2.01% 2.42% 2.31% 2.11%(5)
Operating expenses including
reimbursement/waiver ................... 1.02% 1.07% 1.04% 0.98%(5)
Operating expenses excluding
reimbursement/waiver ................... 1.03% 1.27% 1.24% 1.25%(5)
Portfolio Turnover Rate .................... 59% 51% 73% 38%(6)
Average Commission Rate Paid(7) ............ $ 0.0654 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, shareholders of
the Predecessor Fund exchanged Investment Shares and Trust Shares for
Retail A Shares and Trust Shares, respectively, in the Fund.
(3) Net investment income per share before reimbursement/waiver of fees by
other parties for the fiscal years ended October 31, 1995 and 1994 and
the fiscal period ended October 31, 1993 was $0.25, $0.22 and $0.15,
respectively (unaudited).
(4) Net investment income per share does not reflect the tax
reclassifications arising in the current period.
(5) Annualized.
(6) Not Annualized
(7) Required for fiscal years beginning on or after September 1, 1995.
-16-
<PAGE> 1272
INVESTMENT OBJECTIVES AND POLICIES
Fleet Investment Advisors Inc. ("Fleet"), the Funds' investment adviser
and, with respect to the International Equity Fund, Oechsle International
Advisors, L.P. ("Oechsle"), the Fund's 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 Fleet 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, Fleet
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 (the "S&P 500").
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 Fleet 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 Fleet, 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,
-17-
<PAGE> 1273
during temporary defensive periods or if, in the opinion of Fleet, 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"). In addition, the Fund may
invest in securities issued by foreign branches of U.S. banks and foreign banks.
See "Special Risk Considerations -- Foreign Securities" and "Other Investment
Policies and Risk Considerations -- American, European and Global Depository
Receipts" 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. 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 Fleet 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
and Risk Considerations -- Convertible Securities" below.
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 -- Foreign
Securities" and "Other Investment Policies and Risk Considerations -- American,
European and Global Depository Receipts" below. The Fund may also purchase put
options and call options and write covered call options. See "Other Investment
Policies
-18-
<PAGE> 1274
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 Fleet,
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.
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. In addition, the Fund may invest in securities issued by foreign
branches of U.S. banks and foreign banks. See "Special Risk Considerations --
Foreign Securities" and "Other Investment Policies and Risk Considerations --
American, European and Global Depository Receipts" below. The Fund may also
purchase put options and call options and 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 Fleet,
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.
-19-
<PAGE> 1275
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 20% 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 and Risk Considerations -- 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.
Securities issued in certain countries are currently accessible to the
Fund only through investment in other
-20-
<PAGE> 1276
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 U.S. issuers. See "Other Investment Policies and
Risk Considerations" below regarding additional investment policies of the
International Equity 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 $750 million or
less ("Small Capitalization Securities") which Fleet believes represent the
potential for significant capital appreciation.
Small Capitalization Securities in which the Fund may invest include
common stock, preferred stock, securities convertible
-21-
<PAGE> 1277
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 $750 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 -- Foreign Securities" and "Other Investment Policies and
Risk Considerations -- American, European and Global Depository Receipts" below.
The Fund may purchase put options and call options 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 Fleet,
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.
MIDCAP EQUITY FUND
The investment objective of the MidCap Equity Fund is to seek long-term
capital appreciation. The Fund attempts to achieve its investment objective by
investing primarily in the securities of companies with capitalizations of
between $750
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million and $3.5 billion that Fleet believes are undervalued and represent the
potential for future earnings growth. In selecting investments for the Fund,
Fleet uses a qualitative analysis which seeks to identify companies undergoing
positive fundamental changes, such as new product introductions, corporate
restructurings or management changes, which are likely to result in positive
earnings growth and improving valuation ratios. Industry position and economic
trends are also considered.
Under normal market and economic conditions, the Fund will invest at
least 65% of its total assets in the equity securities of companies with
capitalizations of between $750 million and $3.5 billion, including common
stocks, preferred stocks, securities convertible into common stock, rights and
warrants.
The Fund may invest up to 20% of its total assets in foreign
securities, either directly or indirectly through ADRs, EDRs and GDRs. See
Special Risk Considerations -- Foreign Securities" and "Other Investment
Policies and Risk Considerations -- American, European and Global Depository
Receipts" 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.
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 in U.S.
Government obligations at such times and in such proportions as, in the opinion
of Fleet, prevailing market and economic conditions warrant. See "Other
Investment Policies and Risk Considerations" below for information regarding
additional investment policies of the MidCap 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. Fleet 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.
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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
Fleet'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, Fleet 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 -- Foreign Securities" and "Other Investment
Policies and Risk Considerations -- American, European and Global Depository
Receipts" below. The Fund may purchase put options and call options and 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 Fleet,
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 market and economic conditions, at least 65% of its
assets in equity securities of companies that have a market value capitalization
of up to $1 billion.
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<PAGE> 1280
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 indexes 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 up to 20% of its total assets 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, EDRs and GDRs. 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 Fleet to be
substantial. See "Special Risk Considerations -- Foreign Securities" and "Other
Investment Policies and Risk Considerations -- American, European and Global
Depository Receipts" below.
As a temporary defensive measure, in such proportions as, in the
judgment of Fleet, 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"); (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
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<PAGE> 1281
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 primarily in
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
common stocks, preferred stocks, common stock warrants and securities
convertible into common stock.
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 "Other Investment Policies and
Risk Considerations -- Derivative Securities" below.
The Fund may invest up to 20% of its total assets 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, EDRs and GDRs. 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 Fleet to be
substantial. See "Special Risk Considerations -- Foreign Securities" and Other
Investment
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<PAGE> 1282
Policies and Risk Considerations -- American, European and Global Depository
Receipts" below.
As a temporary defensive measure, in such proportions as, in the
judgment of Fleet, prevailing market conditions warrant, the Fund may invest in:
(i) short-term money market instruments (such as those listed below under "Other
Investment Policies"); (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 EQUITY FUND
The investment objective of the Special Equity Fund is to seek
long-term capital appreciation. The Fund attempts to achieve its investment
objective by investing primarily in the securities of companies that Fleet
believes are reasonably priced and offer favorable return potential relative to
other securities. In selecting investments for the Fund, Fleet uses a
fundamental analysis which focuses on intermediate and long-term return
forecasts for a broad universe of between 300 and 400 large and
mid-capitalization stocks. Under normal market and economic conditions, the Fund
will invest at least 75% of its total assets in common stocks, preferred stocks,
securities convertible into common stock, rights and warrants.
The Fund may invest up to 20% of its total assets in foreign
securities, either directly or indirectly through ADRs, EDRs and GDRs. See
Special Risk Considerations -- Foreign Securities" and "Other Investment
Policies and Risk Considerations -- American, European and Global Depository
Receipts" 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.
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 in U.S.
Government obligations at such times and in such proportions as, in the opinion
of Fleet,
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<PAGE> 1283
prevailing market and economic conditions warrant. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the Special Equity 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 other 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 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
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<PAGE> 1284
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 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
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, MidCap Equity,
Asset Allocation and Special Equity Funds 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 Fleet. 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
rated 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 Fleet or Oechsle
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.
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<PAGE> 1285
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 Investors Service, L.P. ("Fitch") 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 respective 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 FDIC. 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. Investments in
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<PAGE> 1286
bank obligations are 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% (15% with respect to the, MidCap
Equity Fund, Small Cap Value Fund, Growth and Income Fund and Special Equity
Fund) of a Fund's net 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 Fleet and/or Oechsle 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" above.
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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 Fleet and/or Oechsle 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 (15% with respect to the MidCap
Equity and Special Equity Funds) 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, MidCap Equity, Asset
Allocation, and Special Equity 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. A Fund 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 applicable 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
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<PAGE> 1288
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 Fleet and/or Oechsle to be of
good standing and only when, in Fleet's and/or Oechsle'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 MidCap Equity, Small Cap Value, Growth and Income and Special Equity 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 MidCap
Equity, Small Cap Value, Growth and Income and Special Equity 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 MidCap Equity, Small Cap Value, Growth and Income and
Special Equity 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
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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 Fleet or Oechsle.
REITs
Each Fund may invest up to 10% of its net assets in real estate
investment trusts ("REITs"). Equity REITs invest directly in real property while
mortgage REITs invest in mortgages on real property. REITs may be subject to
certain risks associated with the direct ownership of real estate, including
declines in the value of real estate, risks related to general and local
economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, and variations in rental income.
Generally, increases in interest rates will decrease the value of high yielding
securities and increase the costs of obtaining financing, which could decrease
the value of a REIT's investments. In addition, equity REITs may be affected by
changes in the value of the underlying property owned by the REITs, while
mortgage REITs may be affected by the quality of credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified and are
subject to the risks of financing projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. Each Fund intends to include the gross dividends from any
investments in REITs in its periodic distributions to its shareholders and,
accordingly, a portion of the Fund's distributions may also be designated as a
return of capital. See "Taxes".
Options and Futures Contracts
Put and Call Options -- Equity Growth, Equity Income, Small Company
Equity and Asset Allocation Funds. The Equity Growth, Equity Income, Small
Company Equity and Asset Allocation Funds may purchase put options and call
options on securities and securities indices. A put option gives the buyer the
right to sell, and the writer the obligation to buy, the underlying security at
the stated exercise price at any time prior to the expiration of the option. A
call option gives the buyer the right to buy the underlying security at the
stated exercise price at any time prior to the expiration of the option. Options
involving securities indices provide the holder with the right to make or
receive a cash settlement upon exercise of the option based on movements in the
relevant index. Such options must be listed on a national securities exchange
and issued by the Options Clearing Corporation. The aggregate value of options
purchased by the Equity Growth, Equity Income, Small Company Equity and Asset
Allocation Funds may not exceed 5% of the value of their respective net assets.
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
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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 Fleet and/or Oechsle 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 -- MidCap Equity, Small Cap Value, Growth
and Income and Special Equity Funds. The MidCap Equity, Small Cap Value, Growth
and Income and Special Equity 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,
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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 Fleet 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 applicable Statement of Additional Information for additional information as
to the Funds' policies on options and futures trading.
The 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 --
MidCap Equity, Small Cap Value, Growth and Income and Special Equity Funds. The
MidCap Equity, Small Cap Value, Growth and Income and Special Equity 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, liquid 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
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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 and EDRs. The International Equity, MidCap
Equity, Small Cap Value, Growth and Income and Special Equity Funds 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 Securities."
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
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<PAGE> 1293
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, such 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 or other liquid assets 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 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.
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<PAGE> 1294
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 applicable Statement of
Additional Information.
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, 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, 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
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<PAGE> 1295
holders of other non-callable debt securities. In addition, like other debt
securities, the value of mortgage-related securities, including government and
government-related mortgage pools, generally will fluctuate in response to
market interest rates.
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 or other liquid assets 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 the
instrument which the Fund originally held. Successful use of mortgage dollar
rolls may depend upon Fleet'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.
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<PAGE> 1296
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 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 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. 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 Fleet's and/or Oechsle's opinion, the
investment characteristics of the underlying common stock 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, Fleet
and/or Oechsle 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, Fleet and/or Oechsle
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
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<PAGE> 1297
"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
higher-rated, lower-yielding bonds. Fleet will attempt to reduce the risks
described above through diversification of each Fund's 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 its 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 of S&P, Moody's
and Fitch 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, foreign currency exchange contracts, 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 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
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<PAGE> 1298
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.
Fleet and/or Oechsle 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
Fleet's and/or Oechsle'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.
When-Issued and Delayed Settlement Transactions -- International Equity, MidCap
Equity, Small Cap Value, Growth and Income and Special Equity Funds
The International Equity, MidCap Equity, Small Cap Value, Growth and
Income and Special Equity Funds may purchase eligible securities on a
"when-issued" basis. The MidCap Equity, Small Cap Value, Growth and Income and
Special Equity 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 Fleet or
Oechsle, 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> 1299
Portfolio Turnover
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet and/or Oechsle 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." Although neither the MidCap Equity Fund nor the Special Equity Fund
can accurately predict its annual portfolio turnover rate, it is not expected to
exceed 100% for either Fund.
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, MidCap Equity, Asset Allocation and Special Equity 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 that each Fund
may borrow 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,
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<PAGE> 1300
Small Company Equity, MidCap Equity, Asset Allocation and Special Equity
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, MidCap Equity, Asset Allocation and Special Equity 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, MidCap Equity, Asset
Allocation and Special Equity 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% (15% with respect to the MidCap Equity and
Special Equity Funds) 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.
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<PAGE> 1301
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 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, MidCap Equity, Asset Allocation and Special Equity 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
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<PAGE> 1302
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,
as amended, 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 MidCap
Equity, Small Cap Value, Growth and Income and Special Equity Funds) on
purchases of illiquid instruments described above, Rule 144A securities will not
be considered to be illiquid if Fleet and/or Oechsle 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.
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<PAGE> 1303
Valuation of the Equity Value, Equity Growth, Equity Income, Small Company
Equity, MidCap Equity, Asset Allocation, Small Cap Value, Growth and Income and
Special Equity Funds
The assets in the Equity Value, Equity Growth, Equity Income, Small
Company Equity, MidCap Equity, Asset Allocation, Small Cap Value, Growth and
Income and Special Equity 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 at fair value by Fleet 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 these 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
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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, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors 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 FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors 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 FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors 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 per
share 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
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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 FD Distributors 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 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 Oechsle.
On a Business Day when the Exchange closes early due to a partial holiday
or otherwise, Galaxy will advance the time at which purchase orders must be
received in order to be processed on that Business Day.
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
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Institution to transmit redemption orders to FD Distributors 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 FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors 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
Dividends from net investment income of the Equity Value, Equity Growth,
Equity Income, Small Company Equity, MidCap Equity, Asset Allocation, Small Cap
Value, Growth and Income and Special Equity 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 a Fund 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
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the procedures governing such Customers' accounts at their respective
Institutions.
TAXES
FEDERAL
The 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 each qualified during its last
taxable year and intends to continue to qualify, and the MidCap Equity Fund and
Special Equity Fund each intends 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 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 distributing Fund from domestic
corporations for the taxable year.
Distribution by a Fund of "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, and the
portion of such net capital gain that constitutes mid-term capital gain, is
taxable to shareholders as long-term or mid-term capital gain, as the case may
be, 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.
The dividends received deduction is not available for dividends
attributable to distributions made by a REIT to a Fund. In addition,
distributions paid by REITs often include a "return of capital." The Code
requires a REIT to distribute at least 95% of its taxable income to investors.
In many cases, however, because of "non-cash" expenses such as property
depreciation, an equity REIT's cash flow will exceed its taxable income. The
REIT may distribute this excess cash to offer a more competitive yield. This
portion of the distribution
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is deemed a return of capital and is generally not taxable to shareholders.
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 relating to the Fund, or (b) if they itemize
their deductions, to deduct such proportionate amount from their U.S. income
should they so choose. Shareholders of the Equity Value, Equity Growth, Equity
Income, Small Company Equity, MidCap Equity, Asset Allocation, Small Cap Value,
Growth and Income and Special Equity 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.
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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 Statements of Additional Information contain the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER AND SUB-ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, 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,
1997. 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 Government Money Market, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New Jersey Municipal 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 Oechsle, 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, MidCap Equity, Asset
Allocation, Small Cap Value, Growth and Income and Special Equity Funds, Fleet
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, Fleet 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
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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 Bank or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders. For the fiscal year ended October 31, 1997,
Fleet received advisory fees (after fee waivers) at the effective annual rates
of __%, __%, __%, __%, __%, __%, __% and __% of the average daily net assets of
the Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity, Asset Allocation, Small Cap Value and Growth and Income Funds,
respectively. In addition to fee waivers, during the fiscal year ended October
31, 199_, Fleet also reimbursed the Small Company Equity, Asset Allocation,
Small Cap Value and Growth and Income Funds for certain operating expenses,
which reimbursement may be revised or discontinued at any time. The MidCap
Equity and Special Equity Funds did not conduct investment operations during the
fiscal year ended October 31, 1997.
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
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 $___ billion in assets.
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 Fleet with foreign broker research and a quarterly review of
international economic and investment developments. Fleet, among other things,
assists and consults with Oechsle in connection with the Fund's continuous
investment program; approves lists of foreign countries recommended by Oechsle
for investment; reviews
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the investment policies and restrictions of the Fund and recommends appropriate
changes to the Board of Trustees; and provides the Board of Trustees and Oechsle
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 fiscal year ended October 31, 1997,
Oechsle received sub-advisory fees from Fleet 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 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. Mr. Keesler and Ms. Harris have been
managing the Fund since August 1996.
The Small Company Equity Fund's portfolio manager, Stephen D. Barbaro, is
primarily responsible for the day-to-day
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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 MidCap Equity Fund's portfolio manager, Barbara C. Friedman, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Ms. Friedman, a Vice President, has been with Fleet since 1996 and
prior thereto was a portfolio manager at Loomis, Sayles & Company, a partner and
portfolio manager at Harvard Management Company and an economist at Wellington
Management Company. She has over 20 years of investment experience.
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. 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 January,
1997.
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. Prior to joining Fleet in 1995, he was
associated with Shawmut Bank since 1963 as an investment officer and was a Vice
President in charge of its Small Cap Equity Management product since 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. Prior to joining Fleet in 1995, he
was associated with Shawmut Bank and its predecessor since 1965 and was a Vice
President since 1978. While at Shawmut Bank he served as manager of its Growth
and Income Equity Management Group.
The Special Equity Fund's portfolio manager, Peter B. Hathaway, is
primarily responsible for the day-to-day management of the Fund's portfolio. Mr.
Hathaway, a Vice President, has been associated with Fleet since 1995. Prior to
joining Fleet, he was with Shawmut Investment Advisors and its predecessors as
an institutional fund manager. He has over 30 years of investment experience.
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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. Fleet, the 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. For the
services provided to the Funds, 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 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. In addition, FDISG also receives a separate
annual fee from each Portfolio for certain fund accounting services. From time
to time, FDISG may waive voluntarily all or a portion of the administration fee
payable to it by the Funds. For the fiscal year ended October 31, 1997, the
Equity Value, Equity Growth, Equity Income, International Equity, Small Company
Equity, Asset Allocation, 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 MidCap
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Equity and Special Equity Funds did not conduct investment operations during the
fiscal year ended October 31, 1997.
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 - 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; 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; Class Z - Series 1 shares
(Trust Shares), Class Z - Series 2 shares (Retail A Shares) and Class Z - Series
3 shares (Retail B Shares), each series representing interests in the MidCap
Equity Fund; and Class AA - Series 1 shares (Trust Shares), Class AA Series 2
shares (Retail A Shares) and Class AA - Series 3 shares (Retail B Shares), each
series representing interests in the Special Equity 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 FD Distributors 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.
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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,
MidCap Equity Fund, Asset Allocation Fund, Growth and Income Fund and Special
Equity 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 .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
investment portfolio 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 investment portfolio 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, MidCap Equity Fund, Asset Allocation Fund, Growth and
Income Fund and Special Equity 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.
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
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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 FD Distributors; 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 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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities, including
affiliates of Fleet, pursuant to which such entities agree to perform 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
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<PAGE> 1317
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.
Such entities are 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 One 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.
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 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 shareholder reports and meetings; and any extraordinary expenses. The
Funds also pay for brokerage fees and commissions in connection with the
purchase of portfolio securities.
-62-
<PAGE> 1318
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that 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 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. Performance 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. 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" figures 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
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<PAGE> 1319
total return assume that dividends and capital gain distributions made by a Fund
during the period are reinvested in Fund shares.
The performance of the Funds will fluctuate and any quotation of
performance should not be considered as representative of the future performance
of a Fund. 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 data 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 performance calculations.
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.
OTHER PERFORMANCE INFORMATION - SPECIAL EQUITY FUND ONLY
Set forth below is certain performance information provided by
Fleet, the investment adviser for the Special Equity Fund, relating to
historical performance of a composite of value driven growth equity accounts
(the "Value Driven Growth Composite")(1) managed by Fleet.(2) The accounts in
the Value Driven Growth Composite had the same investment objective as the
Special Equity Fund and were managed by Peter Hathaway, who manages the Special
Equity Fund, using substantially similar, although not identical, investment
strategies, policies and techniques as those contemplated for use by the Special
Equity Fund. This information is provided to illustrate the past performance of
Fleet in managing similar accounts as measured against the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500"), a standard equity investment
benchmark.(3) The accounts that are included in the Value Driven Growth
Composite are not subject to the same types of expenses and liquidity
requirements to which the Special Equity Fund is subject nor to the
diversification requirements, specific tax restrictions and investment
limitations imposed by the 1940 Act or the Code. Consequently, the performance
results for the Value Driven Growth Composite could have been adversely effected
if the accounts included in the Composite had been regulated as investment
companies. The performance of the Value Driven Growth Composite shown below does
not represent the performance of the Special Equity Fund. Investors should not
consider this past performance as an indication of future performance of the
Special Equity Fund or of Mr. Hathaway or Fleet.
The results presented below may not necessarily equate with
the returns experienced by any particular account of Fleet or shareholder of the
Special Equity Fund as a result of timing of investments and redemptions. In
addition, the effect of taxes on any client or shareholder will depend on such
person's tax status, and the results have not been reduced to reflect any income
tax that may have been payable.
<TABLE>
<CAPTION>
For Periods Ended September 30, 1997
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Annualized
Total Return(4)
S&P 500
</TABLE>
(1). The value driven growth style, also referred to as "growth at
reasonable price", invests predominantly in a broad universe of large
and medium-sized stocks having investment characteristics similar to
the S&P 500 Composite Stock Price Index. The style strives for high
relative returns with below market risks and has a value bias. The
investment time horizon is one to three years and stock selection is
market-oriented, leading to sector rotation and shifts in emphasis
between growth stocks and value stocks. The Value Driven Growth
Composite includes institutional, separately invested, fee-paying,
discretionary accounts managed by Fleet using the value driven growth
style. No non-fee-paying accounts are included. An account is included
in the Value Driven Growth Composite the first full month it is managed
in the value driven growth style. The Value Driven Growth Composite
also includes equity segments of balanced accounts.
(2). Fleet represents the consolidation of Shawmut Investment Advisers, Inc.
("Shawmut"), a subsidiary of Shawmut National Corporation, and Fleet,
which were merged on November 30, 1995. Performance results prior to
December 31,1995 represent the performance of Shawmut. Shawmut
represents the consolidation of the Trust and Investment Divisions of
Shawmut Bank and Connecticut National Bank, which merged in 1988. The
investment philosophy and approach were integrated at the time of the
systems integration in 1990. Performance history prior to 1990 reflects
the approach of the predecessor organizations, with history for the
value driven growth style coming from Shawmut.
(3). The S&P 500 is an unmanaged index consisting of 500 U.S. industrial,
transportation, utility and financial companies. The S&P 500 is
capitalization-weighted calculated on a total return basis with
dividends reinvested. The S&P 500 is used for comparison purposes only
and is not necessarily intended to parallel the risk or investment
style of accounts included in the Value Driven Growth Composite. The
investment portfolio underlying the S&P 500 is different from the
investment portfolios of the accounts managed by Fleet and included in
the Value Driven Growth Composite.
(4). For the period from January 1, 1993 through September 30, 1997, the
Value Driven Growth Composite performance results have been calculated
in accordance with methods set forth by AIMR. The Value Driven Growth
Composite results are time-weighted rates of return net of commissions
and transaction costs, and have been presented gross of investment
advisory fees. Performance results will be reduced by Fleet's
investment advisory fee.
The account breakdown in the Composite as of September 30, 1997 was as
follows:
<TABLE>
<CAPTION>
Strategy Number of Accounts Assets
-------- ------------------ ------
<S> <C> <C> <C>
Value Driven Growth -- $___Million
</TABLE>
Fleet consistently values all portfolios each month on a trade date
basis. Monthly composite returns are calculated by weighting each
account's monthly return by the sum of its beginning market value,
beginning accrual, and weighted cash flows. Quarterly composite returns
are calculated by geometrically linking the weighted monthly composite
returns. Annual composite returns are calculated by geometrically
linking the quarterly composite returns.
The annualized compound rate of return is equivalent to the annual rate
of return which, if earned in each year of the indicated multi-year
period, would produce the actual cumulative rate of return over the
time period.
For the period from January 1, 1993 through September 30, 1997, all
balanced accounts included in the Composite have had cash allocated
monthly to the equity segment in accordance with Fleet's firm-wide
asset allocation policy in effect at the beginning of each month,
except where individual clients have required a different asset
allocation. In these cases, cash is allocated in accordance with the
client's required asset allocation. Prior to January 1, 1993, all
balanced accounts included in the Composite have had cash allocated
monthly to the equity segment according to actual diversification.
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 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 such Fund, or (b) 67% or more
of the shares of such Fund present at a meeting if more than 50% of the
outstanding shares of such Fund are represented at the meeting in person or by
proxy.
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<PAGE> 1320
RETAIL
THE GALAXY FUND
Equity Value Fund
Equity Growth Fund
Equity Income Fund
International Equity Fund
Small Company Equity Fund
MidCap Equity Fund
Asset Allocation Fund
Small Cap Value Fund
Growth and Income Fund
Special Equity Fund
Prospectus
February __, 1998
<PAGE> 1321
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 FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
HIGHLIGHTS................................................................... 1
EXPENSE SUMMARY.............................................................. 5
FINANCIAL HIGHLIGHTS......................................................... 8
INVESTMENT OBJECTIVES AND POLICIES........................................... 21
Equity Value Fund................................................... 21
Equity Growth Fund.................................................. 22
Equity Income Fund.................................................. 23
International Equity Fund........................................... 24
Small Company Equity Fund........................................... 25
MidCap Equity Fund.................................................. 26
Asset Allocation Fund............................................... 27
Small Cap Value Fund................................................ 28
Growth and Income Fund.............................................. 30
Special Equity Fund................................................. 31
Special Risk Considerations......................................... 32
Other Investment Policies and Risk Considerations................... 33
INVESTMENT LIMITATIONS....................................................... 47
PRICING OF SHARES............................................................ 51
HOW TO PURCHASE SHARES....................................................... 52
Distributor......................................................... 52
General............................................................. 52
Purchase Procedures -- Customers of Institutions.................... 53
Purchase Procedures -- Direct Investors............................. 53
Other Purchase Information.......................................... 55
Applicable Sales Charge -- Retail A Shares ........................ 56
Quantity Discounts.................................................. 58
Applicable Sales Charge - Retail B Shares........................... 60
Characteristics of Retail A Shares and Retail B Shares.............. 62
Factors to Consider When Selecting Retail A Shares or
Retail B Shares..................................................... 63
HOW TO REDEEM SHARES......................................................... 64
General............................................................. 64
Redemption Procedures -- Customers of Institutions.................. 64
Redemption Procedures -- Direct Investors........................... 65
Other Redemption Information........................................ 67
INVESTOR PROGRAMS............................................................ 67
Exchange Privilege.................................................. 67
</TABLE>
-i-
<PAGE> 1322
<TABLE>
<CAPTION>
Page
<S> <C>
Retirement Plans.................................................... 69
Automatic Investment Program and Systematic Withdrawal Plan......... 69
Payroll Deduction Program........................................... 70
College Investment Program.......................................... 71
Direct Deposit Program.............................................. 71
INFORMATION SERVICES......................................................... 71
Galaxy Information Center -- 24 Hour Information Service............ 71
Voice Response System............................................... 72
Galaxy Shareholder Services......................................... 72
DIVIDENDS AND DISTRIBUTIONS.................................................. 72
TAXES........................................................................ 73
Federal............................................................. 73
State and Local..................................................... 75
MANAGEMENT OF THE FUNDS...................................................... 75
Investment Adviser and Sub-Adviser.................................. 75
Authority to Act as Investment Adviser.............................. 78
Administrator....................................................... 79
DESCRIPTION OF GALAXY AND ITS SHARES......................................... 79
Shareholder Services Plan........................................... 81
Distribution and Services Plan...................................... 82
Agreements for Sub-Account Services................................. 83
CUSTODIAN AND TRANSFER AGENT................................................. 83
EXPENSES..................................................................... 83
PERFORMANCE REPORTING........................................................ 84
Other Performance Information-Special Equity Fund Only..............
MISCELLANEOUS................................................................ 86
</TABLE>
-ii-
<PAGE> 1323
THE GALAXY FUND
4400 Computer Drive For an application and
Westboro, Massachusetts information regarding
01581-5108 purchases, redemptions,
exchanges and other
shareholder services or for
current performance, call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment
company. This Prospectus describes ten 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 market value capitalizations of $750 million
or less that the Fund's investment adviser believes represent the potential for
significant capital appreciation. Under normal market and
<PAGE> 1324
economic conditions, the Fund will invest at least 65% of its assets in the
equity securities of companies with market value capitalizations of $750 million
or less.
The MIDCAP EQUITY FUND'S investment objective is to seek long-term
capital appreciation. The Fund attempts to achieve this objective by investing
primarily in the securities of companies with market value capitalizations of
between $750 million and $3.5 billion that the Fund's investment adviser
believes are undervalued and represent the potential for future earnings growth.
Under normal market and economic conditions, the Fund will invest at least 65%
of its total assets in the equity securities of companies with market value
capitalizations of between $750 million and $3.5 billion.
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 primarily in
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 common stocks, preferred stocks, common stock
warrants and securities convertible into common stock.
The SPECIAL EQUITY FUND'S investment objective is to seek long-term
capital appreciation. The Fund attempts to achieve this objective by investing
primarily in the securities of growth companies that the Fund's investment
adviser believes are reasonably priced and offer favorable return potential
relative to other securities. Under normal market and economic conditions, the
Fund will invest at least 75% of its
-2-
<PAGE> 1325
total assets in common stocks, preferred stocks, securities convertible into
common stock, rights and warrants.
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, MidCap Equity, Asset Allocation, Growth and
Income and Special Equity 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 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 First Data Distributors, Inc., which is
unaffiliated with Fleet and its parent, Fleet Financial Group, Inc., and
affiliates. Oechsle International Advisors, L.P. serves as the sub-adviser to
the International Equity Fund.
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 number 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> 1326
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 __, 1998
-4-
<PAGE> 1327
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, EQUITY GROWTH, EQUITY INCOME,
INTERNATIONAL EQUITY, SMALL COMPANY EQUITY, MIDCAP EQUITY, ASSET ALLOCATION,
SMALL CAP VALUE, GROWTH AND INCOME AND SPECIAL EQUITY FUNDS. Prospectuses for
Galaxy's MONEY MARKET, GOVERNMENT, U.S. TREASURY, TAX-EXEMPT, CONNECTICUT
MUNICIPAL MONEY MARKET, MASSACHUSETTS MUNICIPAL MONEY MARKET, INSTITUTIONAL
GOVERNMENT MONEY MARKET, SHORT-TERM BOND, INTERMEDIATE GOVERNMENT INCOME, HIGH
QUALITY BOND, CORPORATE BOND, TAX-EXEMPT BOND, NEW JERSEY MUNICIPAL 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"),
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, 1997 of approximately $___ billion. Oechsle International Advisors,
L.P. ("Oechsle") serves as the sub-adviser to the International Equity Fund.
Oechsle currently has 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-seven mutual funds should your investment goals change.
Q: How can I buy and redeem shares?
A: The Funds are distributed by First Data 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
-1-
<PAGE> 1328
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"). 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 Equity Value, Equity Growth,
Small Company Equity, MidCap Equity, Asset Allocation, Growth and Income and
Special Equity 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 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, MidCap Equity, Asset Allocation,
Small Cap Value, Growth and Income and Special Equity 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"), European
Depository Receipts
-2-
<PAGE> 1329
("EDRs") and, in the case of certain of the Funds, Global Depository Receipts
("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 Company Equity and Small Cap
Value 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, foreign currency exchange transactions and
certain asset-backed and mortgage-backed securities. Derivative securities
derive their value from the performance of underlying assets, interest or
currency exchange 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, MidCap
Equity, Asset Allocation, Growth and Income and Special Equity 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 First Data Distributors, Inc. 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
-3-
<PAGE> 1330
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."
-4-
<PAGE> 1331
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 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>
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 percent-
age 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 % 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 charges may be available. A deferred sales
charge of up to 1.00% is assessed on certain redemptions of Retail A Shares
that are purchased with no initial sales charge as part of an investment of
$500,000 or more. 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 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.
-5-
<PAGE> 1332
<TABLE>
<CAPTION>
SMALL
ASSET CAP MIDCAP SPECIAL
ALLOCATION VALUE EQUITY GROWTH AND INCOME EQUITY
FUND FUND FUND FUND FUND
----------------- -------- ------------------- ------------------- ------------------
SHAREHOLDER RETAIL RETAIL RETAIL RETAIL A RETAIL B RETAIL A RETAIL B RETAIL A RETAIL B
TRANSACTION EXPENSES A SHARES B SHARES A SHARES SHARES SHARES SHARES SHARES SHARES SHARES
- -------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Front-End Sales 3.75%(1) None 3.75%(1) 3.75%(1) None 3.75%(1) None 3.75%(1) None
Charge Imposed on
Purchases (as a
percentage of
offering price)
Maximum Deferred Sales None 5.00%(2) None None 5.00%(2) None 5.00%(2) None 5.00%(2)
Charge (as a
percentage of
offering price)
Sales Charge Imposed on
Reinvested Dividends None None None None None None None None None
Redemption Fees(3) None None None None None None None None None
Exchange Fees None 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 % 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 charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Retail A Shares that
are purchased with no initial sales charge as part of an investment of
$500,000 or more. 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 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.
-6-
<PAGE> 1333
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)
MidCap Equity Fund (Retail A Shares)(1)..................... $ $ N/A N/A
MidCap Equity Fund (Retail B Shares)
Assuming complete redemption at end of period(2).......... $ $ N/A N/A
Assuming no redemption.................................... $ $ N/A N/A
Asset Allocation Fund (Retail A Shares)(1).................. $ $ $ $
Asset Allocation Fund (Retail B Shares)
Assuming complete redemption at end of period(2).......... $ $ $ $(3)
Assuming no redemption.................................... $ $ $ $(3)
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).......... $ $ $ $(3)
Assuming no redemption.................................... $ $ $ $(3)
Special Equity Fund (Retail A Shares)(1).................... $ $ N/A N/A
Special Equity Fund (Retail B Shares)
Assuming complete redemption at end of period(2) ......... $ $ N/A N/A
Assuming no redemption.................................... $ $ N/A N/A
</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
-7-
<PAGE> 1334
investor in the Funds will bear directly or indirectly. The information
contained in the Expense Summary and Example with respect to the Equity Value,
Equity Growth, Equity Income, International Equity, Small Company Equity, Asset
Allocation, Small Cap Value and Growth and Income Funds 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 Shares and/or Retail B Shares. The information in the Expense Summary and
Example with respect to the MidCap Equity and Special Equity Funds is based on
expenses which each Fund expects to incur during the current fiscal year on its
Retail A Shares and Retail B Shares. Without voluntary fee waivers and/or
expense reimbursements by Fleet and/or Galaxy's administrator, (i) Advisory Fees
would be ____%, ____%, ____%, ____%, ____% ____%, ____%, ____%, ____% and ____%,
Other Expenses would be ____%, ____%, ____%, ____%, ____% ____%, ____%, ____%,
____% and ____%, and Total Fund Operating Expenses would be ____%, ____%, ____%,
____%, ____% ____%, ____%, ____%, ____% and ____% for Retail A Shares of the
Equity Value Fund, Equity Growth Fund, Equity Income Fund, International Equity
Fund, Small Company Equity Fund, MidCap Equity Fund, Asset Allocation Fund,
Small Cap Value Fund, Growth and Income Fund and Special Equity Fund,
respectively, and (ii) Advisory Fees would be ____%, ____% ____%, ____%, ____%,
____% and ____%, Other Expenses would be ____%, ____% ____%, ____%, ____%, ____%
and ____%, and Total Fund Operating Expenses would be ____%, ____% ____%, ____%,
____%, ____% and ____% for Retail B Shares of the Equity Value Fund, Equity
Growth Fund, Small Company Equity Fund, MidCap Equity Fund, Asset Allocation
Fund, Growth and Income Fund and Special Equity Fund, respectively. 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
[______________________] 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.
-8-
<PAGE> 1335
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, MidCap
Equity, Asset Allocation, Growth and Income and Special Equity Funds. Galaxy is
also authorized to issue another 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 .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, MidCap Equity, Asset
Allocation, Growth and Income and Special Equity 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, 1997 (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). As of the date of this Prospectus, the
MidCap Equity and Special Equity Funds had not commenced operations. 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 number or address provided above.
-9-
<PAGE> 1336
EQUITY VALUE FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED OCTOBER 31,
<TABLE>
<CAPTION>
1997 1996 1995 1994
---------------------- -------------------- ------ ------
RETAIL A RETAIL B RETAIL A RETAIL B RETAIL RETAIL
SHARES SHARES SHARES SHARES(3) SHARES SHARES 1993(2) 1992(2)
-------- -------- -------- -------- ------ ------ ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.......... $14.33 $14.74 $13.31 $13.12 $11.41 $11.52
------ ------ ------ ------ ------ ------
Income from Investment
Operations:
Net Investment Income(4).... 0.14 0.04 0.22 0.18 0.19 0.26
Net realized and
unrealized gain (loss)
on investments.......... 2.74 1.25 2.24 0.45 2.14 0.33
------ ------ ------ ------ ----- -----
Total from Investment
Operations:............ 2.88 1.29 2.46 0.63 2.33 0.59
------ ------ ------ ------ ----- -----
Less Dividends:
Dividends from net
investment income......... (0.14) (0.04) (0.23) (0.16) (0.20) (0.27)
Dividends from net
realized capital gains.... (1.11) - (1.21) (0.28) (0.42) (0.43)
------ ------ ------ ----- ----- -----
Total Dividends........... (1.25) (0.04) (1.44) (0.44) (0.62) (0.70)
------ ------ ------ ----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
OCTOBER
31,
1991(2) 1990(2) 1989(2) 1988(1),(2)
---- ---- ---- -------
<S> <C> <C> <C> <C>
Net Asset Value, $9.45 $11.51 $10.41 $10.00
Beginning of Period............ ----- ------ ------ ------
Income from Investment
Operations: 0.37 0.39 0.36 0.03
Net Investment Income(4)........
Net realized and
unrealized gain (loss) 2.41 (1.37) 1.10 0.38
on investments............ ------ ------ ------ ------
Total from Investment 2.78 (0.98) 1.46 0.41
Operations:.............. ------ ------ ------ ------
Less Dividends:
Dividends from net (0.37) (0.38) (0.36) -
investment income...........
Dividends from net (0.34) (0.70) - -
realized capital gains...... ------ ------ ------ ------
(0.71) (1.08) (0.36) -
Total Dividends............. ------ ------ ------ ------
</TABLE>
-10-
<PAGE> 1337
<TABLE>
<CAPTION>
1997 1996 1995 1994
---------------------- -------------------- ------ ------
RETAIL A RETAIL B RETAIL A RETAIL B RETAIL RETAIL
SHARES SHARES SHARES SHARES(3) SHARES SHARES 1993(2) 1992(2)
-------- -------- -------- -------- ------ ------ ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net increase (decrease) in
net asset value............ 1.63 1.25 1.02 0.19 1.71 (0.11)
-------- ------- ------- ------- -------- --------
Net Asset Value, End of
Period..................... $ 15.96 $ 15.99 $ 14.33 $ 13.31 $ 13.12 $ 11.41
======== ======= ======= ======= ======== ========
Total Return(7).............. 21.49% 8.80%(5) 20.81% 4.97% 21.18% 5.66%
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's)............. $131,998 $ 1,916 $96,555 $74,001 $176,107 $133,578
Ratios to average net
assets:
Net investment income
including
reimbursement/waiver..... 1.00% 0.43%(6) 1.62% 1.45% 1.52% 2.24%
Operating expenses
including
reimbursement/waiver...... 1.45% 1.94%(6) 1.49% 1.08% 0.97% 0.94%
Operating expenses
excluding
reimbursement/waiver...... 1.45% 2.24%(6) 1.50% 1.11% 0.97% 0.94%
Portfolio Turnover
Rate....................... 116% 116% 76% 71% 50% 136%
Average Commission
Rate Paid(8)................ $ 0.0605 $0.0605 N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
OCTOBER
31,
1991(2) 1990(2) 1989(2) 1988(1),(2)
---- ---- ---- -------
<S> <C> <C> <C> <C>
Net increase (decrease) in 2.07 (2.06) 1.10 0.41
net asset value.............. ------- ------- ------- -------
Net Asset Value, End of $ 11.52 $ 9.45 $ 11.51 $ 10.41
Period....................... ======= ======= ======= =======
Total Return(7)................ 30.45% (9.43)% 14.19% 4.10%
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%(6)
Operating expenses
including
reimbursement/waiver........ 0.94% 0.95% 0.97% 0.95%(6)
Operating expenses
excluding
reimbursement/waiver........ 0.94% 0.95% 0.98% 0.94%(6)
Portfolio Turnover
Rate......................... 40% 94% 44% 4%(5)
Average Commission
Rate Paid(8).................. N/A N/A N/A N/A
</TABLE>
-11-
<PAGE> 1338
(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) Net investment income per share for Retail B Shares before fee waivers by
the Fund's administrator for the period ended October 31, 1996 was $0.01.
(5) Not annualized.
(6) Annualized.
(7) Calculation does not include sales charge for Retail A Shares and Retail B
Shares.
(8) Required for fiscal years beginning on or after September 1, 1995.
-12-
<PAGE> 1339
EQUITY GROWTH FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED OCTOBER 31,
<TABLE>
<CAPTION>
1997 1996 1995 1994
--------------------- ----------------------- ------ ------
RETAIL A RETAIL B RETAIL A RETAIL B RETAIL RETAIL
SHARES SHARES SHARES SHARES(3) SHARES SHARES
-------- -------- -------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 17.29 $ 18.77 $ 14.18 $ 13.76
-------- ------- ------- -------
Income from Investment Operations:
Net Investment Income(4)........................ 0.10 (0.01) 0.14 0.17
Net realized and unrealized gain (loss)
on investments.............................. 3.39 1.50 3.28 0.47
-------- ------- ------- -------
Total from Investment Operations: 3.49 1.49 3.42 0.64
-------- ------- ------- -------
Less Dividends:
Dividends from net investment income............ (0.11) - (0.14) (0.16)
Dividends from net realized capital
gains......................................... (0.30) - (0.17) (0.06)
-------- ------- ------- -------
Total Dividends........................... (0.41) - (0.31) (0.22)
-------- ------- ------- -------
Net increase (decrease) in net asset value........ 3.08 1.49 3.11 0.42
-------- ------- ------- -------
Net Asset Value, End of Period.................... $ 20.37 $ 20.26 $ 17.29 $ 14.18
======== ======= ======= =======
Total Return(7)................................... 20.51% 7.95%(5) 24.54% 4.72%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)................. $160,800 $ 3,995 $98,911 $70,338
Ratios to average net assets:
Net investment income including
reimbursement/waiver.......................... 0.50% (0.16)%(6) 0.85% 1.22%
Operating expenses including
reimbursement/waiver.......................... 1.40% 1.92%(6) 1.45% 0.98%
Operating expenses excluding
reimbursement/waiver.......................... 1.40% 2.29%(6) 1.47% 0.99%
Portfolio Turnover Rate........................... 36% 36% 14% 18%
Average Commission Rate Paid(8)................... $ 0.0615 $0.0615 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
OCTOBER 31,
1993(1) 1992(2) 1991(1),(2)
-------------------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 12.90 $ 11.99 $ 10.00
-------- -------- -------
Income from Investment Operations:
Net Investment Income(4)........................ 0.15 0.17 0.16
Net realized and unrealized gain (loss)
on investments.............................. 0.95 0.91 1.97
-------- -------- -------
Total from Investment Operations: 1.10 1.08 2.13
-------- -------- -------
Less Dividends:
Dividends from net investment income............ (0.15) (0.17) (0.14)
Dividends from net realized capital
gains......................................... (0.09) - -
-------- -------- -------
Total Dividends........................... (0.24) (0.17) (0.14)
-------- -------- -------
Net increase (decrease) in net asset value........ 0.86 0.91 1.99
-------- -------- -------
Net Asset Value, End of Period.................... $ 13.76 $ 12.90 $ 11.99
======== ======== =======
Total Return(7)................................... 8.58% 9.10% 21.39%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)................. $427,298 $224,630 $92,224
Ratios to average net assets:
Net investment income including
reimbursement/waiver.......................... 1.20% 1.37% 1.46%
Operating expenses including
reimbursement/waiver.......................... 0.97% 0.95% 0.83%(6)
Operating expenses excluding
reimbursement/waiver.......................... 0.97% 0.95% 0.83%(6)
Portfolio Turnover Rate........................... 16% 22% 16%(5)
Average Commission Rate Paid(8)................... 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 (loss) per share before reimbursement/waiver of fees
by Fleet and/or the Fund's administrator for the year ended
October 31, 1995 was $0.13, and for the period ended October 31, 1996
for Retail B Shares was $(0.03).
(5) Not Annualized.
(6) Annualized.
(7) Calculation does not include sales charge for Retail A Shares and Retail B
Shares.
(8) Required for fiscal years beginning on or after September 1, 1995.
-13-
<PAGE> 1340
EQUITY INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED OCTOBER 31,
<TABLE>
<CAPTION>
1997 1996 1995 1994
-------- -------- ------ ------ PERIOD ENDED
RETAIL A RETAIL A RETAIL RETAIL OCTOBER 31,
SHARES SHARES SHARES SHARES 1993(2) 1992(2) 1991(1),(2)
-------- -------- ------ ------ -------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period ......................... $ 14.98 $ 12.74 $ 12.85 $ 11.85 $ 11.29 $10.00
-------- ------- ------- -------- ------- ------
Income from Investment Operations:
Net Investment Income(3) ....... 0.30 0.28 0.30 0.30 0.30 0.29
Net realized and unrealized gain
(loss) on investments ........ 2.47 2.47 0.07 1.09 0.76 1.26
-------- ------- ------- -------- ------- ------
Total from Investment
Operations: .............. 2.77 2.75 0.37 1.39 1.06 1.55
-------- ------- ------- -------- ------- ------
Less Dividends:
Dividends from net investment
income ....................... (0.30) (0.30) (0.29) (0.28) (0.30) (0.26)
Dividends from net realized
capital gains ................ (0.54) (0.21) (0.19) (0.11) (0.20) --
-------- ------- ------- -------- ------- ------
Total Dividends: ........... (0.84) (0.51) (0.48) (0.39) (0.50) (0.26)
-------- ------- ------- -------- ------- ------
Net increase (decrease) in net
asset value .................... 1.93 2.24 (0.11) 1.00 0.56 1.29
-------- ------- ------- -------- ------- ------
Net Asset Value, End of Period ... $ 16.91 $ 14.98 $ 12.74 $ 12.85 $ 11.85 $11.29
======== ======= ======= ======== ======= ======
Total Return(6) .................. 19.01% 22.23% 2.94% 11.85% 9.71% 15.61%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's) $126,952 $81,802 $63,532 $123,970 $21,778 $7,096
Ratios to average net assets:
Net investment income including
reimbursement/waiver ......... 1.86% 2.08% 2.45% 2.34% 2.84% 2.72%(5)
Operating expenses including
reimbursement/waiver ......... 1.40% 1.49% 1.11% 1.16% 1.03% 0.85%(5)
Operating expenses excluding
reimbursement/waiver ......... 1.40% 1.51% 1.12% 1.22% 1.54% 1.39%(5)
Portfolio Turnover Rate .......... 45% 21% 31% 27% 18% 77%(4)
Average Commission Rate Paid(7) .. $ 0.0620 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 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
Fleet and/or the Fund's administrator for the years ended October 31, 1993
and 1992 and for the period ended October 31, 1991 was $0.29, $0.25 and
$0.23, respectively.
(4) Not Annualized.
(5) Annualized.
(6) Calculation does not include sales charge for Retail A Shares.
(7) Required for fiscal years beginning on or after September 1, 1995.
-14-
<PAGE> 1341
INTERNATIONAL EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED OCTOBER 31,
<TABLE>
<CAPTION>
1997 1996 1995 1994
-------- -------- ------- ------ PERIOD ENDED
RETAIL A RETAIL A RETAIL RETAIL OCTOBER 31,
SHARES SHARES SHARES SHARES 1993 1992(1),(2)
-------- -------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.................................. $12.92 $ 13.20 $12.13 $ 9.66 $ 10.00
------ ------- ------ ------- -------
Income from Investment Operations:
Net Investment Income(3).................. 0.11 0.11 0.06 0.02 0.06
Net realized and unrealized gain
(loss) on investments................. 1.27 (0.21) 1.02 2.51 (0.40)
------ ------- ------ ------- -------
Total from Investment
Operations: 1.38 (0.10) 1.08 2.53 (0.34)
------ ------- ------ ------- -------
Less Dividends:
Dividends from net investment
income................................ (0.12) (0.02) (0.01) (0.06) -
Dividends from net realized
capital gains......................... (0.24) (0.16) - - -
------ ------- ------ ------- -------
Total Dividends..................... (0.36) (0.18) (0.01) (0.06) -
------- ------- ------ ------- -------
Net increase (decrease) in net
asset value............................. 1.02 (0.28) 1.07 2.47 (0.34)
------- ------- ------ ------- -------
Net Asset Value, End of Period............ $13.94 $ 12.92 $13.20 $ 12.13 $ 9.66
======= ======= ====== ======= =======
Total Return(6)............................. 10.86% (0.64)% 8.91% 26.36% (3.40)%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)......... $35,144 $30,104 $32,887 $39,246 $12,584
Ratios to average net assets:
Net investment income including
reimbursement/waiver.................. 0.78% 0.84% 0.69% 0.37% 1.19%(5)
Operating expenses including
reimbursement/waiver.................. 1.70% 1.76% 1.49% 1.57% 1.61%(5)
Operating expenses excluding
reimbursement/waiver.................. 1.98% 2.03% 1.79% 2.04% 2.79%(5)
Portfolio Turnover Rate................... 146% 48% 39% 29% 21%(4)
Average Commission Rate Paid(7)............. $0.0381 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 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
Fleet and/or the Fund's administrator for the years ended October 31, 1997,
1996, 1995, 1994 and 1993 and for the period ended October 31, 1992 was
$____, $0.07, $0.08, $0.03, $0.00 and $0.00, respectively.
(4) Not Annualized.
(5) Annualized.
(6) Calculation does not include sales charge for Retail A Shares.
(7) Required for fiscal years beginning on or after September 1, 1995.
-15-
<PAGE> 1342
SMALL COMPANY EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED OCTOBER 31,
<TABLE>
<CAPTION>
1997 1996 1995 1994
------------------- --------------------- ------ -----
RETAIL A RETAIL B RETAIL A RETAIL B RETAIL RETAIL
SHARES SHARES SHARES SHARES(3) SHARES SHARES
-------- -------- -------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............... $ 16.28 $ 17.27 $12.35 $ 12.41
-------- ------- ------ -------
Income from Investment Operations:
Net Investment Income(4)......................... (0.14) (0.19)(5) (0.09) (0.01)
Net realized and unrealized gain (loss)
on investments............................... 3.99 2.83 4.21 -
-------- ------- ------ -------
Total from Investment Operations: 3.85 2.64 4.12 (0.01)
-------- ------- ------ -------
Less Dividends:
Dividends from net investment income............. - - - -
Dividends from net realized capital
gains.......................................... (0.17) - (0.19) (0.05)
-------- ------- ------ -------
Total Dividends:........................... (0.17) - (0.19) (0.05)
-------- ------- ------ -------
Net increase (decrease) in net asset value......... 3.68 2.64 3.93 (0.06)
-------- ------- ------ -------
Net Asset Value, End of Period..................... $ 19.96 $ 19.91 $16.28 $ 12.35
======== ======= ====== =======
Total Return(8).................................... 23.97% 15.34%(6) 34.01% (0.06)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's).................. $111,101 $ 3,659 $45,668 $30,845
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... (1.03)% (1.50)%(7) (0.85)% (0.40)%
Operating expenses including
reimbursement/waiver........................... 1.57% 2.04%(7) 1.60% 1.31%
Operating expenses excluding
reimbursement/waiver........................... 1.57% 2.44%(7) 1.64% 1.34%
Portfolio Turnover Rate............................ 82% 82% 54% 35%
Average Commission Rate Paid(9).................... $ 0.0531 $0.0531 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1993(3) 1991(1),(2)
------ --------
<S> <C> <C>
Net Asset Value, Beginning of Period............... $ 8.79 $ 10.00
------- --------
Income from Investment Operations:
Net Investment Income(4)......................... (0.04) (0.03)
Net realized and unrealized gain (loss)
on investments............................... 3.66 (1.18)
------- --------
Total from Investment Operations: 3.62 (1.21)
------- --------
Less Dividends:
Dividends from net investment income............. - -
Dividends from net realized capital
gains.......................................... - -
------- --------
Total Dividends:........................... - -
------- --------
Net increase (decrease) in net asset value......... 3.62 (1.21)
------- --------
Net Asset Value, End of Period..................... $ 12.41 $ 8.79
======= ========
Total Return(8).................................... 41.18% (12.10)%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's).................. $55,683 $29,072
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... (0.66)% (0.63)%(7)
Operating expenses including
reimbursement/waiver........................... 1.18% 1.06%(7)
Operating expenses excluding
reimbursement/waiver........................... 1.22% 1.33%(7)
Portfolio Turnover Rate............................ 57% 87%(6)
Average Commission Rate Paid(9).................... 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 Fleet and/or the Fund's administrator for the period ended
October 31, 1992 for Retail A Shares was $(0.05) and for the period ended
October 31, 1996 for Retail B Shares was $(0.24).
(5) The selected per share data was calculated using the weighted average
shares outstanding method for the period.
(6) Not annualized.
(7) Annualized.
(8) Calculation does not include sales change for Retail A Shares and Retail B
Shares.
(9) Required for fiscal years beginning on or after September 1, 1995.
-16-
<PAGE> 1343
ASSET ALLOCATION FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT THE PERIOD)
YEAR ENDED OCTOBER 31,
<TABLE>
<CAPTION>
1997 1996 1995 1994
-------------------- ---------------------- ------ ------
Retail A Retail B Retail A Retail B Retail Retail
Shares Shares Shares Shares(3) Shares Shares
-------- -------- -------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............... $ 12.82 $ 13.59 $ 10.67 $ 11.15
-------- ------- ------- -------
Income from Investment Operations:
Net Investment Income(4)......................... 0.30 0.13 0.30 0.27
Net realized and unrealized gain (loss)
on investments............................... 1.83 0.91 2.16 (0.49)
-------- ------- ------- -------
Total from Investment Operations: 2.13 1.04 2.46 (0.22)
-------- ------- ------- -------
Less Dividends:
Dividends from net investment income............. (0.30) (0.12) (0.31) (0.26)
Dividends from net realized capital
gains.......................................... (0.13) - - -
-------- ------- ------- -------
Total Dividends............................ (0.43) (0.12) (0.31) (0.26)
-------- ------- ------- -------
Net increase (decrease) in net asset value......... 1.70 0.92 2.15 (0.48)
-------- ------- ------- -------
Net Asset Value, End of Period..................... $ 14.52 $ 14.51 $ 12.82 $ 10.67
======== ======= ======= =======
Total Return(7).................................... 16.92% 7.71%(5) 23.42% (2.02)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's).................. $116,852 $ 3,557 $76,368 $73,574
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 2.29% 1.73%(6) 2.52% 2.66%
Operating expenses including
reimbursement/waiver........................... 1.42% 1.95%(6) 1.48% 1.21%
Operating expenses excluding
reimbursement/waiver........................... 1.42% 2.15%(6) 1.50% 1.22%
Portfolio Turnover Rate............................ 48% 48% 41% 23%
Average Commission Rate Paid(8).................... $ 0.0635 $0.0635 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
Period Ended
October 31,
1993(2) 1991(1),(2)
----- --------
<S> <C> <C>
Net Asset Value, Beginning of Period............... $ 10.16 $ 10.00
------- -------
Income from Investment Operations:
Net Investment Income(4)......................... 0.25 0.15
Net realized and unrealized gain (loss)
on investments............................... 0.99 0.13
------- -------
Total from Investment Operations: 1.24 0.28
------- -------
Less Dividends:
Dividends from net investment income............. (0.25) (0.12)
Dividends from net realized capital
gains.......................................... - -
------- -------
Total Dividends............................ (0.25) (0.12)
------- -------
Net increase (decrease) in net asset value......... 0.99 0.16
------- -------
Net Asset Value, End of Period..................... $ 11.15 $ 10.16
======= =======
Total Return(7).................................... 12.37% 2.85%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's).................. $92,348 $11,555
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 2.59% 2.80%(6)
Operating expenses including
reimbursement/waiver........................... 1.14% 1.11%(6)
Operating expenses excluding
reimbursement/waiver........................... 1.25% 2.39%(6)
Portfolio Turnover Rate............................ 7% 2%(5)
Average Commission Rate Paid(8).................... 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
Fleet and/or the Fund's administrator for the year ended October 31, 1993
and for the period ended October 31, 1992 was $0.24 and $0.08,
respectively, and for the period ended October 31, 1996 for Retail B Shares
was $0.12.
(5) Not Annualized.
(6) Annualized.
(7) Calculation does not include sales charge for Retail A Shares and Retail B
Shares.
(8) Required for fiscal years beginning on or after September 1, 1995.
-17-
<PAGE> 1344
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 years ended October 31, 1997 and 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, 1997 and 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, 1997 (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 number or address provided
above.
-18-
<PAGE> 1345
SMALL CAP VALUE FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996
------------ ------------ Period Ended
Retail A Retail A October 31,
Shares Shares(2,3) 1995 1994 1993(1)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ..... $ 12.68 $ 11.06 $ 11.21 $ 10.52
------------ ------------ ------------ ------------
Income from Investment Operations:
Net investment income(3,4) ............. 0.01 (0.02) (0.01) (0.01)
Net realized gain (loss)
on investments ..................... 2.95 2.21 0.18 0.70
------------ ------------ ------------ ------------
Total from Investment Operations: 2.96 2.19 0.17 0.69
------------ ------------ ------------ ------------
Less Dividends:
Dividends from net
investment income .................. (0.02) -- -- --
Dividends in excess of net investment
income ............................. -- -- -- --
Dividends from net realized gains....... (0.87) (0.57) (0.32) --
------------ ------------ ------------ ------------
Total Dividends: ................. (0.89) (0.57) (0.32) --
------------ ------------ ------------ ------------
Net increase (decrease) in net asset value 2.07 1.62 (0.15) 0.69
------------ ------------ ------------ ------------
Net Asset Value, End of Period ........... $ 14.75 $ 12.68 $ 11.06 $ 11.21
============ ============ ============ ============
Total Return(5) .......................... 24.77% 21.27% 1.64% 6.56%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000s) ......... $ 34,402 $ 27,546 $ 19,764 $ 15,014
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................. 0.08% (0.19)% (0.10)% (0.19)%(7)
Operating Expenses including
reimbursement/waiver ................. 1.40% 1.35% 1.31% 1.33%(7)
Operating Expenses excluding
reimbursement/waiver ................. 1.55% 1.85% 1.84% 1.87%(7)
Portfolio Turnover Rate .................. 39% 32% 29% 29%(6)
Average Commission Rate Paid(8) .......... $ 0.0559 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. The
Predecessor Fund began offering Investment Shares on February 12, 1993.
(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 for Retail A Shares and Trust
Shares, respectively, in the Fund.
(3) Net investment income (loss) per share before reimbursement/waiver of fees
by other parties for the years ended October 31, 1995 and 1994 and for the
period ended October 31, 1993 was $(0.08), $(0.06) and $(0.05),
respectively (unaudited).
(4) Net investment income per share does not reflect the tax reclassifications
arising in the current period. 5 Calculation does not include sales charge
for Retail A Shares.
(6) Not Annualized.
(7) Annualized.
(8) Required for fiscal years beginning on or after September 1, 1995.
-19-
<PAGE> 1346
GROWTH AND INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------------
1997 1996
---------------------- -------------------------------
Retail A Retail B Retail A Retail B
Shares Shares Shares(2) Shares(3) 1995
--------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .............. $ 12.35 $ 12.97 $ 11.15
------------ ------------ ------------
Income from Investment Operations:
Net Investment Income(4,5) ...................... 0.21 0.07 0.24
Net realized gain (loss)
on investments .............................. 2.16 0.81 1.70
------------ ------------ ------------
Total from Investment Operations: ........ 2.37 0.88 1.94
------------ ------------ ------------
Less Dividends:
Dividends from net investment income ............ (0.21) (0.08) (0.25)
Dividends from net realized gains ............... (0.73) -- (0.49)
------------ ------------ ------------
Total Dividends ........................... (0.94) (0.08) (0.74)
------------ ------------ ------------
Net increase (decrease) in net asset value ........ 1.43 0.80 1.20
------------ ------------ ------------
Net Asset Value, End of Period .................... $ 13.78 $ 13.77 $ 12.35
============ ============ ============
Total Return(6).................................... 20.25% 6.83%(7) 18.52%
Ratios/Supplemental Data:
Net Assets, End of Period (000s) .................. $ 77,776 $ 4,562 $ 51,078
Ratios to average net assets:
Net investment income including
reimbursement/waiver .......................... 1.65% 0.79%(8) 2.10%
Operating Expenses including reimbursement/waiver 1.34% 1.96%(8) 1.32%
Operating Expenses excluding reimbursement/waiver 1.45% 2.11%(8) 1.77%
Portfolio Turnover Rate ........................... 59% 59% 51%
Average Commission Rate Paid(9) ................... $ 0.0654 $ 0.0654 N/A
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31,
-----------------------------
Period Ended
October 31,
1994 1993(1)
------------ ------------
<S> <C> <C>
Net Asset Value, Beginning of Period .............. $ 10.69 $ 10.23
------------ ------------
Income from Investment Operations:
Net Investment Income(4,5) ...................... 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(6).................................... 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%(8)
Operating Expenses including reimbursement/waiver 1.29% 1.25%(8)
Operating Expenses excluding reimbursement/waiver 1.74% 1.78%(8)
Portfolio Turnover Rate ........................... 73% 38%(7)
Average Commission Rate Paid(9) ................... 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. The
Predecessor Fund began offering Investment Shares on February 12, 1993.
(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 for Retail A Shares and Trust
Shares, respectively, in the Fund.
(3) The Fund began issuing Retail B Shares on March 4, 1996.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1997
and 1996 was $____ and $0.19, respectively, for Retail A Shares and for
the year ended October 31, 1997 and for the period ended October 31, 1996
was $_____ and $0.05, respectively, for Retail B Shares. Net investment
income per share before reimbursement/waiver of fees by other parties for
the years ended October 31, 1995 and 1994 and for the period ended October
31, 1993 was $0.22, $0.18 and $0.18, respectively.
(5) Net investment income per share does not reflect the tax reclassification
arising in the current period.
(6) Calculation does not include sales charge for Retail A Shares and Retail B
Shares.
(7) Not Annualized.
(8) Annualized.
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(9) Required for fiscal years beginning on or after September 1, 1995.
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<PAGE> 1348
INVESTMENT OBJECTIVES AND POLICIES
Fleet, and, with respect to the International Equity Fund, Fleet and
Oechsle, 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 Fleet 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, Fleet
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 (the "S&P 500").
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 Fleet 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 Fleet, 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
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Fleet, 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"). In addition, the Fund may
invest in securities issued by foreign branches of U.S. banks and foreign banks.
See "Special Risk Considerations -- Foreign Securities" and "Other Investment
Policies and Risk Considerations --American, European and Global Depository
Receipts" 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. 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 Fleet 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
and Risk Considerations -- Convertible Securities" below.
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 -- Foreign Securities"
and "Other Investment Policies and Risk Considerations -- American, European and
Global Depository Receipts" below. The Fund may also purchase put options and
call options and write covered call options. See "Other Investment Policies and
Risk Considerations -- Options and Futures Contracts" and
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<PAGE> 1350
"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 Fleet,
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.
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.
In addition, the Fund may invest in securities issued by foreign branches of
U.S. banks and foreign banks. See "Special Risk Considerations -- Foreign
Securities" and "Other Investment Policies and Risk Considerations -- American,
European and Global Depository Receipts" below. The Fund may also purchase put
options and call options and 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 Fleet,
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.
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<PAGE> 1351
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 20% 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 and Risk Considerations -- 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.
Securities issued in certain countries are currently accessible to the
Fund only through investment in other
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<PAGE> 1352
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 U.S. issuers. See "Other Investment Policies and
Risk Considerations" below regarding additional investment policies of the
International Equity 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 market value capitalizations of
$750 million or less ("Small Capitalization Securities") which Fleet believes
represent the potential for significant capital appreciation.
Small Capitalization Securities in which the Fund may invest include
common stock, preferred stock, securities convertible
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<PAGE> 1353
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 market value capitalizations of $750 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 -- Foreign Securities" and "Other Investment Policies and Risk
Considerations -- American, European and Global Depository Receipts" below.
The Fund may purchase put options and call options 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 Fleet,
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.
MIDCAP EQUITY FUND
The investment objective of the MidCap Equity Fund is to seek long-term
capital appreciation. The Fund attempts to achieve its investment objective by
investing primarily in the securities of companies with market value
capitalizations of between $750
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<PAGE> 1354
million and $3.5 billion that Fleet believes are undervalued and represent the
potential for future earnings growth. In selecting investments for the Fund,
Fleet uses a qualitative analysis which seeks to identify companies undergoing
positive fundamental changes, such as new product introductions, corporate
restructurings or management changes, which are likely to result in positive
earnings growth and improving valuation ratios. Industry position and economic
trends are also considered.
Under normal market and economic conditions, the Fund will invest at least
65% of its total assets in the equity securities of companies with market value
capitalizations of between $750 million and $3.5 billion, including common
stocks, preferred stocks, securities convertible into common stock, rights and
warrants.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through ADRs, EDRs and GDRs. See Special Risk
Considerations -- Foreign Securities" and "Other Investment Policies and Risk
Considerations -- American, European and Global Depository Receipts" 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.
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 in U.S. Government
obligations at such times and in such proportions as, in the opinion of Fleet,
prevailing market and economic conditions warrant. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the MidCap 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. Fleet 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.
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<PAGE> 1355
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 Fleet'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, Fleet 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 --Foreign Securities" and "Other Investment
Policies and Risk Considerations -- American, European and Global Depository
Receipts" 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 purchase put options and call options and 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 Fleet,
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 market and economic conditions, at least 65% of its
assets in equity securities of companies that have a market value capitalization
of up to $1 billion.
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<PAGE> 1356
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 up to 20% of its total assets 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, EDRs and GDRs. 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 Fleet to be
substantial. See "Special Risk Considerations -- Foreign Securities" and "Other
Investment Policies and Risk Considerations -- American, European and Global
Depository Receipts" below.
As a temporary defensive measure, in such proportions as, in the judgment
of Fleet, 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"); (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
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<PAGE> 1357
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 primarily in
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
common stocks, preferred stocks, common stock warrants and securities
convertible into common stock.
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 up to 20% of its total assets 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, EDRs and GDRs. 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 Fleet to be
substantial. See "Special Risk Considerations -- Foreign Securities" and Other
Investment
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<PAGE> 1358
Policies and Risk Considerations -- American, European and Global Depository
Receipts" below.
As a temporary defensive measure, in such proportions as, in the judgment
of Fleet, 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"); (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 EQUITY FUND
The investment objective of the Special Equity Fund is to seek long-term
capital appreciation. The Fund attempts to achieve its investment objective by
investing primarily in the securities of growth companies that Fleet believes
are reasonably priced relative to other industries, competitors and historical
price/earnings multiples. In selecting investments for the Fund, Fleet uses a
fundamental analysis which focuses on intermediate and long-term return
forecasts for a broad universe of between 300 and 400 large and
mid-capitalization stocks. Under normal market and economic conditions, the Fund
will invest at least 65% of its total assets in common stocks, preferred stocks,
securities convertible into common stock, rights and warrants.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through ADRs, EDRs and GDRs. See Special Risk
Considerations -- Foreign Securities" and "Other Investment Policies and Risk
Considerations -- American, European and Global Depository Receipts" 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.
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 in U.S. Government
obligations at such
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<PAGE> 1359
times and in such proportions as, in the opinion of Fleet, prevailing market and
economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Special Equity 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 other 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 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
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<PAGE> 1360
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
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 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, MidCap Equity, Asset
Allocation and Special Equity Funds 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 Fleet. 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
rated 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 Fleet or Oechsle 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.
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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
Investors Service, L.P. ("Fitch"), 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 respective 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 FDIC. 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. Investments in
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bank obligations are 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% (15% with respect to the MidCap
Equity Fund, Small Cap Value Fund, Growth and Income Fund and Special Equity
Fund) of a Fund's net 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 Fleet and/or Oechsle 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" below.
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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 Fleet and/or Oechsle 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 (15% with respect to MidCap Equity
and Special Equity Funds) 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, MidCap Equity, Asset
Allocation and Special Equity 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 applicable 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
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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 Fleet and/or Oechsle to be of
good standing and only when, in Fleet's and/or Oechsle'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 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 MidCap Equity, Small Cap Value, Growth and Income and Special Equity 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 MidCap
Equity, Small Cap Value, Growth and Income and Special Equity 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 MidCap Equity, Small Cap Value, Growth and Income and
Special Equity 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
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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 Fleet or Oechsle.
REITS
Each Fund may invest up to 10% of its net assets in real estate investment
trusts ("REITs"). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of a REIT's
investments. In addition, equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, are not diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. Each Fund intends to include the gross dividends from any
investments in REITs in its periodic distributions to its shareholders and,
accordingly, a portion of the Fund's distributions may also be designated as a
return of capital. See "Taxes."
OPTIONS AND FUTURES CONTRACTS
Put and Call Options -- Equity Growth, Equity Income, Small Company Equity
and Asset Allocation Funds. The Equity Growth, Equity Income, Small Company
Equity and Asset Allocation Funds may purchase put options and call options on
securities and securities indices. A put option gives the buyer the right to
sell, and the writer the obligation to buy, the underlying security at the
stated exercise price at any time prior to the expiration of the option. A call
option gives the buyer the right to buy the underlying security at the stated
exercise price at any time prior to the expiration of the option. Options
involving securities indices provide the holder with the right to make or
receive a cash settlement upon exercise of the option based on movements in the
relevant index. Such options must be listed on a national securities exchange
and issued by the Options Clearing Corporation. The aggregate value of options
purchased by the Equity Growth, Equity Income, Small Company Equity and Asset
Allocation Fund may not exceed 5% of the value of their respective net assets.
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,
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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 will normally be written on underlying
securities as to which Fleet and/or Oechsle 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 -- MidCap Equity, Small Cap Value, Growth
and Income and Special Equity Funds. The MidCap Equity, Small Cap Value, Growth
and Income and Special Equity 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
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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 Fleet 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 applicable Statement of Additional Information for additional information as
to the Funds' policies on options and futures trading.
The 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 --
MidCap Equity, Small Cap Value, Growth and Income and Special Equity Funds. The
MidCap Equity, Small Cap Value, Growth and Income and Special Equity 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, liquid 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
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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 and EDRs. The International Equity, MidCap
Equity, Small Cap Value, Growth and Income and Special Equity Funds 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 Securities."
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.
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<PAGE> 1369
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, such
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 or other liquid assets 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 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
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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 applicable Statement of Additional Information.
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, 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, 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
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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 value
of mortgage-related securities, including government and government-related
mortgage pools, generally will fluctuate in response to market interest rates.
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 or other liquid assets 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 the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet'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.
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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 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 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. 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 Fleet's and/or Oechsle'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, Fleet
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, Fleet 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
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<PAGE> 1373
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 higher-rated, lower-yielding bonds.
Fleet will attempt to reduce the risks described above through diversification
of each Fund's 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 its 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 of S&P, Moody's and Fitch 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, foreign currency exchange contracts and
certain asset-backed and mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest or exchange 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
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<PAGE> 1374
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.
Fleet and/or Oechsle 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
Fleet's and/or Oechsle'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.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS --
INTERNATIONAL EQUITY, MIDCAP EQUITY, SMALL CAP VALUE, GROWTH
AND INCOME AND SPECIAL EQUITY FUNDS
The International Equity, MidCap Equity, Small Cap Value, Growth and
Income and Special Equity Funds may purchase eligible securities on a
"when-issued" basis. The MidCap Equity, Small Cap Value, Growth and Income and
Special Equity 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 Fleet or
Oechsle, 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> 1375
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet and/or Oechsle 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 "Financial
Highlights" and "Taxes -- Federal." Although neither the MidCap Equity Fund nor
the Special Equity Fund can accurately predict its annual portfolio turnover
rate, it is not expected to exceed 100% for either Fund.
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, MidCap Equity, Asset Allocation and Special Equity 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 that each Fund
may borrow 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
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<PAGE> 1376
the Equity Growth, Equity Income, International Equity, Small Company
Equity, MidCap Equity, Asset Allocation and Special Equity 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, MidCap
Equity, Asset Allocation and Special Equity 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, MidCap Equity, Asset Allocation and Special Equity 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% (15% with respect to the MidCap Equity
and Special Equity Funds) 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
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<PAGE> 1377
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 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, MidCap Equity, Asset Allocation and Special Equity 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.
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<PAGE> 1378
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 (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,
as amended, 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 MidCap
Equity, Small Cap Value, Growth and Income and Special Equity Funds) on
purchases of illiquid instruments described above, Rule 144A securities will not
be considered to be illiquid if Fleet and/or Oechsle 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
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<PAGE> 1379
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, MIDCAP EQUITY,
ASSET ALLOCATION, SMALL CAP VALUE, GROWTH AND INCOME
AND SPECIAL EQUITY FUNDS
The assets in the Equity Value, Equity Growth, Equity Income, Small Company
Equity, MidCap Equity, Asset Allocation, Small Cap Value, Growth and Income and
Special Equity 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 at fair value by Fleet 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 these 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 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
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<PAGE> 1380
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 SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by Galaxy's
distributor, First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of First Data Investor Services Group, Inc. FD Distributors 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, MidCap Equity, Asset Allocation, Growth and Income and
Special Equity 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.
FD Distributors 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
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<PAGE> 1381
may take place only on days on which FD Distributors 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 FD Distributors
on a Business Day in accordance with FD Distributors' 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 FD Distributors and for wiring required
funds in payment to Galaxy's custodian on a timely basis. FD Distributors 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 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 FD Distributors 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
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<PAGE> 1382
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 FD Distributors, 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
FD Distributors at 1-800-628-0414 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. Applications may be
obtained by calling FD Distributors at 1-800-628-0414. Redemptions will not be
processed until the application in proper form has been received by FD
Distributors. 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 FD Distributors 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
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<PAGE> 1383
received and accepted by FD Distributors on a Business Day in accordance with
the above procedures. On a Business Day when the Exchange closes early due to a
partial holiday or otherwise, Galaxy will advance the time at which purchase
orders must be received in order to be processed on that Business Day.
OTHER PURCHASE INFORMATION
Investment Minimums. Except as provided under "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 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 assessed is as follows:
<TABLE>
<CAPTION>
REALLOWANCE TO
TOTAL SALES CHARGE 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 3.25
$50,000 but less than $100,000 3.50 3.63 3.00
$100,000 but less than $250,000 3.00 3.09 2.50
$250,000 but less than $500,000 2.50 2.56 2.00
$500,000 and over 0.00* 0.00* 0.00
</TABLE>
* There is no initial sales charge on purchases of $500,000 or more of Retail A
Shares; however, a contingent deferred sales charge of 1.00% will be imposed on
the lesser of the offering price or the net
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<PAGE> 1384
asset value of such Retail A Shares on the redemption date for Shares redeemed
within one year after purchase.
Further reductions in the sales charges shown above are also
possible. See "Quantity Discounts" below.
FD Distributors will pay the appropriate reallowance to dealers to
broker-dealer organizations which have entered into agreements with FD
Distributors. The reallowance to dealers may be changed from time to time.
At various times FD Distributors may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, FD Distributors in its discretion may from time to time, pursuant
to objective criteria established by FD Distributors, 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 FD
Distributors 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 purchases of Retail A Shares of the Funds by the following
categories of investors or in the following types of transactions:
- reinvestment of dividends and distributions;
- purchases by any retirement account, including but not
limited to SIMPLE, IRA, SEP, Keogh and Roth accounts;
- purchases by persons who were beneficial owners of shares of the
Funds or any of the other portfolios offered by
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<PAGE> 1385
Galaxy or any other funds advised by Fleet or its affiliates before
December 1, 1995;
- purchases by directors, officers and employees of broker-dealers
having agreements with FD Distributors 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 made with redemption proceeds from another mutual fund
complex on which a front-end or back-end sales charge has been
paid, provided the purchase is made within 60 days after the
redemption;
- purchases by current and retired members of Galaxy's Board of
Trustees and members of their immediate families;
- purchases by officers, directors, employees and retirees
of Fleet Financial Group, Inc. and any of its affiliates
and members of their immediate families;
- purchases by officers, directors, employees and retirees of First
Data Corporation and any of its affiliates and members of their
immediate families;
- purchases by persons who are also plan participants in any employee
benefit plan which is the record or beneficial holder of Trust
Shares of the Funds or any of the other portfolios offered by
Galaxy; and
- any purchase 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
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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 FD Distributors 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 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,
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FDISG, as attorney-in-fact pursuant to the terms of the Letter of Intent and at
FD Distributors' 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 FDISG as 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 CHARGE - RETAIL B SHARES
The public offering price for Retail B Shares of the Equity Value,
Equity Growth, Small Company Equity, MidCap Equity, Asset Allocation, Growth and
Income and Special Equity 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 FD Distributors 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.,
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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 FD Distributors, 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.
In addition to the foregoing exemptions, no contingent deferred sales charge
will be imposed on redemptions made pursuant to the Systematic Withdrawal Plan,
subject to the limitations set forth under "Investor Programs - Automatic
Investment Program and Systematic Withdrawal Plan" below.
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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, MidCap Equity, Asset Allocation, Growth and Income and Special Equity
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, MidCap Equity, Asset Allocation, Growth and Income
and Special Equity 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 FD Distributors 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.
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<PAGE> 1391
Retail B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charge -- 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 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, MidCap Equity, Asset Allocation,
Growth and Income and Special Equity 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
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<PAGE> 1392
HOW TO REDEEM SHARES
GENERAL
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Proceeds from the redemptions of Retail B Shares
of the Equity Value, Equity Growth, Small Company Equity, MidCap Equity, Asset
Allocation, Growth and Income and Special Equity 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 FD
Distributors 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
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<PAGE> 1393
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 FD Distributors 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. 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 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 that is a
member of the FDIC, a trust company, a member firm of a national securities
exchange or any other eligible guarantor institution. FD Distributors will not
accept guarantees from notaries public. FD Distributors 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 FD Distributors 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 FD Distributors of
the redemption request. Questions with respect to the proper form for redemption
requests should be directed to FD Distributors at 1-800-628-0414.
Redemption by Telephone. Direct Investors may redeem Retail Shares by
calling 1-800-628-0414 and instructing FD Distributors 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
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<PAGE> 1394
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 FD Distributors 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. FD Distributors 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 FD
Distributors. To request redemption of Retail Shares by wire, Direct Investors
should call FD Distributors at 1-800-628-0414.
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 FD
Distributors. 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.
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<PAGE> 1395
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 FD Distributors 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
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, MidCap Equity, Asset Allocation, Growth and Income and
Special Equity 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
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<PAGE> 1396
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 Fund
or portfolio by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless at the time of the exchange the Direct Investor or
Customer elects, with respect to the Fund or 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 Government 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 1-800-628-0414. Customers of Institutions should
call their Institution for such information. Customers exercising the exchange
privilege into other portfolios should request and review these portfolios'
prospectuses prior to making an exchange. Telephone 1-800-628-0414 for a
prospectus or to make an exchange. See "How to Redeem Shares -- Redemption
Procedures -- Direct Investors -- Redemptions by Wire" above for a description
of Galaxy's policy regarding telephone transactions.
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
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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 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 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 Shares -- Other Purchase Information." Detailed information concerning
eligibility and
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<PAGE> 1398
other matters related to these plans and the form of application is available
from FD Distributors (call 1-800-628-0414) 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 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 FDISG, Galaxy's 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. No contingent deferred sales charge will be
assessed on redemptions of Retail B Shares made through the Systematic
Withdrawal Plan that do not exceed 12% of an account's net asset value on an
annualized basis. For example, monthly, quarterly and semi-annual Systematic
Withdrawal Plan redemptions of Retail B Shares will not be subject to the
contingent deferred sales charge if they do not exceed 1%, 3% and 6%,
respectively, of an account's net asset value on the redemption date. Systematic
Withdrawal Plan redemptions of Retail B Shares in excess of this limit are still
subject to the applicable contingent deferred sales charge.
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<PAGE> 1399
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 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 FD Distributors (call
1-800-628-0414).
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
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instructions on how to enroll in the Direct Deposit Program, Direct
Investors should call FD Distributors at 1-800-628-0414. 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
redemptions and exchanges. These transactions are subject to the terms and
conditions described above under "How to Redeem Shares" and "Investor Programs".
To access the Voice Response System, just call 1-800-628-0414 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 1-800-628-0414.
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.
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DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Equity Value, Equity
Growth, Equity Income, Small Company Equity, MidCap Equity, Asset Allocation,
Small Cap Value, Growth and Income and Special Equity 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 a 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
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
The 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 Fund each qualified during its
last taxable year and intends to continue to qualify, and the MidCap Equity Fund
and Special Equity Fund each intends 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.
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 "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, and the
portion of such capital gain that
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constitutes mid-term capital gain, is taxable to shareholders as long-term or
mid-term capital gain, as the case may be, 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.
The dividends received deduction is not available for dividends
attributable to distributions made by a REIT to a Fund. In addition,
distributions paid by REITs often include a "return of capital." The Code
requires a REIT to distribute at least 95% of its taxable income to investors.
In many cases, however, because of "non-cash" expenses such as property
depreciation, an equity REIT's cash flow will exceed its taxable income. The
REIT may distribute this excess cash to offer a more competitive yield. This
portion of the distribution is deemed a return of capital and is generally not
taxable to shareholders.
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 Information relating to the Fund,
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or (b) if they itemize their deductions, to deduct such proportionate amount
from their U.S. income, should they so choose. Shareholders of the Equity Value,
Equity Growth, Equity Income, Small Company Equity, MidCap Equity, Asset
Allocation, Small Cap Value, Growth and Income and Special Equity 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 applicable Statements of Additional
Information contain the names of and general background information concerning
the Trustees.
INVESTMENT ADVISER AND SUB-ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, 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,
1997. 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.
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 Oechsle, 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
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Equity, MidCap Equity, Asset Allocation, Small Cap Value, Growth and Income and
Special Equity Funds, Fleet 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, Fleet 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 Bank or
other subsidiaries of Fleet Financial Group, Inc., in consideration for
administrative and/or shareholder support services which they provide to
beneficial shareholders. For the fiscal year ended October 31, 1997, Fleet
received advisory fees (after fee waivers) at the effective annual rates of
___%, ___%, ___%, ___%, ___%, ___%, ___% and ___% of the average daily net
assets of the Equity Value, Equity Growth, Equity Income, International Equity,
Small Company Equity, Asset Allocation, Small Cap Value and Growth and Income
Funds, respectively. In addition to fee waivers, during the fiscal year ended
October 31, 199_, Fleet also reimbursed the Small Company Equity, Asset
Allocation, Small Cap Value and Growth and Income Funds for certain operating
expenses, which reimbursement may be revised or discontinued at any time. The
MidCap Equity and Special Equity Funds did not conduct investment operations
during the fiscal year ended October 31, 1997.
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
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 $___ billion in assets.
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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
Fleet with foreign broker research and a quarterly review of international
economic and investment developments. Fleet, among other things, assists and
consults with Oechsle in connection with the Fund's continuous investment
program; approves lists of foreign countries recommended by Oechsle 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 Oechsle 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 fiscal year ended October 31, 1997,
Oechsle received sub-advisory fees from Fleet 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 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,
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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. Mr.
Keesler and Ms. Harris have been managing the Fund since August 1996.
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 MidCap Equity Fund's portfolio manager, Barbara C. Friedman, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Ms. Friedman, a Vice President, has been with Fleet since 1996 and
prior thereto was a portfolio manager at Loomis, Sayles & Company, a partner and
portfolio manager at Harvard Management Company and an economist at Wellington
Management Company. She has over 20 years of investment experience.
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. 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
January 1997.
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. Prior to joining Fleet in 1995, he
was associated with Shawmut Bank since 1963 as an investment officer and was a
Vice President in charge of its Small Cap Equity Management product since 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. Prior to joining Fleet in 1995,
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he was associated with Shawmut Bank and its predecessor since 1965 and was a
Vice President since 1978. While at Shawmut Bank he served as manager of its
Growth and Income Equity Management Group.
The Special Equity Fund's portfolio manager, Peter B. Hathaway, is
primarily responsible for the day-to-day management of the Fund's portfolio. Mr.
Hathaway, a Vice President, has been associated with Fleet since 1995. Prior to
joining Fleet, he was with Shawmut Investment Advisors and its predecessors as
an institutional fund manager. He has over 30 years of investment experience.
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 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. Fleet, the 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.
For the services provided to the Funds, 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 Funds
and the other portfolios offered by Galaxy (collectively, the "Portfolios"),
.085% of the next $2.5 billion of combined average
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daily net assets and .075% 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 voluntarily
all or a portion of the administration fee payable to it by the Funds. For the
fiscal year ended October 31, 1997, the Equity Value, Equity Growth, Equity
Income, International Equity, Small Company Equity, Asset Allocation, 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
MidCap Equity and Special Equity Funds did not conduct investment operations
during the fiscal year ended October 31, 1997.
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 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; 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; Class Z
- - Series 1 shares (Trust Shares), Class Z - Series 2 shares (Retail A Shares)
and Class Z - Series 3 shares (Retail B Shares), each series representing
interest in the MidCap Equity Fund; and Class AA - Series 1 shares (Trust
Shares), Class AA Series 2 shares (Retail A Shares) and Class AA - Series 3
shares (Retail B Shares), each series representing interest in the
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Special Equity 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 FD
Distributors 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, MidCap Equity, Asset
Allocation, Growth and Income and Special Equity 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 investment portfolio 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 investment portfolio 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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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 FD Distributors; 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 the Equity Value,
Equity Growth, Small Company Equity, MidCap Equity, Asset Allocation, Growth and
Income and Special Equity Funds. Under the Distribution and Services Plan,
Galaxy may pay (a) FD Distributors 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
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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
each 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 Prospectus, Galaxy intends to limit each
Fund's 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.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
FDISG may enter into agreements with one or more entities including
affiliates of Fleet, pursuant to which such entities agree to perform 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. Such entities are 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
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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 One 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 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.
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 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 shareholder reports
and meetings; and any extraordinary expenses. The Funds also pay for brokerage
fees and commissions in connection with the purchase of portfolio securities.
-86-
<PAGE> 1413
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that 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 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 of the Funds. Performance 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" figures 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 for
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<PAGE> 1414
Retail A Shares of the Funds and the applicable contingent deferred sales charge
for Retail B Shares of the Equity Value, Equity Growth, Small Company Equity,
MidCap Equity, Asset Allocation, Growth and Income and Special Equity 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 SEC. Quotations that do not
reflect the sales charges will be higher than quotations that do reflect the
sales charges.
The performance of the Funds will fluctuate and any quotation of
performance should not be considered as representative of the 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 data 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 performance calculations.
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.
OTHER PERFORMANCE INFORMATION - SPECIAL EQUITY FUND ONLY
Set forth below is certain performance information provided by
Fleet, the investment adviser for the Special Equity Fund, relating to
historical performance of a composite of value driven growth equity accounts
(the "Value Driven Growth Composite")(1) managed by Fleet.(2) The accounts in
the Value Driven Growth Composite had the same investment objective as the
Special Equity Fund and were managed by Peter Hathaway, who manages the Special
Equity Fund, using substantially similar, although not identical, investment
strategies, policies and techniques as those contemplated for use by the Special
Equity Fund. This information is provided to illustrate the past performance of
Fleet in managing similar accounts as measured against the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500"), a standard equity investment
benchmark.(3) The accounts that are included in the Value Driven Growth
Composite are not subject to the same types of expenses and liquidity
requirements to which the Special Equity Fund is subject nor to the
diversification requirements, specific tax restrictions and investment
limitations imposed by the 1940 Act or the Code. Consequently, the performance
results for the Value Driven Growth Composite could have been adversely effected
if the accounts included in the Composite had been regulated as investment
companies. The performance of the Value Driven Growth Composite shown below does
not represent the performance of the Special Equity Fund. Investors should not
consider this past performance as an indication of future performance of the
Special Equity Fund or of Mr. Hathaway or Fleet.
The results presented below may not necessarily equate with
the returns experienced by any particular account of Fleet or shareholder of the
Special Equity Fund as a result of timing of investments and redemptions. In
addition, the effect of taxes on any client or shareholder will depend on such
person's tax status, and the results have not been reduced to reflect any income
tax that may have been payable.
<TABLE>
<CAPTION>
For Periods Ended September 30, 1997
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Annualized
Total Return(4)
S&P 500
</TABLE>
1. The value driven growth style, also referred to as "growth at
reasonable price", invests predominantly in a broad universe of large
and medium-sized stocks having investment characteristics similar to
the S&P 500 Composite Stock Price Index. The style strives for high
relative returns with below market risks and has a value bias. The
investment time horizon is one to three years and stock selection is
market-oriented, leading to sector rotation and shifts in emphasis
between growth stocks and value stocks. The Value Driven Growth
Composite includes institutional, separately invested, fee-paying,
discretionary accounts managed by Fleet using the value driven growth
style. No non-fee-paying accounts are included. An account is included
in the Value Driven Growth Composite the first full month it is managed
in the value driven growth style. The Value Driven Growth Composite
also includes equity segments of balanced accounts.
2. Fleet represents the consolidation of Shawmut Investment Advisers, Inc.
("Shawmut"), a subsidiary of Shawmut National Corporation, and Fleet,
which were merged on November 30, 1995. Performance results prior to
December 31,1995 represent the performance of Shawmut. Shawmut
represents the consolidation of the Trust and Investment Divisions of
Shawmut Bank and Connecticut National Bank, which merged in 1988. The
investment philosophy and approach were integrated at the time of the
systems integration in 1990. Performance history prior to 1990 reflects
the approach of the predecessor organizations, with history for the
value driven growth style coming from Shawmut.
3. The S&P 500 is an unmanaged index consisting of 500 U.S. industrial,
transportation, utility and financial companies. The S&P 500 is
capitalization-weighted calculated on a total return basis with
dividends reinvested. The S&P 500 is used for comparison purposes only
and is not necessarily intended to parallel the risk or investment
style of accounts included in the Value Driven Growth Composite. The
investment portfolio underlying the S&P 500 is different from the
investment portfolios of the accounts managed by Fleet and included in
the Value Driven Growth Composite.
4. For the period from January 1, 1993 through September 30, 1997, the
Value Driven Growth Composite performance results have been calculated
in accordance with methods set forth by AIMR. The Value Driven Growth
Composite results are time-weighted rates of return net of commissions
and transaction costs, and have been presented gross of investment
advisory fees. Performance results will be reduced by Fleet's
investment advisory fee.
The account breakdown in the Composite as of September 30, 1997 was as
follows:
<TABLE>
<CAPTION>
Strategy Number of Accounts Assets
-------- ------------------ ------
<S> <C> <C> <C>
Value Driven Growth -- $___Million
</TABLE>
Fleet consistently values all portfolios each month on a trade date
basis. Monthly composite returns are calculated by weighting each
account's monthly return by the sum of its beginning market value,
beginning accrual, and weighted cash flows. Quarterly composite returns
are calculated by geometrically linking the weighted monthly composite
returns. Annual composite returns are calculated by geometrically
linking the quarterly composite returns.
The annualized compound rate of return is equivalent to the annual rate
of return which, if earned in each year of the indicated multi-year
period, would produce the actual cumulative rate of return over the
time period.
For the period from January 1, 1993 through September 30, 1997, all
balanced accounts included in the Composite have had cash allocated
monthly to the equity segment in accordance with Fleet's firm-wide
asset allocation policy in effect at the beginning of each month,
except where individual clients have required a different asset
allocation. In these cases, cash is allocated in accordance with the
client's required asset allocation. Prior to January 1, 1993, all
balanced accounts included in the Composite have had cash allocated
monthly to the equity segment according to actual diversification.
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 a particular Fund or a particular series of shares in a
Fund means, with respect to the approval of an investment advisory agreement, a
distribution plan
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<PAGE> 1415
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 such Fund or such series of shares, or (b) 67% or more of
the shares of such Fund or such series of shares present at a meeting if more
than 50% of the outstanding shares of such Fund or such series of shares are
represented at the meeting in person or by proxy.
-89-
<PAGE> 1416
THE GALAXY FUND
Statement of Additional Information
Equity Value Fund
Equity Growth Fund
Equity Income Fund
International Equity Fund
Small Company Equity Fund
MidCap Equity Fund
Asset Allocation Fund
Special Equity Fund
February ___, 1998
<PAGE> 1417
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,
MidCap Equity, Asset Allocation and Special Equity Funds, each dated February
___, 1998, 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 Distributors, Inc., 4400 Computer Drive, Westboro, Massachusetts
01581-5108 or by calling Galaxy at 1-800-628-0414.
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.
<PAGE> 1418
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........................................ 1
When-Issued Securities and Delayed Settlement Transactions.....
Repurchase Agreements; Reverse Repurchase Agreements;
Loans of Portfolio Securities............................ 2
U.S. Government Securities..................................... 3
Derivative Securities.......................................... 3
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............................................................. 36
COUNSEL.............................................................. 36
PERFORMANCE AND YIELD INFORMATION.................................... 37
MISCELLANEOUS........................................................ 40
FINANCIAL STATEMENTS................................................. 41
APPENDIX A...........................................................A-1
APPENDIX B...........................................................B-1
-i-
<PAGE> 1419
THE GALAXY FUND
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-seven investment
portfolios.
This Statement of Additional Information relates to eight of those
investment portfolios: the Equity Value Fund, Equity Growth Fund, Equity Income
Fund, International Equity Fund, Small Company Equity Fund, MidCap Equity Fund,
Asset Allocation Fund and Special Equity 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"), the investment adviser to the Funds, or Oechsle International
Advisors, L.P. ("Oechsle"), the sub-adviser to the International Equity Fund,
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.
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> 1420
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.
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
-2-
<PAGE> 1421
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.
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 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 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 portfolio 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
-3-
<PAGE> 1422
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
PUT AND CALL OPTIONS -- EQUITY GROWTH, EQUITY INCOME,
SMALL COMPANY EQUITY AND ASSET ALLOCATION FUNDS
The Equity Growth, Equity Income, Small Company Equity and Asset
Allocation Funds may purchase put and call options issued by the Options
Clearing Corporation which are listed on a national securities exchange. Such
options may relate to particular securities or to various stock indexes, except
that a Fund may not write covered call options on an index. A Fund may not
purchase options unless immediately after any such transaction the aggregate
amount of premiums paid for put or call options does not exceed 5% of its total
assets. Purchasing options is a specialized investment technique that may entail
the risk of a complete loss of the amounts paid as premiums to the writer of the
option.
In order to close out call or put option positions, a Fund will be
required to enter into a "closing purchase transaction" -- the purchase of a
call or put option (depending upon the position being closed out) on the same
security with the same exercise price and expiration date as the option that it
previously wrote. When a portfolio security subject to a call option is sold, a
Fund will effect a closing purchase transaction to close out any existing call
option on that security. If a Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or a Fund delivers the underlying security upon exercise.
In contrast to an option on a particular security, an option on an index
provides the holder with the right to make or receive a cash settlement upon
exercise of the option. The amount of this settlement will be equal to the
difference between the closing price of the index at the time of exercise and
the exercise price of the option expressed in dollars, times a specified
multiple.
When a Fund purchases a put or call option, the premium paid by it is
recorded as an asset of the Fund. The amount of this asset will be subsequently
marked-to-market to reflect the current value of the option purchased. The
current value of the traded option is the last sale price or, in the absence of
a sale, the average of the closing bid and asked prices. If an option purchased
by a Fund expires unexercised, the Fund realizes a loss equal to the premium
paid. If a Fund enters into a closing sale transaction on an option purchased by
it, the Fund will realize a gain if the premium received by the Fund on the
closing transaction is more than the premium paid to purchase the option, or a
loss if it is less.
There are several risks associated with transactions in options on
securities. For example, there are significant differences between the
securities and options markets which could result in an imperfect correlation
between the markets, causing a given transaction not to achieve its objectives.
In addition, a liquid secondary market for particular options, whether traded
over-the-counter or on a national securities exchange may be absent for reasons
which include the following: there may be insufficient trading interest in
certain options; restrictions may be imposed by an exchange on opening
transactions, closing transactions or both; trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; unusual or unforeseen circumstances may
interrupt normal operations on an exchange; the facilities of an exchange or the
Options Clearing Corporation may not at all times be adequate to handle current
trading volume; or one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. A Fund will likely be unable to
control losses by closing its position where a liquid secondary market does not
exist. Moreover, regardless of how much the market price of the underlying
security increases or decreases, the option buyer's risk is limited to the
amount of the original investment for the purchase of the option. However,
options may be more volatile than their underlying securities, and therefore, on
a percentage basis, an investment in options may be subject to greater
fluctuation than an investment in the underlying securities.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
COVERED CALL OPTIONS -- EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME,
INTERNATIONAL EQUITY, SMALL COMPANY EQUITY AND ASSET ALLOCATION FUNDS
The Equity Value, Equity Growth, Equity Income, International Equity,
Small Company Equity and Asset Allocation 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.
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 and/or Oechsle believes that a liquid
secondary market will exist on an exchange for options
-4-
<PAGE> 1423
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 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 Fleet's and/or Oechsle'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.
-5-
<PAGE> 1424
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 other liquid assets in an amount equal to the
market value of the option, and will maintain the account while the option is
open.
PUT AND CALL OPTIONS -- MIDCAP EQUITY AND SPECIAL EQUITY FUNDS
The MidCap Equity and Special Equity Funds may purchase and sell put
options on their portfolio securities as described in the Prospectuses.
STOCK INDEX FUTURES AND OPTIONS -- MIDCAP EQUITY AND SPECIAL EQUITY FUNDS
The MidCap Equity and Special 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 their respective
portfolios 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 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 a Fund, 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 a Fund
the right to make delivery of stock at a specified price, a put option on a
stock index gives the Fund, as holder, the right to receive an amount of cash
upon exercise of the option.
The Funds may also write covered call options. As the writer of a call
option, a Fund has the obligation upon exercise of the option during the option
period to deliver the underlying security upon payment of the exercise price.
The Funds may only: (1) buy listed put options on stock indices and stock
index futures contracts; (2) buy listed put options on securities held in their
respective portfolios; and (3) sell listed call options either on securities
held in their respective portfolios or on securities which they have the right
to obtain without payment of further consideration (or have segregated cash in
the amount of any such additional
-6-
<PAGE> 1425
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. A
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 liquid portfolio 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 USE OF FUTURES CONTRACTS AND OPTIONS -- MIDCAP EQUITY AND
SPECIAL EQUITY FUNDS
Neither the MidCap Equity Fund nor the Special Equity Fund will 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, a 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, a
Fund may not enter into stock index futures contracts and options to the extent
that the value of such contracts would exceed 20% of the Fund's total
-7-
<PAGE> 1426
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 -- MIDCAP EQUITY AND SPECIAL EQUITY FUNDS
The MidCap Equity and Special 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 -- MIDCAP EQUITY AND SPECIAL EQUITY FUNDS
As one way of managing their exposure to different types of investments,
the MidCap Equity and Special 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 of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate exceeds
an agreed upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest 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 a Fund's investment exposure from one
type of investment to another. For example, if a 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
-8-
<PAGE> 1427
they are used, swap agreements may increase or decrease the overall volatility
of a 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 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 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 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 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
-9-
<PAGE> 1428
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 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
-10-
<PAGE> 1429
development programs or mineral leases; provided however, that (i)
the Equity Value, Equity Growth, Equity Income, International
Equity, Small Company Equity and Asset Allocation 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, and (ii) the MidCap
Equity and Special Equity Funds may engage in transactions involving
financial futures contracts or options on financial futures
contracts.
5. Invest in or sell put options, call options, straddles, spreads, or
any combination thereof; provided, however, that each of the Equity
Value, Equity Growth, Equity Income, International Equity, Small
Company Equity and Asset Allocation Funds 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 (i) the
Equity Growth, Equity Income, International Equity, Small Company
Equity and Asset Allocation Funds may purchase put and call options
to the extent permitted by their investment objectives and policies,
and (ii) the MidCap Equity and Special Equity Funds may buy and sell
options, including without limit buying or writing puts and calls,
based on any type of security, index or currency, including options
on foreign exchanges and options not traded on exchanges.
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; and further
provided, that each of the MidCap Equity and Special Equity Funds
may from time to time, on a temporary basis, invest exclusively in
one other investment company similar to the respective Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by First Data
Distributors, Inc. ("FD Distributors"), and FD Distributors has agreed to use
appropriate efforts to solicit all purchase
-11-
<PAGE> 1430
orders. As described in the applicable Prospectus, Retail A Shares of the Funds
and Retail B Shares of the Equity Value, Equity Growth, Small Company Equity,
MidCap Equity, Asset Allocation and Special 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. Trust Shares of
the International Equity Fund are also available for purchase by clients,
partners and employees of Oechsle.
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. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Retail A Shares that are
purchased with no initial sales charge as part of an investment of $500,000 or
more. 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, 1997 (with respect to the
MidCap Equity Fund and Special Equity Fund, based on the projected value of each
Fund's net assets and the projected number of outstanding Retail A Shares of
each Fund on the date such Shares are first offered for sale to public
investors) and the maximum front-end sales charge of 3.75%, is as follows:
-12-
<PAGE> 1431
<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 Price to Public............ $ $
Equity International
Income Fund Equity Fund
------------ -------------
Net Assets.......................... $ $
Outstanding Shares..................
Net Asset Value Per Share........... $ $
Sales Charge (3.75% of
the offering price)................. $ $
Offering Price to Public............ $ $
Small Company MidCap
Equity Fund Equity Fund
------------ -------------
Net Assets.......................... $ $
Outstanding Shares..................
Net Asset Value Per Share........... $ $
Sales Charge (3.75% of
the offering price)................. $ $
Offering Price to Public............ $ $
</TABLE>
-13-
<PAGE> 1432
<TABLE>
<CAPTION>
Asset Allocation Special Equity
Fund Fund
---------------- ---------------
<S> <C> <C>
Net Assets.......................... $ $
Outstanding Shares..................
Net Asset Value Per Share........... $ $
Sales Charge (3.75% of
the offering price)................. $ $
Offering Price 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-seven classes of shares, each representing interests in one of
twenty-seven separate investment portfolios: Money Market Fund, Government Fund,
U.S. Treasury Fund, Tax-Exempt Fund, Connecticut Municipal Money Market Fund,
Massachusetts Municipal Money Market
-14-
<PAGE> 1433
Fund, Institutional Government Money Market Fund, Equity Value Fund, Equity
Growth Fund, Equity Income Fund, International Equity Fund, Small Company Equity
Fund, MidCap Equity Fund, Asset Allocation Fund, Small Cap Value Fund, Growth
and Income Fund, Special Equity Fund, Short-Term Bond Fund, Intermediate
Government Income Fund, High Quality Bond Fund, Corporate Bond Fund, Tax-Exempt
Bond Fund, New Jersey Municipal 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 CDSC 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 FD Distributors 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 CDSC 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
-15-
<PAGE> 1434
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 a 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% in 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
-16-
<PAGE> 1435
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 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 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 "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
-17-
<PAGE> 1436
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 "Income
Requirement"). 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.
Substantially all of each Fund's net capital gain (excess of net
long-term capital gain over net short-term capital loss), if any, will be
distributed at least annually to Fund shareholders. A Fund will generally have
no tax liability with respect to such gains and the distributions will be
taxable to Fund shareholders who are not currently exempt from federal income
taxes as mid-term or other long-term capital gain, regardless of how long the
shareholders have held Fund shares and whether such gains are received in cash
or reinvested in additional shares.
Each Fund will designate the tax status of any distribution in a
written notice mailed to shareholders within 60 days after the close of its
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 on
stocks and securities are taxable at a maximum nominal rate of 20%, except that
"mid-term gains" (i.e., gains on capital assets held more than 12 months, but
not more than 18 months) are taxable at a maximum nominal rate of 28%. For
corporations, long term capital gains and ordinary income are both taxable at a
maximum average rate of 35% (a maximum effective marginal rate of 39% applies in
the case of corporations having taxable income between $100,000 and $335,000).
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
-18-
<PAGE> 1437
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 backup withholding due to prior 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) if the
shareholder itemizes deductions, to deduct such portion from their U.S taxable
income, if any, should the shareholder so choose. 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. 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 U.S. 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
-19-
<PAGE> 1438
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 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 Distribution Requirement and on the
income or gain qualifying under the Income Requirement.
Generally, futures contracts and options on futures contracts held by
the Funds and 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. 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
-20-
<PAGE> 1439
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.
Certain foreign currency contracts entered into by a Fund may be
subject to the "mark-to-market" process, but gain or loss will be treated as
100% ordinary income or loss. 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, or settlement by
reference to the value of, a foreign currency of a type in which regulated
futures contracts are traded; (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
-21-
<PAGE> 1440
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 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.
-22-
<PAGE> 1441
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 64 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'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 53 VIP Fund; Trustee, Galaxy
Fund II; Managing
Partner, KPMG Peat
Marwick (accounting
firm), 1986.
Louis DeThomasis Trustee President, Saint
Saint Mary's College Mary's College of
of Minnesota Minnesota;
Winona, MN 55987 Director, Bright
Age 57 Day Travel, Inc.;
Trustee, Religious
Communities Trust;
Trustee, The Galaxy
VIP Fund; Trustee,
Galaxy Fund II.
</TABLE>
-23-
<PAGE> 1442
<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 72 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 56 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 66 1991; President, Pingree
Associates, Inc.
(timberland management),
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>
-24-
<PAGE> 1443
<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 &
Bank Building Reath LLP, Philadelphia,
Broad & Chestnut Sts. Pennsylvania.
Philadelphia, PA 19107
Age 54
Jylanne Dunne Vice First Data Investor
First Data Investor President Services Group, Inc.,
Services Group, Inc. and 1990 to present.
4400 Computer Drive Assistant
Westboro, MA 01581-5108 Treasurer
Age 38
</TABLE>
- -------------------------
1. An interested person within the definition set forth in
Section 2(a)(19) of the 1940 Act.
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 II") (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.
Effective March 1, 1996, each trustee became 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
-25-
<PAGE> 1444
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 Oechsle, or any of their respective
affiliates, 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.
-26-
<PAGE> 1445
<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 (including interest) in the amounts of
$_________ and $__________ accrued during Galaxy's fiscal
year ended October 31, 1997 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
-27-
<PAGE> 1446
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, 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. Fleet 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, 1995, October 31, 1996 and October
31, 1997 advisory fees (net of expense reimbursements) of $1,797,623, $2,220,230
and $_________, respectively, with respect to the Equity Value Fund; and
$3,406,615, $4,746,270 and $____________, respectively, with respect to the
Equity Growth Fund. For the fiscal years ended October 31, 1995 and October 31,
1997, Fleet reimbursed advisory fees of $2,347 and $________, respectively, with
respect to the Equity Value Fund; and $9,296 and $________, respectively, with
respect to the Equity Growth Fund.
-28-
<PAGE> 1447
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Galaxy paid Fleet advisory fees (net of fee waivers) of
$1,097,887, $1,533,644 and $__________, respectively, with respect to the Equity
Income Fund. For the fiscal years ended October 31, 1995 and October 31, 1997,
Fleet reimbursed advisory fees of $24,627 and $________, respectively, with
respect to the Equity Income Fund.
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Fleet received advisory fees (net of expense reimbursements)
of $807,983, $1,447,310 and $__________, respectively, with respect to the Small
Company Equity Fund; and $982,310, $1,459,822 and $___________, respectively,
with respect to the Asset Allocation Fund. For the fiscal years ended October
31, 1995, October 31, 1996 and October 31, 1997, Fleet reimbursed advisory fees
of $11,087, $331 and $______, respectively, with respect to the Small Company
Equity Fund; and $37,161, $12,512 and $__________, respectively, with respect to
the Asset Allocation Fund.
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Fleet received advisory fees (net of fee waivers) of $850,924,
$1,154,303 and $________, respectively, with respect to the International Equity
Fund. During the same periods, Fleet waived advisory fees of $291,265, $464,938
and $__________, respectively, with respect to the International Equity Fund.
The advisory agreement provides that Fleet 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 Fleet 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, 1998, 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
-29-
<PAGE> 1448
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 Fleet, 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, 1997, 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.
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 Fleet with foreign broker research and a
quarterly review of international economic and investment developments. Fleet,
among other things, assists and consults with Oechsle in connection with the
International Equity Fund's continuous investment program; approves lists of
foreign countries recommended by Oechsle 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 Oechsle 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
Fleet or the Board of Trustees upon sixty days' written notice or by Oechsle
upon ninety 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 fiscal year ended October 31, 1997 and for
the period from August 12, 1996 through October 31, 1996, Oechsle received
sub-advisory fees of $________ and $119,374, respectively, 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 year ended October
31, 1995 and for the period from November 1, 1995 through August 11, 1996,
Wellington Management Company received sub-advisory fees of $423,376 and
$431,198, respectively, with respect to the International Equity Fund.
-30-
<PAGE> 1449
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 SEC, 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, 1995, October 31, 1996 and
October 31, 1997, FDISG and/or its predecessors received administration fees of
$210,049, $251,209 and $____________, respectively, with respect to the Equity
Value Fund; $398,623, $536,874 and $____________, respectively, with respect to
the Equity Growth Fund; $130,993, $174,406 and $____________, respectively, with
respect to the Equity Income Fund; $97,015, $141,571 and $____________,
respectively, with respect to the International Equity Fund; $95,582, $176,590
and $____________, respectively, with respect to the Small Company Equity Fund;
and $118,968, $165,077 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 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
-31-
<PAGE> 1450
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 U.S. 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 and Services 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, Fleet and Oechsle 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 fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, the Equity Value Fund paid brokerage commissions aggregating
$588,613, $790,862 and $____________, respectively; the Equity Growth Fund paid
brokerage commissions aggregating $192,433, $539,416 and $____________,
respectively; the Equity Income Fund paid brokerage commissions aggregating
$108,082, $217,231 and $____________, respectively, the Asset Allocation Fund
paid brokerage commissions aggregating $101,436, $112,582 and $____________,
respectively; the Small Company Equity Fund paid brokerage commissions
aggregating $109,014, $258,606 and $____________, respectively; and the
International Equity Fund paid brokerage
-32-
<PAGE> 1451
commissions aggregating $341,377, $1,155,060 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, Fleet,
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, 1997, _____________________.
Investment decisions for each Fund are made independently from those
for the other Funds and portfolios of Galaxy 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, Fleet or Oechsle may aggregate the securities to
be sold or purchased for a Fund with those to be sold or purchased for Galaxy's
other Funds and 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
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<PAGE> 1452
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, 1997, 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, October 31, 1996 and
October 31, 1997, payments to Service Organizations totaled $245,304, $331,670
and $____________, respectively, with respect to Retail A Shares of the Equity
Value Fund; $237,326, $356,642 and $____________, respectively, with respect to
Retail A Shares of the Equity Growth Fund; $203,471, $309,334 and $____________,
respectively, with respect to Retail A Shares of the Equity Income Fund;
$93,434, $79,239 and $____________, respectively, with respect to Retail A
Shares of the International Equity Fund; $102,102, $172,887 and $____________,
respectively, with respect to Retail A Shares of the Small Company Equity Fund;
and $205,546, $267,695 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. 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
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<PAGE> 1453
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, MidCap Equity, Asset
Allocation and Special Equity 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.
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
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<PAGE> 1454
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 fiscal year ended October 31, 1997, Retail B Shares of the
Equity Value, Equity Growth, Small Company Equity and Asset Allocation 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 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, 1997, all amounts paid
under the 12b-1 Plan were attributable to payments to broker-dealers.
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:
$3,518 in distribution fees and $1,624 in shareholder servicing fees with
respect to Retail B Shares of the Equity Value Fund; $7,613 in distribution fees
and $3,514 in shareholder servicing fees with respect to Retail B Shares of the
Equity Growth Fund; $7,282 in distribution fees and $3,361 in shareholder
servicing fees with respect to Retail B Shares of the Small Company Equity Fund;
and $6,389 in distribution fees and $2,949 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 FD Distributors or by the Service
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<PAGE> 1455
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
First Data 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 FD Distributors. Prior to that time, FD
Distributors 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 between Galaxy
and FD Distributors remains in effect until May 31, 1998, 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.
FD Distributors 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 fiscal year ended October 31, 1997, FD Distributors 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.
FD Distributors is also entitled to the payment of contingent deferred
sales charges upon the redemption of Retail B
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<PAGE> 1456
Shares of the CDSC Funds. For the fiscal year ended October 31, 1997, FD
Distributors 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 FD Distributors directly or indirectly from the Funds
during the fiscal year ended October 31, 1997:
<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 during the fiscal year ended October 31,
1997, which includes fees accrued in the fiscal year ended October 31,
1996, which were paid in 1997 (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
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<PAGE> 1457
[_______________________] 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
Drinker Biddle & Reath LLP (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
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<PAGE> 1458
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).
With respect to mortgage or 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, International Equity,
Small Company Equity and Asset Allocation Funds for the 30-day period ended
October 31, 1997 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, 1997 were ____%, ____%,
____% and ____%, respectively.
Based on the foregoing calculation, the standard yield for Trust Shares
of the Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity and Asset Allocation Funds for the 30-day period ended October
31, 1997 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
-40-
<PAGE> 1459
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. In addition, the 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 purchases of Retail A Shares or
redemptions of Retail B Shares.
Aggregate total return for Retail A Shares of the Equity Value Fund for
the period September 1, 1988 (inception) to October 31, 1997 was _____%. From
September 1, 1988 (inception) to October 31, 1997, average annual total return
for Retail A Shares of the Equity Value Fund was _____%. For the one-year and
five-year periods ended October 31, 1997,
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<PAGE> 1460
the average annual total returns for Retail A Shares of the Equity Value Fund
were _____% and _____%, respectively.
Aggregate total returns for Retail A Shares of the Equity Growth and
Equity Income Funds from December 14, 1990 (inception) to October 31, 1997 were
_____% and _____%, respectively. From December 14, 1990 (inception) to October
31, 1997, 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 ended October 31, 1997, 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, International Equity and Asset Allocation Funds from December 30, 1991
(inception) to October 31, 1997 were _____%, _____% and _____%, respectively.
From December 30, 1991 (inception) to October 31, 1997, 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 and five-year periods ended October 31, 1997, the average annual total
returns for Retail A Shares of the Small Company Equity, Asset Allocation and
International Equity Funds were _____% and ______%, _____% and _____%, and
_____% 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, 1997 were _____%, _____%,
_____% and _____%, respectively. From March 4, 1996 (date of their initial
public offering) through October 31, 1997, the average annual total returns for
Retail B Shares of the Equity Value, Equity Growth, Small Company Equity and
Asset Allocation Funds were ____%, ____%, ____% and ____%, respectively. For the
one-year period ended October 31, 1997, the average annual total returns for
Retail B Shares of the Equity Value, Equity Growth, Small Company Equity and
Asset Allocation Funds were ____%, ____%, ____% and ____%, respectively.
Aggregate total return for Trust Shares of the Equity Value Fund for
the period September 1, 1988 (inception) to October 31, 1997 was ______%. From
September 1, 1988 (inception) to October 31, 1997, average annual total return
for Trust Shares of the Equity Value Fund was _____%. For the one-year and
five-year periods ended October 31, 1997, 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)
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<PAGE> 1461
to October 31, 1997 were ______% and ______%, respectively. From December 14,
1990 (inception) to October 31, 1997, 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 ended October 31, 1997, the
average annual total returns for Trust Shares of the Equity Growth and Equity
Income Funds were _____% and _____% and _____% and _____%, respectively.
Aggregate total returns for Trust Shares of the Small Company Equity,
International Equity and Asset Allocation Funds from December 30, 1991
(inception) to October 31, 1997 were ____%, ____%, and ____%, respectively. From
December 30, 1991 (inception) to October 31, 1997, average annual total returns
for Trust Shares of the Small Company Equity, International Equity and Asset
Allocation Funds were _____%, _____% and _____%, respectively. For the one-year
and five-year periods ended October 31, 1997, the average annual total returns
for Trust Shares of the Small Company Equity, International Equity and Asset
Allocation Funds were _____% and _____%, _____% and _____%, and ______% and
______%, respectively.
As stated in the Prospectus, the Funds may also calculate total return
quotations without deducting the maximum sales charge imposed on purchases of
Retail A Shares or redemptions of Retail B Shares. The effect of not deducting
the sales charge will be to increase the total return reflected.
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.
-43-
<PAGE> 1462
As of _______________, 1998, 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 ____________, 1998, 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: _____________.
As of ____________, 1998, the name, address and share ownership of the
entities or persons that held beneficially more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Government Money Market Fund) were as follows: _______________.
FINANCIAL STATEMENTS
Galaxy's Annual Report to Shareholders with respect to the Funds for
the fiscal year ended October 31, 1997 [____________] with the Securities and
Exchange Commission. The financial statements in such Annual Report (the
"Financial Statements") are [__________] into this Statement of Additional
Information. The Financial Statements included in the Annual Report for the
Funds for the fiscal year ended October 31, 1997 have been audited by Galaxy's
independent accountants, [______________________], whose report thereon also
appears in such Annual Report and [_____________________________]. 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.
-44-
<PAGE> 1463
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> 1464
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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<PAGE> 1469
APPENDIX B
As stated in the applicable Prospectuses, the MidCap Equity and Special
Equity 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"). Fleet 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 Fleet 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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<PAGE> 1471
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.
Fleet 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. Fleet 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 Fleet 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
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<PAGE> 1472
Fund pays for the long-term bond would be offset by the 5 point gain realized by
closing out the futures contract purchase.
Fleet 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 liquid portfolio securities, 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, Fleet 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
MidCap Equity and Special 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 Fleet. 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 liquid portfolio securities, 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 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 Funds is also subject to Fleet'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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Part C
- ------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
-15-
<PAGE> 1477
THE GALAXY FUND
FORM N-1A
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
Statement on Form N-1A, as filed with the
Commission on February 20, 1990.
<PAGE> 1478
(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 on
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; and Class S shares, is
incorporated herein 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.
(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 -
-2-
<PAGE> 1479
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 shares; Class H - Series 3 shares; Class J
- Series 3 shares; Class K - Series 3 shares;
Class L - Series 3 shares; Class M - Series 3
shares; Class N - Series 3 shares; 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 shares.(2)
(m) Form of Certificates of Classification of
Share pertaining to Class Y - Series 1 shares
and Class Y - Series 2 shares; Class Z -
Series 1 shares; Class Z - Series 2 shares
and Class Z - Series 3 shares; and Class AA -
Series 1 shares; Class AA - Series 2 shares
and Class AA - Series 3 shares.
(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
Government Money Market [formerly
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,
-3-
<PAGE> 1480
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.(2)
(b) Addendum No. 1 to Advisory Agreement between
the Registrant and Fleet Investment Advisors
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) Form of Addendum No. 2 to Advisory Agreement
between the Registrant and Fleet Investment
Advisors, Inc. with respect to the New Jersey
Municipal Bond, MidCap Equity and Special
Equity Funds.
(d) 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.(2)
(6) (a) Distribution Agreement between the Registrant
and First Data Distributors, Inc. dated as of
June 1, 1997.
(b) Form of Amendment No. 1 to Distribution
Agreement between the Registrant and First
Data Distributors, Inc. with respect to the
New Jersey Municipal Bond, MidCap Equity and
Special Equity Funds.
(7) The Galaxy Fund/The Galaxy VIP Fund/Galaxy
Fund II Deferred Compensation Plan and
Related Agreement effective as of January 1,
1997.(2)
(8) (a) Global Custody Agreement between the
Registrant and The Chase Manhattan Bank 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.
-4-
<PAGE> 1481
(b) Form of Amendment to Global Custody Agreement
between the Registrant and The Chase
Manhattan Bank with respect to the New Jersey
Municipal Bond, MidCap Equity and Special
Equity Funds.
(c) 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, 1997.
(b) Form of Amendment No. 1 to Administration
Agreement between the Registrant and First
Data Investor Services Group, Inc. with
respect to the New Jersey Municipal Bond,
MidCap Equity and Special Equity Funds.
(c) Transfer Agency and Services Agreement
between the Registrant and First Data
Investor Services Group, Inc. dated as of
June 1, 1997.
(d) Form of Amendment No. 1 to Transfer Agency
and Services Agreement between the Registrant
and First Data Investor Services Group, Inc.
with respect to the New Jersey Municipal
Bond, MidCap Equity and Special Equity Funds.
(e) Shareholder Services Plan for Trust Shares
and Retail A Shares and Related Forms of
Servicing Agreements.
(10) Opinion of counsel that shares will be
validly issued, fully paid and
non-assessable.(3)
(11) (a) Consent of the Registrant's Independent
Accountants.(3)
-5-
<PAGE> 1482
(b) Consent of the Predecessor Funds' Independent
Accountants.(3)
(c) Consent of Drinker Biddle & Reath LLP.
(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
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
Allmercia Investments, Inc. dated February
22, 1993 with respect to the Connecticut
Municipal Bond, Massachusetts Municipal Bond,
Rhode Island Municipal Bond and Institutional
Government Money Market (formerly
Institutional Treasury Money Market) Funds is
-6-
<PAGE> 1483
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
Statement on 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
Registrant's Registration Statement on Form
N-1A, as filed with the Commission on
September 39, 1995.
(h) Form of Purchase Agreement between the
Registrant and First Data Distributors Inc.
with respect to the New Jersey Municipal Bond
Fund.
(i) Form of Purchase Agreement between the
Registrant and First Data Distributors Inc.
with respect to the MidCap Equity Fund.
(j) Form of Purchase Agreement between the
Registrant and First Data Distributors Inc.
with respect to the Special Equity Fund.
-7-
<PAGE> 1484
(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 Related 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 (formerly Intermediate Bond) 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, as filed with the
Commission on June 23, 1992.
(e) Schedule for computation of performance
quotations - Equity Income Fund is
-8-
<PAGE> 1485
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
(16)(l) to the Registrant's Registration
-9-
<PAGE> 1486
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 Government Money
Market [formerly 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.(1)
(s) Schedule for computation of performance
quotations - Connecticut Municipal Money
Market Fund.(1)
-10-
<PAGE> 1487
(t) Schedule for computation of performance
quotations - Massachusetts Municipal Money
Market Fund.(1)
(u) Schedule for computation of performance
quotations - Small Cap Value Fund.(1)
(v) Schedule for computation of performance
quotations - Growth and Income Fund.(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,
1997 for the Money Market Fund.(3)
(b) Financial Data Schedule as of October 31,
1997 for the Government Fund.(3)
(c) Financial Data Schedule as of October 31,
1997 for the U.S. Treasury Fund.(3)
(d) Financial Data Schedule as of October 31,
1997 for the Tax-Exempt Fund.(3)
(e) Financial Data Schedule as of October 31,
1997 for the Institutional Government Money
Market (formerly Institutional Treasury Money
Market) Fund.(3)
(f) Financial Data Schedule as of October 31,
1997 for the Connecticut Municipal Money
Market Fund.(3)
(g) Financial Data Schedule as of October 31,
1997 for the Massachusetts Municipal Money
Market Fund.(3)
(h) Financial Data Schedule as of October 31,
1997 for the Short-Term Bond Fund.(3)
(i) Financial Data Schedule as of October 31,
1997 for the Intermediate Government Income
Fund.(3)
(j) Financial Data Schedule as of October 31,
1997 for the High Quality Bond Fund.(3)
(k) Financial Data Schedule for the Corporate
Bond Fund.(3)
-11-
<PAGE> 1488
(l) Financial Data Schedule as of October 31,
1997 for the Tax-Exempt Bond Fund.(3)
(m) Financial Data Schedule as of October 31,
1997 for the New York Municipal Bond Fund.(3)
(n) Financial Data Schedule as of October 31,
1997 for the Connecticut Municipal Bond
Fund.(3)
(o) Financial Data Schedule as of October 31,
1997 for the Massachusetts Municipal Bond
Fund.(3)
(p) Financial Data Schedule as of October 31,
1997 for the Rhode Island Municipal Bond
Fund.(3)
(q) Financial Data Schedule as of October 31,
1997 for the Equity Value Fund.(3)
(r) Financial Data Schedule as of October 31,
1997 for the Equity Income Fund.(3)
(s) Financial Data Schedule as of October 31,
1997 for the Equity Income Fund.(3)
(t) Financial Data Schedule as of October 31,
1997 for the International Equity Fund.(3)
(u) Financial Data Schedule as of October 31,
1997 for the Small Company Equity Fund.(3)
(v) Financial Data Schedule as of October 31,
1997 for the Asset Allocation Fund.(3)
(w) Financial Data Schedule as of October 31,
1997 for the Small Cap Value Fund.(3)
(x) Financial Data Schedule as of October 31,
1997 for the Growth and Income Fund.(3)
- -------------------------
(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 electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 29 to the
-12-
<PAGE> 1489
Registrant's Registration Statement on Form N-1A as filed with the
Commission on December 30, 1996.
(3) To be filed by Amendment.
-13-
<PAGE> 1490
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 November 30, 1997:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Class A Shares 96,063
Class A -
Special Series 1 Shares 31
Class A -
Special Series 2 Shares 25
Class B Shares 17,214
Class B -
Special Series 1 Shares 76
Class C Shares 9
Class C -
Special Series 1 Shares 17,765
Class C -
Special Series 2 Shares 2,474
Class D Shares 3
Class D -
Special Series 1 Shares 4,896
Class E Shares 2,935
Class E -
Special Series 1 Shares 3
Class F Shares 20,413
Class F -
Special Series 1 Shares 20
Class G - Series 1 Shares 8
Class G - Series 2 Shares 9,467
Class H - Series 1 Shares 7
Class H - Series 2 Shares 21,292
Class H - Series 3 Shares 3,193
Class I - Series 1 Shares 5
Class I - Series 2 Shares 14,291
Class J - Series 1 Shares 3
Class J - Series 2 Shares 2,237
Class J - Series 3 Shares 187
Class K - Series 1 Shares 9
Class K - Series 2 Shares 17,834
Class K - Series 3 Shares 2,867
Class L - Series 1 Shares 4
Class L - Series 2 Shares 1,729
Class L - Series 3 Shares 79
Class M - Series 1 Shares 3
Class M - Series 2 Shares 978
Class M - Series 3 Shares 45
</TABLE>
-14-
<PAGE> 1491
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Class N - Series 1 Shares 6
Class N - Series 2 Shares 14,058
Class N - Series 3 Shares 3,112
Class O - Series 1 Shares 3
Class O - Series 2 Shares 1,285
Class P - Series 1 Shares 4
Class P - Series 2 Shares 819
Class Q - Series 1 Shares 3
Class Q - Series 2 Shares 934
Class R - Series 1 Shares 0
Class R - Series 2 Shares 193
Class S Shares 7
Class T - Series 1 Shares 776
Class T - Series 2 Shares 0
Class U - Series 1 Shares 7
Class U - Series 2 Shares 14,016
Class U - Series 3 Shares 4,828
Class V Shares 1,180
Class W Shares 69
Class X - Series 1 Shares 11
Class X - Series 2 Shares 7,826
Class Y - Series 1 Shares 0
Class Y - Series 2 Shares 0
Class Z - Series 1 Shares 0
Class Z - Series 2 Shares 0
Class Z - Series 3 Shares 0
Class AA - Series 1 Shares 0
Class AA - Series 2 Shares 0
Class AA - Series 3 Shares 0
</TABLE>
Item 27. Indemnification
Indemnification of the Registrant's principal underwriter, custodian
and transfer agent against certain losses is provided for, respectively, in
Section 1.19 of the Distribution Agreement included herein as Exhibit (6)(a),
in Section 12 of the Global Custody Agreement incorporated herein by reference
as Exhibit (8)(a) and in Article 10 of the Transfer Agency and Services
Agreement included herein 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,
-15-
<PAGE> 1492
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 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 payment 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
-16-
<PAGE> 1493
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 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
file by Fleet pursuant to the Advisers Act (SEC File
No. 801-20312).
(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
Schedule 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, First Data
Distributors, Inc. (the "Distributor") currently acts
as distributor for The Galaxy VIP Fund, Galaxy Fund
II 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.
-17-
<PAGE> 1494
(b) The information required by this Item 29 (b) with
respect to each director, officer, or partner of the
Distributor, is incorporated by reference to Schedule
A of Form BD filed by the Distributor, 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
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., 75 State Street,
Boston, Massachusetts 02109 (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 function as sub-investment
adviser to the International Equity Fund).
(3) First Data Distributions, Inc., 4400 Computer Drive,
Westboro, Massachusetts 01581-5108 (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 01581-5108 (records
relating to its functions as transfer agent).
(6) Drinker Biddle & Reath LLP, Philadelphia National
Bank Building, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107 (Registrant's Declaration of
Trust, Code of Regulations and Minute Books).
-18-
<PAGE> 1495
(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.
Registrant undertakes to file a post-effective amendment with
respect to the New Jersey Municipal Bond Fund, MidCap Equity
Fund and Special Equity Fund, using financial statements which
need not be certified within four to six months from the
effective date of Registrant's Registration Statement
pertaining to such Funds.
-19-
<PAGE> 1496
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, Registrant has
duly caused this Post-Effective Amendment No. 31 to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Pawtucket, State of
Rhode Island, on the 15th day of December, 1997.
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. 31 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 15, 1997
- -------------------------- and Treasurer
John T. O'Neill
*/s/Dwight E. Vicks, Jr. Chairman of the Board December 15, 1997
- -------------------------- of Trustees
Dwight E. Vicks, Jr.
*/s/Donald B. Miller Trustee December 15, 1997
- --------------------------
Donald B. Miller
*/s/Louis DeThomasis Trustee December 15, 1997
- --------------------------
Louis DeThomasis
*/s/Bradford S. Wellman Trustee December 15, 1997
- --------------------------
Bradford S. Wellman
*/s/James M. Seed Trustee December 15, 1997
- --------------------------
James M. Seed
</TABLE>
-20-
<PAGE> 1497
*By: /s/John T. O'Neill
----------------------
John T. O'Neill
Attorney-In-Fact
-21-
<PAGE> 1498
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> 1499
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> 1500
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> 1501
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> 1502
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> 1503
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> 1504
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
(1)(m) Form of Certificate of Classification of Shares pertaining to Class Y
- Series 1 shares and Class Y - Series 2 shares; Class Z - Series 1
shares, Class Z - Series 2 shares and Class Z - Series 3 shares; and
Class AA - Series 1 shares, Class AA - Series 2 shares and Class AA -
Series 3 shares.
(5)(c) Form of Addendum No. 2 to Advisory Agreement between the Registrant
and Fleet Investment Advisors Inc. with respect to the New Jersey
Municipal Bond, MidCap Equity and Special Equity Funds.
(6)(a) Distribution Agreement between the Registrant and First Data
Distributors, Inc. dated as of June 1, 1997.
(6)(b) Form of Amendment No. 1 to Distribution Agreement between the
Registrant and First Data Distributors, Inc. with respect to the New
Jersey Municipal Bond, MidCap Equity and Special Equity Funds.
(8)(b) Form of Amendment to Global Custody Agreement between the Registrant
and The Chase Manhattan Bank with respect to the New Jersey Municipal
Bond, MidCap Equity and Special Equity Funds.
(9)(a) Administration Agreement between the Registrant and First Data
Investor Services Group, Inc. dated as of June 1, 1997.
(9)(b) Form of Amendment No. 1 to Administration Agreement between the
Registrant and First Data Investor Services Group, Inc. with respect
to the New Jersey Municipal Bond, MidCap Equity and Special Equity
Funds.
(9)(c) Transfer Agency and Services Agreement between the Registrant and
First Data Investor Services Group, Inc. dated as of June 1, 1997.
(9)(d) Form of Amendment No. 1 to Transfer Agency and Services Agreement
between the Registrant and First Data Investor Services Group, Inc.
with respect to the New Jersey Municipal Bond, MidCap Equity and
Special Equity Funds.
</TABLE>
<PAGE> 1505
<TABLE>
<S> <C>
(9)(e) Shareholder Services Plan for Trust Shares and Retail A Shares and
Related Forms of Servicing Agreements.
(11)(c) Consent of Drinker Biddle & Reath LLP.
(11)(d) Consent of Willkie Farr & Gallagher.
(11)(e) Consent of Ropes & Gray.
(11)(f) Consent of Day, Berry & Howard.
(13)(h) Form of Purchase Agreement between the Registrant and First Data
Distributors Inc. with respect to the New Jersey Municipal Bond Fund.
(13)(i) Form of Purchase Agreement between the Registrant and First Data
Distributors Inc. with respect to the MidCap Equity Fund.
(13)(j) Form of Purchase Agreement between the Registrant and First Data
Distributors Inc. with respect to the Special Equity Fund.
(15) Distribution and Services Plan for Retail B Shares and Related Form
of Servicing Agreement.
(18) Amended and Restated Plan Pursuant to Rule 18f-3 for Operation of a
Multi-Class System.
</TABLE>
<PAGE> 1
EXHIBIT (1)(m)
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
4, 1997 (the "Meeting");
(3) That the following resolutions were duly adopted at the Meeting by the
Board of Trustees of Galaxy:
1. CREATION OF TWO SERIES OF CLASS Y SHARES REPRESENTING INTERESTS IN THE NEW
JERSEY MUNICIPAL BOND FUND.
RESOLVED, that pursuant to Section 5.1 of Galaxy's Declaration of
Trust, an unlimited number of authorized and unissued shares of beneficial
interest in Galaxy be, and hereby are, classified into a new class of
shares denominated as Class Y shares, consisting of two separate series of
shares of beneficial interest designated as Class Y - Series 1 shares and
Class Y - Series 2 shares, both series representing interests in the New
Jersey Municipal Bond Fund;
FURTHER RESOLVED, that all consideration received by Galaxy for the
issue or sale of Class Y - Series 1 shares shall be invested and
reinvested with the consideration received by Galaxy for the issue and
sale of Class Y - Series 2 shares and any other shares of beneficial
interest in Galaxy hereafter designated as Class Y shares (irrespective of
whether said shares have been designated as part of a series of said class
and, if so designated, irrespective of the particular series designation),
together with all income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation
thereof, any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, and any general assets of
Galaxy allocated to Class Y shares (irrespective of series designation) by
the Board of Trustees in accordance with Galaxy's Declaration of Trust,
and each Class Y - Series 1 share and Class Y - Series 2 share shall share
in proportion
<PAGE> 2
to their respective net asset values with each such other share in such
consideration and other assets, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any assets derived from any reinvestment of such
proceeds in whatever form;
FURTHER RESOLVED, that each Class Y - Series 1 share and Class Y -
Series 2 share newly classified hereby shall have all of the preferences,
conversion and other rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption
accorded shares of beneficial interest in Galaxy now or hereinafter
designated as Class Y shares (irrespective of series designation); and
FURTHER RESOLVED, that each Class Y - Series 1 share and each Class Y
- Series 2 share shall be charged in proportion to their respective net
asset values with each other share of beneficial interest in Galaxy now or
hereafter designated as a Class Y share (irrespective of whether said
share has been designated as part of a series of said class and, if so
designated, irrespective of the particular series designation) with the
expenses and liabilities of Galaxy in respect of Class Y shares
(irrespective of series designation) and in respect of any general
expenses and liabilities of Galaxy allocated to Class Y shares by the
Board of Trustees in accordance with Galaxy's Declaration of Trust;
provided, however, that to the extent permitted by rule or order of the
Securities and Exchange Commission and as the Board of Trustees may from
time to time determine:
(1) only Class Y - Series 1 shares shall bear the expenses and liabilities
relating to any agreements or arrangements entered into by or on behalf of
Galaxy pursuant to which an organization or other person agrees to provide
services exclusively with respect to shares of Class Y - Series 1, as well
as any other expenses and liabilities directly attributable to Class Y -
Series 1 shares which the Board of Trustees determines should be borne
solely by shares of such Series;
(2) only Class Y - Series 2 shares shall bear the expenses and liabilities
relating to any agreements or arrangements entered into by or on behalf of
Galaxy pursuant to which an organization or other person agrees to provide
services exclusively with respect to shares of Class Y - Series 2, as well
as any other
-2-
<PAGE> 3
expenses and liabilities directly attributable to Class Y - Series 2
shares which the Board of Trustees determines should be borne solely by
shares of such Series;
(3) Class Y - Series 1 shares shall not bear the expenses and liabilities
relating to any agreements or arrangements entered into by or on behalf of
Galaxy pursuant to which an organization or other person agrees to provide
services with respect to Class Y shares other than shares of its Series 1,
as well as any other expenses and liabilities directly attributable to
shares of Class Y other than Class Y - Series 1 shares which the Board of
Trustees determines should be borne exclusively by such other shares;
(4) Class Y - Series 2 shares shall not bear the expenses and liabilities
relating to any agreements or arrangements entered into by or on behalf of
Galaxy pursuant to which an organization or other person agrees to provide
services with respect to Class Y shares other than shares of its Series 2,
as well as any other expenses and liabilities directly attributable to
shares of Class Y other than Class Y - Series 2 shares which the Board of
Trustees determines should be borne exclusively by such other shares;
(5) on any matter that pertains to the agreements, arrangements, expenses
or liabilities described in clause (a) above (or to any plan or other
document adopted by Galaxy relating to said agreements, arrangements,
expenses or liabilities) and that is submitted to a vote of shareholders
of Galaxy, only Class Y - Series 1 shares shall be entitled to vote,
except that: (i) if said matter affects shares of beneficial interest in
Galaxy other than Class Y - Series 1 shares, such other affected shares in
Galaxy shall also be entitled to vote and, in such case, Class Y - Series
1 shares 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 Class Y - Series 1 shares, said shares shall not be
entitled to vote (except where otherwise required by law or permitted by
the Board of Trustees) even though the matter is submitted to a vote of
the holders of shares of beneficial interest in Galaxy other than Class Y
- Series 1 shares; and
-3-
<PAGE> 4
(6) on any matter that pertains to the agreements, arrangements, expenses
or liabilities described in clause (b) above (or to any plan or other
document adopted by Galaxy relating to said agreements, arrangements,
expenses or liabilities) and that is submitted to a vote of shareholders
of Galaxy, only Class Y - Series 2 shares shall be entitled to vote,
except that: (i) if said matter affects shares of beneficial interest in
Galaxy other than Class Y - Series 2 shares, such other affected shares in
Galaxy shall also be entitled to vote and, in such case, Class Y - Series
2 shares 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 Class Y - Series 2 shares, said shares shall not be
entitled to vote (except where otherwise required by law or permitted by
the Board of Trustees) even though the matter is submitted to a vote of
the holders of shares of beneficial interest in Galaxy other than Class Y
- Series 2 shares; and
(7) on any matter that pertains to the agreements, arrangements, expenses
or liabilities described in clause (b) above (or to any plan or other
document adopted by Galaxy relating to said agreements, arrangements,
expenses or liabilities) and that is submitted to a vote of shareholders
of Galaxy, Class Y - Series 1 shares shall not be entitled to vote, except
where otherwise required by law or permitted by the Board of Trustees of
Galaxy, and except that if said matter affects Class Y - Series 1 shares,
such shares shall be entitled to vote, and in such case, Class Y - Series
1 shares shall be voted in the aggregate together with all other shares of
beneficial interest in Galaxy voting on the matter and not by class or
series, except where otherwise required by law or permitted by the Board
of Trustees; and
(8) on any matter that pertains to the agreements, arrangements, expenses
or liabilities described in clause (a) above (or to any plan or other
document adopted by Galaxy relating to said agreements, arrangements,
expenses or liabilities) and that is submitted to a vote of shareholders
of Galaxy, Class Y - Series 2 shares shall not be entitled to vote, except
where otherwise required by law or permitted by the Board of Trustees of
Galaxy, and except that if said matter affects Class Y - Series 2 shares,
such shares shall be entitled to vote, and in such case, Class Y - Series
2 shares shall be voted in
-4-
<PAGE> 5
the aggregate together with all other shares of beneficial interest in
Galaxy voting on the matter and not by class or series, except where
otherwise required by law or permitted by the Board of Trustees.
2. CREATION OF THREE SERIES OF CLASS Z SHARES REPRESENTING INTERESTS IN
THE MIDCAP EQUITY FUND.
RESOLVED, that pursuant to Section 5.1 of Galaxy's Declaration of
Trust, an unlimited number of authorized and unissued shares of beneficial
interest in Galaxy be, and hereby are, classified into a new class of
shares denominated as Class Z shares, consisting of three separate series
of shares of beneficial interest designated as Class Z - Series 1 shares,
Class Z - Series 2 shares and Class Z - Series 3 shares, all series
representing interests in the MidCap Equity Fund;
FURTHER RESOLVED, that all consideration received by Galaxy for the
issue or sale of Class Z - Series 1 shares shall be invested and
reinvested with the consideration received by Galaxy for the issue and
sale of Class Z - Series 2 shares and Class Z - Series 3 shares and any
other shares of beneficial interest in Galaxy hereafter designated as
Class Z shares (irrespective of whether said shares have been designated
as part of a series of said class and, if so designated, irrespective of
the particular series designation), together with all income, earnings,
profits and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation thereof, any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, and
any general assets of Galaxy allocated to Class Z shares (irrespective of
series designation) by the Board of Trustees in accordance with Galaxy's
Declaration of Trust, and each Class Z - Series 1 share, Class Z - Series
2 share and Class Z - Series 3 share shall share in proportion to their
respective net asset values with each such other share in such
consideration and other assets, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any assets derived from any reinvestment of such
proceeds in whatever form;
FURTHER RESOLVED, that each Class Z - Series 1 share, each Class Z -
Series 2 share and each Class Z - Series 3 share newly classified hereby
shall have all of the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends,
-5-
<PAGE> 6
qualifications and terms and conditions of redemption accorded shares of
beneficial interest in Galaxy now or hereinafter designated as Class Z
shares (irrespective of series designation) except that:
(a) with respect to Class Z - Series 3 shares, the first sentence of
Section 5.1B(9) of Galaxy's Declaration of Trust shall not apply, and the
following shall apply instead:
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
sale 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.
(b) Class Z - Series 3 shares shall be convertible into Class Z - Series 2
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;
FURTHER RESOLVED, that each Class Z - Series 1 share, each Class Z -
Series 2 share and each Class Z - Series 3 share shall be charged in
proportion to their respective net asset values with each other share of
beneficial interest in Galaxy now or hereafter designated as a Class Z
share (irrespective of whether said share has been designated as part of a
series of said class and, if so designated, irrespective of the particular
series designation) with the expenses and liabilities of Galaxy in respect
of Class Z shares (irrespective of series designation) and in respect of
any general expenses and liabilities of Galaxy allocated to Class Z shares
by the Board of Trustees in accordance with Galaxy's Declaration of Trust;
provided, however, that to the extent permitted by rule or order of the
Securities and Exchange Commission and
-6-
<PAGE> 7
as the Board of Trustees may from time to time determine:
(a) only Class Z - Series 1 shares shall bear the expenses and liabilities
relating to any agreements or arrangements entered into by or on behalf of
Galaxy pursuant to which an organization or other person agrees to provide
services exclusively with respect to shares of Class Z - Series 1, as well
as any other expenses and liabilities directly attributable to Class Z -
Series 1 shares which the Board of Trustees determines should be borne
solely by shares of such series;
(b) only Class Z - Series 2 shares shall bear the expenses and liabilities
relating to any agreements or arrangements entered into by or on behalf of
Galaxy pursuant to which an organization or other person agrees to provide
services exclusively with respect to shares of Class Z - Series 2, as well
as any other expenses and liabilities directly attributable to Class Z -
Series 2 shares which the Board of Trustees determines should be borne
solely by shares of such series;
(c) only Class Z - Series 3 shares shall bear the expenses and liabilities
relating to any agreements or arrangements entered into by or on behalf of
Galaxy pursuant to which an organization or other person agrees to provide
services exclusively with respect to shares of Class Z - Series 3, as well
as any other expenses and liabilities directly attributable to Class Z -
Series 3 shares which the Board of Trustees determines should be borne
solely by shares of such series;
(d) Class Z - Series 1 shares shall not bear the expenses and liabilities
relating to any agreements or arrangements entered into by or on behalf of
Galaxy pursuant to which an organization or other person agrees to provide
services with respect to Class Z shares other than shares of its Series 1,
as well as any other expenses and liabilities directly attributable to
shares of Class Z other than Class Z - Series 1 shares which the Board of
Trustees determines should be borne exclusively by such other shares;
(e) Class Z - Series 2 shares shall not bear the expenses and liabilities
relating to any agreements or arrangements entered into by or on behalf of
Galaxy pursuant to which an organization or other person agrees to provide
services with respect to Class Z
-7-
<PAGE> 8
shares other than shares of its Series 2, as well as any other expenses
and liabilities directly attributable to shares of Class Z other than
Class Z - Series 2 shares which the Board of Trustees determines should be
borne exclusively by such other shares;
(f) Class Z - Series 3 shares shall not bear the expenses and liabilities
relating to any agreements or arrangements entered into by or on behalf of
Galaxy pursuant to which an organization or other person agrees to provide
services with respect to Class Z shares other than shares of its Series 3,
as well as any other expenses and liabilities directly attributable to
shares of Class Z other than Class Z - Series 3 shares which the Board of
Trustees determines should be borne exclusively by such other shares;
(g) on any matter that pertains to the agreements, arrangements, expenses
or liabilities described in clause (a) above (or to any plan or other
document adopted by Galaxy relating to said agreements, arrangements,
expenses or liabilities) and that is submitted to a vote of shareholders
of Galaxy, only Class Z - Series 1 shares shall be entitled to vote,
except that: (i) if said matter affects shares of beneficial interest in
Galaxy other than Class Z - Series 1 shares, such other affected shares in
Galaxy shall also be entitled to vote and, in such case, Class Z - Series
1 shares 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 Class Z - Series 1 shares, said shares shall not be
entitled to vote (except where otherwise required by law or permitted by
the Board of Trustees) even though the matter is submitted to a vote of
the holders of shares of beneficial interest in Galaxy other than Class Z
- Series 1 shares;
(h) on any matter that pertains to the agreements, arrangements, expenses
or liabilities described in clause (b) above (or to any plan or other
document adopted by Galaxy relating to said agreements, arrangements,
expenses or liabilities) and that is submitted to a vote of shareholders
of Galaxy, only Class Z - Series 2 shares shall be entitled to vote,
except that: (i) if said matter affects shares of beneficial interest in
Galaxy other than Class Z - Series 2 shares, such other affected shares in
Galaxy shall also be entitled to vote and, in such case, Class Z - Series
2 shares shall be voted in the
-8-
<PAGE> 9
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 Class Z -
Series 2 shares, said shares shall not be entitled to vote (except where
otherwise required by law or permitted by the Board of Trustees) even
though the matter is submitted to a vote of the holders of shares of
beneficial interest in Galaxy other than Class Z - Series 2 shares;
(i) on any matter that pertains to the agreements, arrangements, expenses
or liabilities described in clause (c) above (or to any plan or other
document adopted by Galaxy relating to said agreements, arrangements,
expenses or liabilities) and that is submitted to a vote of shareholders
of Galaxy, only Class Z - Series 3 shares shall be entitled to vote,
except that: (i) if said matter affects shares of beneficial interest in
Galaxy other than Class Z - Series 3 shares, such other affected shares in
Galaxy shall also be entitled to vote and, in such case, Class Z - Series
3 shares 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 Class Z - Series 3 shares, said shares shall not be
entitled to vote (except where otherwise required by law or permitted by
the Board of Trustees) even though the matter is submitted to a vote of
the holders of shares of beneficial interest in Galaxy other than Class Z
- Series 3 shares;
(j) on any matter that pertains to the agreements, arrangements, expenses
or liabilities described in clause (b) or clause (c) above (or to any plan
or other document adopted by Galaxy relating to said agreements,
arrangements, expenses or liabilities) and that is submitted to a vote of
shareholders of Galaxy, Class Z - Series 1 shares shall not be entitled to
vote, except where otherwise required by law or permitted by the Board of
Trustees of Galaxy, and except that if said matter affects Class Z -
Series 1 shares, such shares shall be entitled to vote and, in such case,
Class Z - Series 1 shares shall be voted in the aggregate together with
all other shares of beneficial interest in Galaxy voting on the matter and
not by class or series, except where otherwise required by law or
permitted by the Board of Trustees;
-9-
<PAGE> 10
(k) on any matter that pertains to the agreements, arrangements, expenses
or liabilities described in clause (a) or clause (c) above (or to any plan
or other document adopted by Galaxy relating to said agreements,
arrangements, expenses or liabilities) and that is submitted to a vote of
shareholders of Galaxy, Class Z - Series 2 shares shall not be entitled to
vote, except where otherwise required by law or permitted by the Board of
Trustees of Galaxy, and except that if said matter affects Class Z -
Series 2 shares, such shares shall be entitled to vote and, in such case,
Class Z - Series 2 shares shall be voted in the aggregate together with
all other shares of beneficial interest in Galaxy voting on the matter and
not by class or series, except where otherwise required by law or
permitted by the Board of Trustees; and
(l) on any matter that pertains to the agreements, arrangements, expenses
or liabilities described in clause (a) or clause (b) above (or to any plan
or other document adopted by Galaxy relating to said agreements,
arrangements, expenses or liabilities) and that is submitted to a vote of
shareholders of Galaxy, Class Z - Series 3 shares shall not be entitled to
vote, except where otherwise required by law or permitted by the Board of
Trustees of Galaxy, and except that if said matter affects Class Z -
Series 3 shares, such shares shall be entitled to vote and, in such case,
Class Z - Series 3 shares shall be voted in the aggregate together with
all other shares of beneficial interest in Galaxy voting on the matter and
not by class or series, except where otherwise required by law or
permitted by the Board of Trustees.
3. CREATION OF THREE SERIES OF CLASS AA SHARES REPRESENTING
INTERESTS IN THE SPECIAL EQUITY FUND.
RESOLVED, that pursuant to Section 5.1 of Galaxy's Declaration of
Trust, an unlimited number of authorized and unissued shares of beneficial
interest in Galaxy be, and hereby are, classified into a new class of
shares denominated as Class AA shares, consisting of three separate series
of shares of beneficial interest designated as Class AA - Series 1 shares,
Class AA - Series 2 shares and Class AA - Series 3 shares, all series
representing interests in the Special Equity Fund;
FURTHER RESOLVED, that all consideration received by Galaxy for the
issue or sale of Class AA - Series 1 shares shall be invested and
reinvested with the
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<PAGE> 11
consideration received by Galaxy for the issue and sale of Class AA -
Series 2 shares and Class AA Series 3 shares and any other shares of
beneficial interest in Galaxy hereafter designated as Class AA shares
(irrespective of whether said shares have been designated as part of a
series of said class and, if so designated, irrespective of the particular
series designation), together with all income, earnings, profits and
proceeds thereof, including any proceeds derived from the sale, exchange
or liquidation thereof, any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, and any
general assets of Galaxy allocated to Class AA shares (irrespective of
series designation) by the Board of Trustees in accordance with Galaxy's
Declaration of Trust, and each Class AA - Series 1 share, Class AA -
Series 2 share and Class AA - Series 3 share shall share in proportion to
their respective net asset values with each such other share in such
consideration and other assets, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any assets derived from any reinvestment of such
proceeds in whatever form;
FURTHER RESOLVED, that each Class AA - Series 1 share, Class AA -
Series 2 share and Class AA - Series 3 share newly classified hereby shall
have all of the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption accorded shares of beneficial interest in Galaxy
now or hereinafter designated as Class AA shares (irrespective of series
designation) except that:
(a) with respect to Class AA - Series 3 shares, the first sentence of
Section 5.1B(9) of Galaxy's Declaration of Trust shall not apply, and the
following shall apply instead:
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
sale charge, redemption fee or other charge, if any, as may be fixed by
the Trustees, subject to the right of the Trustees to
-11-
<PAGE> 12
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.
(b) Class AA - Series 3 shares shall be convertible into Class AA -
Series 2 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;
FURTHER RESOLVED, that each Class AA - Series 1 share, each Class AA
- Series 2 share and each Class AA - Series 3 share shall be charged in
proportion to their respective net asset values with each other share of
beneficial interest in Galaxy now or hereafter designated as a Class AA
share (irrespective of whether said share has been designated as part of a
series of said class and, if so designated, irrespective of the particular
series designation) with the expenses and liabilities of Galaxy in respect
of Class AA shares (irrespective of series designation) and in respect of
any general expenses and liabilities of Galaxy allocated to Class AA
shares by the Board of Trustees in accordance with Galaxy's Declaration of
Trust; provided, however, that to the extent permitted by rule or order of
the Securities and Exchange Commission and as the Board of Trustees may
from time to time determine:
(a) only Class AA - Series 1 shares shall bear the expenses and
liabilities relating to any agreements or arrangements entered into by or
on behalf of Galaxy pursuant to which an organization or other person
agrees to provide services exclusively with respect to shares of Class AA
- Series 1, as well as any other expenses and liabilities directly
attributable to Class AA - Series 1 shares which the Board of Trustees
determines should be borne solely by shares of such series;
(b) only Class AA - Series 2 shares shall bear the expenses and
liabilities relating to any agreements or arrangements entered into by or
on behalf of Galaxy pursuant to which an organization or other person
agrees to provide services exclusively with respect to shares of Class AA
- Series 2, as well as any other expenses and liabilities directly
attributable to Class AA - Series 2 shares which the Board of Trustees
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<PAGE> 13
determines should be borne solely by shares of such series;
(c) only Class AA - Series 3 shares shall bear the expenses and
liabilities relating to any agreements or arrangements entered into by or
on behalf of Galaxy pursuant to which an organization or other person
agrees to provide services exclusively with respect to shares of Class AA
- Series 3, as well as any other expenses and liabilities directly
attributable to Class AA - Series 3 shares which the Board of Trustees
determines should be borne solely by shares of such series;
(d) Class AA - Series 1 shares shall not bear the expenses and
liabilities relating to any agreements or arrangements entered into by or
on behalf of Galaxy pursuant to which an organization or other person
agrees to provide services with respect to Class AA shares other than
shares of its Series 1, as well as any other expenses and liabilities
directly attributable to shares of Class AA other than Class AA - Series 1
shares which the Board of Trustees determines should be borne exclusively
by such other shares;
(e) Class AA - Series 2 shares shall not bear the expenses and
liabilities relating to any agreements or arrangements entered into by or
on behalf of Galaxy pursuant to which an organization or other person
agrees to provide services with respect to Class AA shares other than
shares of its Series 2, as well as any other expenses and liabilities
directly attributable to shares of Class AA other than Class AA - Series 2
shares which the Board of Trustees determines should be borne exclusively
by such other shares;
(f) Class AA - Series 3 shares shall not bear the expenses and
liabilities relating to any agreements or arrangements entered into by or
on behalf of Galaxy pursuant to which an organization or other person
agrees to provide services with respect to Class AA shares other than
shares of its Series 3, as well as any other expenses and liabilities
directly attributable to shares of Class AA other than Class AA - Series 3
shares which the Board of Trustees determines should be borne exclusively
by such other shares;
(g) on any matter that pertains to the agreements, arrangements, expenses
or liabilities described in
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<PAGE> 14
clause (a) above (or to any plan or other document adopted by Galaxy
relating to said agreements, arrangements, expenses or liabilities) and
that is submitted to a vote of shareholders of Galaxy, only Class AA -
Series 1 shares shall be entitled to vote, except that: (i) if said matter
affects shares of beneficial interest in Galaxy other than Class AA -
Series 1 shares, such other affected shares in Galaxy shall also be
entitled to vote and, in such case, Class AA - Series 1 shares 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
Class AA - Series 1 shares, said shares shall not be entitled to vote
(except where otherwise required by law or permitted by the Board of
Trustees) even though the matter is submitted to a vote of the holders of
shares of beneficial interest in Galaxy other than Class AA - Series 1
shares;
(h) on any matter that pertains to the agreements, arrangements, expenses
or liabilities described in clause (b) above (or to any plan or other
document adopted by Galaxy relating to said agreements, arrangements,
expenses or liabilities) and that is submitted to a vote of shareholders
of Galaxy, only Class AA - Series 2 shares shall be entitled to vote,
except that: (i) if said matter affects shares of beneficial interest in
Galaxy other than Class AA - Series 2 shares, such other affected shares
in Galaxy shall also be entitled to vote and, in such case, Class AA -
Series 2 shares 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 Class AA - Series 2 shares, said shares
shall not be entitled to vote (except where otherwise required by law or
permitted by the Board of Trustees) even though the matter is submitted to
a vote of the holders of shares of beneficial interest in Galaxy other
than Class AA - Series 2 shares;
(i) on any matter that pertains to the agreements, arrangements, expenses
or liabilities described in clause (c) above (or to any plan or other
document adopted by Galaxy relating to said agreements, arrangements,
expenses or liabilities) and that is submitted to a vote of shareholders
of Galaxy, only Class AA - Series 3 shares shall be entitled to vote,
except that: (i) if said matter affects shares of
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<PAGE> 15
beneficial interest in Galaxy other than Class AA - Series 3 shares, such
other affected shares in Galaxy shall also be entitled to vote and, in
such case, Class AA - Series 3 shares 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 Class AA -
Series 3 shares, said shares shall not be entitled to vote (except where
otherwise required by law or permitted by the Board of Trustees) even
though the matter is submitted to a vote of the holders of shares of
beneficial interest in Galaxy other than Class AA - Series 3 shares;
(j) on any matter that pertains to the agreements, arrangements, expenses
or liabilities described in clause (b) or clause (c) above (or to any plan
or other document adopted by Galaxy relating to said agreements,
arrangements, expenses or liabilities) and that is submitted to a vote of
shareholders of Galaxy, Class AA - Series 1 shares shall not be entitled
to vote, except where otherwise required by law or permitted by the Board
of Trustees of Galaxy, and except that if said matter affects Class AA -
Series 1 shares, such shares shall be entitled to vote and, in such case,
Class AA - Series 1 shares shall be voted in the aggregate together with
all other shares of beneficial interest in Galaxy voting on the matter and
not by class or series, except where otherwise required by law or
permitted by the Board of Trustees;
(k) on any matter that pertains to the agreements, arrangements, expenses
or liabilities described in clause (a) or clause (c) above (or to any plan
or other document adopted by Galaxy relating to said agreements,
arrangements, expenses or liabilities) and that is submitted to a vote of
shareholders of Galaxy, Class AA - Series 2 shares shall not be entitled
to vote, except where otherwise required by law or permitted by the Board
of Trustees of Galaxy, and except that if said matter affects Class AA -
Series 2 shares, such shares shall be entitled to vote and, in such case,
Class AA - Series 2 shares shall be voted in the aggregate together with
all other shares of beneficial interest in Galaxy voting on the matter and
not by class or series, except where otherwise required by law or
permitted by the Board of Trustees; and
(l) on any matter that pertains to the agreements, arrangements, expenses
or liabilities described in clause (a) or clause (b) above (or to any plan
or other
-15-
<PAGE> 16
document adopted by Galaxy relating to said agreements, arrangements,
expenses or liabilities) and that is submitted to a vote of shareholders
of Galaxy, Class AA - Series 3 shares shall not be entitled to vote,
except where otherwise required by law or permitted by the Board of
Trustees of Galaxy, and except that if said matter affects Class AA -
Series 3 shares, such shares shall be entitled to vote and, in such case,
Class AA - Series 3 shares shall be voted in the aggregate together with
all other shares of beneficial interest in Galaxy voting on the matter and
not by class or series, except where otherwise required by law or
permitted by the Board of Trustees.
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<PAGE> 17
The foregoing resolutions remain in full force and effect as of the
date hereof.
--------------------------
W. Bruce McConnel, III
Secretary
Dated: December __, 1997
Subscribed and sworn to before
me this ____ day of December, 1997
- --------------------------------------
Notary Public or Commissioner of Deeds
My Commission Expires:
-17-
<PAGE> 1
EXHIBIT (5)(c)
ADDENDUM NO. 2 TO ADVISORY AGREEMENT
This Addendum No. 2, dated as of the ____ day of __________, 1998, is
entered into between THE GALAXY FUND, a Massachusetts business trust, located in
Westboro, Massachusetts ("Galaxy"), and FLEET INVESTMENT ADVISORS INC., a New
York corporation, located in Boston, Massachusetts (the "Adviser").
WHEREAS, Galaxy and the Adviser have entered into an Advisory
Agreement dated as of May 19, 1994, which was extended to additional investment
portfolios of Galaxy by Addendum No. 1 dated as of December 1, 1995 (the
"Advisory Agreement"), pursuant to which Galaxy appointed the Adviser to act as
investment adviser to Galaxy for its Money Market Fund, Government Fund,
Tax-Exempt Fund, U.S. Treasury Fund, Institutional Government Money Market
Fund, (formerly known as the Institutional Treasury Money Market 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, Rhode
Island Municipal Bond Fund, Equity Value Fund, Equity Growth Fund, Equity
Income Fund, International Equity Fund, Small Company Equity Fund, Asset
Allocation Fund, Growth and Income Fund, Connecticut Municipal Money Market
Fund, Massachusetts Municipal Money Market Fund and Small Cap Value Fund (each
a "Fund");
WHEREAS, Galaxy has notified the Adviser that it has established three
new portfolios, namely the New Jersey Municipal Bond Fund, MidCap Equity Fund
and Special Equity Fund and that it desires to retain the Adviser to act as the
investment adviser therefor, and the Adviser has notified Galaxy that it is
willing to serve as investment adviser for the New Jersey Municipal Bond Fund,
MidCap Equity Fund and Special Equity Fund;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. APPOINTMENT. Galaxy hereby appoints the Adviser to act as
investment adviser to Galaxy for the New Jersey Municipal Bond Fund, MidCap
Equity Fund and Special Equity Fund for the period and on the terms set forth in
the Advisory Agreement. The Adviser hereby accepts such appointment and agrees
to render the services set forth in the Advisory Agreement for the compensation
herein provided.
2. COMPENSATION. For the services provided and the expenses assumed
pursuant to the Advisory Agreement with respect to the New Jersey Municipal Bond
Fund, MidCap Equity Fund and Special Equity Fund, Galaxy will pay the Adviser
and the Adviser will accept as full compensation therefor fees, computed daily
and paid monthly, based on the net assets of the New Jersey Municipal Bond Fund,
Mid Cap Equity Fund and Special Equity Fund considered separately on a per-Fund
basis, at the annual rate of
<PAGE> 2
.75% of the net assets of each of the New Jersey Municipal Bond Fund, MidCap
Equity Fund and Special Equity Fund.
3. CAPITALIZED TERMS. From and after the date hereof, the term "Fund"
as used in the Advisory Agreement shall be deemed to include the New Jersey
Municipal Bond Fund, MidCap Equity Fund and Special Equity Fund. Capitalized
terms used herein and not otherwise defined shall have the meanings ascribed to
them in the Advisory Agreement.
4. MISCELLANEOUS. Except to the extent supplemented hereby, the
Advisory Agreement shall remain unchanged and in full force and effect and is
hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this Addendum as of
the date and year first above written.
THE GALAXY FUND
By:
--------------------------
Title: President
FLEET INVESTMENT ADVISORS INC.
By:
-------------------------
Title:
----------------------
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<PAGE> 1
EXHIBIT (6)(a)
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this 1st day of June, 1997 (the "Agreement")
by and between The Galaxy Fund (the "Company"), a Massachusetts business trust,
and First Data Distributors, Inc. (the "Distributor"), a Massachusetts
corporation.
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and is currently offering units of beneficial interest (such units of all
classes and series are hereinafter called the "Shares"), representing interests
in investment portfolios of the Company identified on Schedule A hereto (the
"Funds") which are registered with the Securities and Exchange Commission (the
"SEC") pursuant to the Company's Registration Statement on Form N-IA (the
"Registration Statement"); 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 Company desires to retain the Distributor as distributor for
the Funds to provide for the sale and distribution of the Shares of the Funds
identified on Schedule A and for such additional classes or series as the
Company may issue, and the Distributor is prepared to provide such services
commencing on the date first written above.
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:
1. SERVICE AS DISTRIBUTOR
1.1 The Distributor will act as the Company's disclosed agent for the
distribution of the Shares covered by the Registration Statement 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 efforts deemed appropriate by the
Distributor to solicit orders for the sale of the Shares and will
undertake such advertising and promotion as it believes reasonable in
connection with such
<PAGE> 2
solicitation. The Distributor shall, at its own expense, finance
appropriate activities which it deems reasonable which are primarily
intended to result in the sale of 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 shall bear the expenses incurred and other
payments made in accordance with the provisions of this Agreement and any
plan now in effect 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").
1.3 The Company understands that the Distributor is now, and may in the future
be, the distributor of the shares of several investment companies or
series (collectively, the "Investment Entities"), including Investment
Entities having investment objectives similar to those of the Funds. The
Company further understands that investors and potential investors in the
Funds may invest in shares of such other Investment Entities. The Company
agrees that the Distributor's duties to such Investment Entities shall not
be deemed in conflict with its duties to the Company under this Section
1.3.
1.4 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.
1.5 The Distributor may enter into selling agreements with selected dealers or
other, institutions with respect to the offering of Shares to the public.
Each selling agreement will provide that (a) all payments for purchases of
Shares will be sent directly from the dealer or such other institution to
the Funds' transfer agent and (b) 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
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 the Company.
1.6 The Distributor will send a confirmation to each purchaser of Shares under
this Agreement. Such confirmations will
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<PAGE> 3
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.
1.7 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 the
Company's Declaration of Trust and the then current Prospectuses) plus,
except with respect to certain classes of persons and transactions set
forth in the then current Prospectuses, (b) a sales charge which shall be
the percentage of the Offering Price of such Load Shares as set forth in
the then current Prospectuses. 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 concessions are
described in the then current Prospectuses, 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 the Company in
connection with the offering or sale of the Load Shares to the public or
otherwise.
1.8 If any Load Shares sold by the Company are redeemed or repurchased by the
Company 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 the
Company 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 the Company or by the Distributor as disclosed agent (or
tendered for redemption) within seven business days after the date of
confirmation of such initial purchases.
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<PAGE> 4
1.9 The Distributor agrees to be responsible for implementing and operating
the Plans in accordance with the terms thereof.
1.10 With respect to CDSC Shares, the Distributor shall impose a CDSC in
connection with the redemption of such CDSC 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 Prospectuses. The Distributor
may retain (or receive from the Company, as the case may be) all or any
CDSC. The Distributor may, but shall not be required to, pay to
broker-dealers or other persons through whom such CDSC Shares are sold a
commission or other payment to the extent consistent with the then current
Prospectuses and applicable rules and regulations.
1.11 The Distributor shall not utilize any materials in connection with the
sale or offering of Shares except the Company's then current Prospectuses
and Statements of Additional Information and such other materials as the
Company shall provide or approve.
1.12 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 SEC or the National
Association of Securities Dealers.
1.13 The Distributor will transmit any orders received by it for purchase or
redemption of the Shares to the transfer agent and custodian for the
Company.
1.14 Whenever in their judgment such action is warranted by unusual market,
economic or political conditions or abnormal circumstances of any kind,
officers of the Company 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, and the Company shall notify
the Distributor promptly of any such determination.
1.15 The Company agrees to pay all costs and expenses in connection with the
registration of Shares under the 1933 Act and all expenses in connection
with maintaining facilities for the issue and transfer of Shares and for
supplying information, prices and other data to be furnished by the
Company hereunder, and all expenses in connection with the preparation and
printing of the Company's Prospectuses and Statements of Additional
Information for regulatory purposes and for distribution to existing
shareholders.
-4-
<PAGE> 5
1.16 The Company 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. The
Company shall notify the Distributor in writing of the states in which the
Shares are to be sold and shall notify the Distributor in writing of any
changes to the information contained in the previous notification.
1.17 The Company shall furnish from time to time, for use in connection with
the sale of the Shares, such information with respect to the Company and
the Shares as the Distributor may reasonably request; and the Company
warrants that the statements contained in any such information shall
fairly show or represent what they purport to show or represent. The
Company shall also furnish the Distributor upon request with: (a) audited
annual statements and unaudited semi-annual statements of the Funds' books
and accounts prepared by the Company, (b) quarterly earnings statements of
the Funds prepared by the Company, (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.
1.18 The Company represents to the Distributor that all Registration Statements
and Prospectuses filed by the Company with the SEC under the 1933 Act with
respect to the Shares have been prepared in conformity with the
requirements of the 1933 Act and the rules and regulations of the SEC
thereunder. As used in this Agreement, the terms "Registration Statement"
and "Prospectus" shall mean any Registration Statement and any Prospectus
(including any Statement of Additional Information incorporated therein by
reference) relating to the Company filed with the SEC and any amendments
or supplements thereto at any time filed with the SEC. The Company
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 SEC; 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 no Registration Statement or 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
-5-
<PAGE> 6
therein not misleading to a purchaser of the Shares. The Distributor 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 the Distributor's counsel, be necessary or
advisable. The Distributor shall promptly notify the Company of any advice
given to it by its counsel regarding the necessity or advisability of
amending or supplementing such Registration Statement or Prospectus. If
the Company shall not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt by the Company
of a written request from the Distributor to do so, the Distributor may,
at its option, terminate this Agreement. The Company 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 the Company's right to file at any time such amendments to any
Registration Statement and/or supplements to any Prospectus, of whatever
character, as the Company may deem advisable, such right being in all
respects absolute and unconditional.
1.19 The Company authorizes the Distributor (and dealers pursuant to any
agreements described in Section 1.5 above) to use any Prospectus in the
form furnished by the Company from time to time in connection with the
sale of the Shares. The Company agrees to indemnify, defend and hold the
Distributor, its several officers and directors, and any person 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 reasonable 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 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 any Registration Statement or any Prospectus or necessary to
make the statements in either thereof not misleading; provided, however,
that the Company'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
representations or statements contained in any Registration Statement or
in any Prospectus that were
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<PAGE> 7
furnished in writing to the Company or its counsel by the Distributor
expressly for use 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 such information furnished in writing by the Distributor
to the Company or its counsel and required to be stated in such answers or
necessary to make such answers not misleading; and further provided that
the Company's agreement to indemnify the Distributor and the Company's
representations and warranties hereinbefore set forth in Section 1.18
shall not be deemed to cover any liability to the Company 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 disregard of its duties
and obligations under this Agreement. The Company's indemnification
agreement contained in this Section 1.19 and the Company'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 delivery of any Shares. The Company agrees promptly to
notify the Distributor of the commencement of any litigation or
proceedings against the Company or any of its officers or trustees in
connection with the issue and sale of any Shares. This agreement to
indemnify 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 its controlling persons and their
successors.
1.20 The Distributor agrees to indemnify, defend and hold the Company, its
several officers and trustees, and any person who controls the Company
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 reasonable counsel fees incurred in connection
therewith) which the Company, 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 the Company, 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 the Company or its
counsel expressly for use in the answers to any of the items of the
Registration Statement or in the corresponding statements made in the
Prospectus, or shall
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<PAGE> 8
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 the Company or its counsel and required to be stated
in such answers or necessary to make such information not misleading. The
Distributor's indemnification agreement contained in this Section 1.20 and
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 Company or its officers and trustees, and shall survive the
delivery of any Shares. The Distributor agrees promptly to notify the
Company of the commencement of any litigation or proceedings against the
Distributor or any of its officers, directors or controlling persons in
connection with the issuance and sale of any of the Shares.
1.21 (a) In any case in which one party hereto (the "Indemnifying Party") may
be asked to indemnify or hold the other party hereto (the "Indemnified
Party") harmless, the Indemnified Party will notify the Indemnifying Party
in writing promptly after identifying any situation which it believes
presents or appears likely to present a claim for indemnification (an
"Indemnification Claim") against the Indemnifying Party, although the
failure to do so shall not relieve the Indemnifying Party from any
liability which it may otherwise have to the Indemnified Party, and the
Indemnified Party shall keep the Indemnifying Party advised with respect
to all developments concerning such situation. The Indemnifying Party
shall be entitled to participate at its own expense in the defense, or if
it so elects, to assume the defense of, any Indemnification Claim which
may be the subject of this indemnification, and, in the event that the
Indemnifying Party so elects, such defense shall be conducted by counsel
of good standing chosen by the Indemnifying Party and approved by the
Indemnified Party, which approval shall not be unreasonably withheld. In
the event the Indemnifying Party elects to assume the defense of any such
Indemnification Claim and retain such counsel, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by the
Indemnified Party. The Indemnified Party will not confess any
Indemnification Claim or make any compromise in any case in which the
Indemnifying Party will be asked to provide indemnification, except with
the Indemnifying Party's prior written consent.
(b) In the event that the Company is the Indemnifying Party and the
Indemnifying Party does not elect to assume the defense of any such
Indemnification Claim, or in case the Distributor reasonably does not
approve of counsel chosen by the Company, the Company will reimburse the
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<PAGE> 9
Distributor, its officers, directors and employees, or the controlling
person or persons named as defendant or defendants in such Indemnification
Claim, for the fees and expenses of any counsel retained by the
Distributor or them.
(c) The obligations of the parties hereto under Sections 1.19 through 1.21
shall survive the termination of this Agreement.
1.22 No Shares shall be offered by either the Distributor or the Company under
any of the provisions of this Agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by the Company 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 5(b)(2) of the 1933 Act is not on file with the SEC;
provided, however, that nothing contained in this Section 1.22 shall in
any way restrict or have any application to or bearing upon the Company's
obligation to redeem Shares tendered for redemption by any shareholder in
accordance with the provisions of the Company's Registration Statement or
Declaration of Trust.
1.23 The Company 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 SEC for amendments to the Registration
Statement or Prospectus then in effect or for additional information;
(b) in the event of the issuance by the SEC of any stop order suspending
the effectiveness of the Registration Statement or Prospectus then in
effect or the initiation by service of process on the Company 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 that 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 actions of the SEC with respect to any amendments to any
Registration Statement or Prospectus which may from time to time be
filed with the SEC.
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<PAGE> 10
For purposes of this Section 1.23, informal requests by or acts of the
staff of the SEC shall not be deemed actions of or requests by the SEC.
2. TERM
2.1 This Agreement shall become effective on the date first written above and,
unless sooner terminated as provided herein, shall continue for an initial
one-year term and thereafter shall continue automatically for successive
one- year terms, provided such continuance is specifically approved at
least annually by (i) the Company's Board of Trustees or (ii) by a vote of
a majority (as defined in the 1940 Act and Rule 18f-2 thereunder) of the
outstanding voting securities of the Company, provided that in either
event the continuance is also approved by a majority of the 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 at least sixty days'
written notice, by the Company's Board of Trustees, by vote of a majority
(as defined in the 1940 Act and Rule 18f-2 thereunder) of the outstanding
voting securities of the Company, or by the Distributor. This Agreement
will also terminate automatically in the event of its assignment (as
defined in the 1940 Act and the rules thereunder).
2.2 In the event a termination notice is given by the Company and provided
that the Distributor is not in default under this Agreement at the time of
such termination notice, all reasonable expenses associated with movement
of records and materials and conversion thereof to a successor distributor
will be borne by the Company.
3. LIMITATION OF LIABILITY
3.1 The Distributor shall not be liable to the Company for any error of
judgment or mistake of law or for any loss suffered by the Company in
connection with the performance of its obligations and duties under this
Agreement, except a loss resulting from the Distributor's willful
misfeasance, bad faith or negligence in the performance of such
obligations and duties, or by reason of its reckless disregard thereof.
3.2 Each party shall have the duty to mitigate damages for which the other
party may become responsible.
3.3 NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF
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<PAGE> 11
ITS OR THEIR DIRECTORS, TRUSTEES, OFFICERS, EMPLOYEES, AGENTS OR
SUBCONTRACTORS BE LIABLE TO THE OTHER PARTY FOR CONSEQUENTIAL DAMAGES,
PROVIDED, HOWEVER, THAT NOTHING CONTAINED IN THIS SECTION 3.3 SHALL BE
CONSTRUED SO AS TO LIMIT THE RIGHT OF ANY SHAREHOLDER OF THE COMPANY,
WHETHER SUING ON HIS, HER OR ITS OWN BEHALF OR DERIVATIVELY THROUGH THE
COMPANY, TO CONSEQUENTIAL DAMAGES.
4. MODIFICATIONS AND WAIVERS
No change, termination, modification, or waiver of any term or condition
of the Agreement shall be valid unless in writing signed by each party. No
such writing shall be effective as against the Company unless said writing
is executed by the President of the Company. No such writing shall be
effective as against the Distributor unless said writing is executed by a
Senior Vice President, Executive Vice President or President of the
Distributor. A party's waiver of a breach of any term or condition in the
Agreement shall not be deemed a waiver of any subsequent breach of the
same or another term or condition.
5. NO PRESUMPTION AGAINST DRAFTER
The Distributor and the Company have jointly participated in the
negotiation and drafting of this Agreement. The Agreement shall be
construed as if drafted jointly by the Company and the Distributor, and no
presumptions arise favoring any party by virtue of the authorship of any
provision of this Agreement.
6. PUBLICITY
Neither the Distributor nor the Company shall release or publish news
releases, public announcements, advertising or other publicity relating to
this Agreement or to the transactions contemplated by it without prior
review and written approval of the other party; provided, however, that
either party may make such disclosures as are required by legal,
accounting or regulatory requirements after making reasonable efforts in
the circumstances to consult in advance with the other party.
7. SEVERABILITY
The parties intend every provision of this Agreement to be severable. If a
court of competent jurisdiction determines that any term or provision is
illegal or invalid for any reason, the illegality or invalidity shall not
affect the validity of the remainder of this Agreement. In such case, the
parties shall in good faith modify or substitute such provision consistent
with the original intent of the
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<PAGE> 12
parties. Without limiting the generality of this paragraph, if a court
determines that any remedy stated in this Agreement has failed of its
essential purpose, then all other provisions of this Agreement shall
remain fully effective.
8. FORCE MAJEURE
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or
delay is caused, directly or indirectly, by circumstances beyond such
party's reasonable control. In any such event, the nonperforming party
shall be excused from any further performance and observance of the
obligations so affected only for so long as such circumstances prevail and
such party continues to use commercially reasonable efforts to recommence
performance or observance as soon as practicable.
10. MISCELLANEOUS
10.1 Any notice or other instrument authorized or required by this Agreement to
be given in writing to the Company or the Distributor shall be
sufficiently given if addressed to the party and received by it at its
office set forth below or at such other place as it may from time to time
designate in writing.
To the Company:
John T. O'Neill, President
The Galaxy Fund
c/o Hasbro, Inc.
200 Narragansett Park Drive
Pawtucket, Rhode Island 02862
with a copy to:
W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
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<PAGE> 13
To the Distributor:
First Data Distributors, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to the Distributor's Chief Legal
Officer
10.2 The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, and the applicable provisions of the 1940 Act shall
govern the interpretation, validity, and enforcement of this Agreement. To
the extent the provisions of Massachusetts law or the provisions hereof
conflict with the 1940 Act, the 1940 Act shall control. All actions
arising from or related to this Agreement shall be brought in the state
and federal courts sitting in the City of Boston, and the Distributor and
the Company hereby submit themselves to the exclusive jurisdiction of
those courts.
10.3 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
10.4 The captions of 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.
10.5 This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and is not intended to
confer upon any other person any rights or remedies hereunder.
11. CONFIDENTIALITY
11.1 The parties agree that the Proprietary Information (defined below) and the
contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensers.
The Company and the Distributor shall exercise at least the same degree of
care, but not less than reasonable care, to safeguard the confidentiality
of the Confidential Information of the other as it would to protect its
own Confidential Information. The Company and the Distributor may use the
Confidential Information only to exercise their respective rights or
perform their respective duties under this Agreement. Except as otherwise
required by law and except as disclosed in the Company's Registration
Statement and
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<PAGE> 14
filed as an exhibit thereto, the Company and the Distributor shall not
duplicate, sell or disclose to others the Confidential Information of the
other, in whole or in part, without the prior written permission of the
other party. The Company and the Distributor may, however, disclose
Confidential Information to their respective employees who have a need to
know the Confidential Information to perform work for the other, provided
that the Company and the Distributor shall use reasonable efforts to
ensure that the Confidential Information is not duplicated or disclosed by
their respective employees in breach of this Agreement. The Company and
the Distributor may also disclose the Confidential Information to
independent contractors, auditors and professional advisors, provided they
first agree in writing to be bound by confidentiality obligations
substantially similar to this Section 11. Notwithstanding the previous
sentence, in no event shall either the Company or the Distributor disclose
the Confidential Information to any competitor of the other without
specific, prior written consent.
11.2 Proprietary Information means:
(a) any data or information that is competitively sensitive material, and
not generally known to the public, including but not limited to,
information about product plans, marketing strategies, finance,
operations, customer relationships, customer profiles, sales estimates,
business plans, and internal performance results relating to the past,
present or future business activities of the Company or the Distributor,
their respective subsidiaries and affiliated companies and the customers,
clients and suppliers of any of them;
(b) any scientific or technical information, design, process, procedure,
formula, or improvement that is commercially valuable and secret in the
sense that its confidentiality affords the Company or the Distributor a
competitive advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation, reports,
data, specifications, computer software, source code, object code, flow
charts, databases, inventions, know-how, show-how and trade secrets,
whether or not patentable or copyrightable.
11.3 Confidential Information includes, without limitations all documents,
inventions, substances, engineering and laboratory notebooks, drawings,
diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either
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<PAGE> 15
party which now exist or come into the control or possession of the other.
11.4 Notwithstanding the foregoing, it is hereby understood and agreed by the
parties hereto that any marketing strategies, financing plans, customer
profiles, sales estimates, business plans or similar items prepared or
developed by the Distributor for the benefit of the Company shall be
considered the Proprietary Information of the Company and nothing in this
Agreement shall be construed to prevent or prohibit the Company from
disclosing such Proprietary Information to a successor distributor.
12. OBLIGATIONS OF THE TRUST
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.
13. ENTIRE AGREEMENT
This Agreement, including the Schedule hereto, constitutes the entire
agreement between the parties with respect to the subject matter hereof
and supersedes all prior and contemporaneous proposals, agreements,
contracts, representations, and understandings, whether written or oral,
between the parties with respect to the subject matter hereof.
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<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE GALAXY FUND
By: /s/ John T. O'Neill
-------------------
Name: John T. O'Neill
---------------
Title: President
---------
FIRST DATA DISTRIBUTORS, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE GALAXY FUND
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
FIRST DATA DISTRIBUTORS, INC.
By: /s/ Francis Koudelka
--------------------
Name: Francis Koudelka
----------------
Title: President and CEO
-----------------
A-1
<PAGE> 18
SCHEDULE A
NAME OF FUNDS
Money Market Fund
Government Fund
Tax-Exempt Fund
U.S. Treasury Fund
Institutional Government 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
Rhode Island Municipal Bond Fund
A-2
<PAGE> 1
EXHIBIT (6)(b)
THE GALAXY FUND
DISTRIBUTION AGREEMENT
Amendment No. 1
__________________, 1998
First Data Distributors, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Dear Sirs:
This letter is to confirm that the undersigned, The Galaxy Fund (the
"Trust"), a Massachusetts business trust, has agreed that the Distribution
Agreement between the Trust and First Data Distributors, Inc. ("FD
Distributors") dated as of June 1, 1997 (the "Agreement") is herewith amended to
provide that FD Distributors shall be the distributor for the Trust's New Jersey
Municipal Bond Fund, MidCap Equity Fund and Special Equity Fund on the terms and
conditions contained in the Agreement.
If the foregoing is in accordance with your understanding, will you so
indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
THE GALAXY FUND
By:
-------------------------
Name: John T. O'Neill
Title: President
Accepted:
FIRST DATA DISTRIBUTORS, INC.
By:
-----------------------
Name:
Title:
<PAGE> 1
EXHIBIT (8)(b)
THE GALAXY FUND
Amendment to
GLOBAL CUSTODY AGREEMENT
_____________, 1998
The Chase Manhattan Bank
Chase Metrotech Center
Brooklyn, NY 11245
Attn: Global Custody Division
Dear Sirs:
This letter is to confirm that the undersigned, The Galaxy Fund (the
"Trust"), a Massachusetts business trust, has agreed that the Global Custody
Agreement ("Agreement") between the Trust and The Chase Manhattan Bank
(formerly The Chase Manhattan Bank, N.A.) ("Chase") dated as of November 1,
1991, is herewith amended to provide that Chase shall be the custodian for the
Trust's New Jersey Municipal Bond Fund, Mid Cap Equity Fund and Special Equity
Fund on the terms and conditions contained in the Agreement.
If the foregoing is in accordance with your understanding, will you so
indicate by signing and returning to us the enclosed copy thereof.
Very truly yours,
THE GALAXY FUND
By:
---------------------------
Name:
Title:
Accepted:
THE CHASE MANHATTAN BANK
By:
--------------------------
Name:
Title:
<PAGE> 1
EXHIBIT (9)(a)
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made as of June 1, 1997 (the
"Agreement"), by and between FIRST DATA INVESTOR SERVICES GROUP, INC., a
Massachusetts corporation ("FDISG"), and THE GALAXY FUND, a Massachusetts
business trust (the "Company").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Company desires to retain FDISG to render certain
administrative services with respect to each investment portfolio listed in
Schedule A hereto, as the same may be amended from time to time by the parties
hereto (collectively, the "Funds"), and FDISG is willing to render such
services;
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Company hereby appoints FDISG to act as
Administrator of the Company for the period and on the terms set forth in this
Agreement. FDISG accepts such appointment and agrees to render the services
herein set forth for the compensation herein provided. In the event that the
Company decides to retain FDISG to act as Administrator hereunder with respect
to one or more portfolios other than the Funds, the Company shall notify FDISG
in writing. If FDISG is willing to render such services, it shall notify the
Company in writing whereupon such portfolio shall become a Fund hereunder.
2. Delivery of Documents. The Company has furnished FDISG with copies
properly certified or authenticated of each of the following:
(a) Resolutions of the Company's Board of Trustees authorizing the
appointment of FDISG to provide certain administrative services required by the
Company for each Fund and approving this Agreement;
(b) The Company's Declaration of Trust (the "Declaration of Trust")
filed with the Commonwealth of Massachusetts and all amendments thereto;
(c) The Company's Code of Regulations and all amendments thereto
(the "Code of Regulations");
<PAGE> 2
(d) The Investment Advisory Agreement between Fleet Investment
Advisors Inc. (the "Adviser") and the Company and all amendments thereto (the
"Advisory Agreement");
(e) The Global Custody Agreement between The Chase Manhattan Bank
(the "Custodian") and the Company and all amendments thereto (the "Custody
Agreement");
(f) The Transfer Agency and Services Agreement between First Data
Investor Services Group, Inc. (the "Transfer Agent") and the Company and all
amendments thereto (the "Transfer Agency Agreement");
(g) The Distribution Agreement between First Data Distributors,
Inc. (the "Distributor") and the Company and all amendments thereto (the
"Distribution Agreement");
(h) The Company's Registration Statement on Form N-IA (the
"Registration Statement") under the Securities Act of 1933 and under the 1940
Act (File Nos. 33-4806 and 811-4630), as declared effective by the Securities
and Exchange Commission ("SEC"), relating to shares of beneficial interest of
the Company, and all amendments thereto;
(i) Each Fund's most recent prospectuses and statement of
additional information and all amendments and supplements thereto (collectively,
the "Prospectuses");
(j) Each Servicing Agreement between the Company and certain
institutional shareholders ("Service Organizations") and all amendments thereto
(each, a "Servicing Agreement"); and
(k) Procedures adopted by the Board of Trustees relating to the
pricing and valuation of the portfolio securities of each Fund.
The Company will furnish FDISG from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing. Furthermore, the Company will provide FDISG with any other documents
that FDISG may reasonably request and will notify FDISG as soon as possible of
any matter materially affecting the performance by FDISG of its services under
this Agreement.
3. Duties as Administrator.
(a) Subject to the supervision and direction of the Board of
Trustees of the Company, FDISG, as Administrator, will assist in supervising
various aspects of the Company's administrative operations and undertakes to
perform the following specific services:
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<PAGE> 3
(i) Maintaining office facilities (which may be in the
offices of FDISG or a corporate affiliate) and furnishing officers for the
Company;
(ii) Furnishing statistical and research data, clerical,
accounting and bookkeeping services (including the maintenance of such accounts,
books and records of the Company as may be required by Section 31(a) of the 1940
Act and the rules thereunder) and stationery and office supplies;
(iii) Providing internal auditing and legal services (as
described in Schedule D to this Agreement) and internal and executive
administrative services;
(iv) Performing all functions ordinarily performed by the
office of a treasurer, and furnishing the services and facilities ordinarily
incident thereto, including calculating the net asset value of the shares of
each Fund and the net income available for distribution in conformity with each
Fund's current Prospectus and resolutions of the Board of Trustees, which
resolutions have been provided to FDISG;
(v) Preparing those portions of the Company's Annual and
Semi-Annual Reports to shareholders and semi-annual reports to the SEC on Form
N-SAR that pertain to each Fund and coordinating and filing such reports;
(vi) Compiling data for and preparing for execution those
portions of the Company's federal and state tax returns and required tax filings
that pertain to each Fund and filing such returns and filings when completed
(other than those filings made by the Custodian or Transfer Agent);
(vii) Assisting the Adviser, at the Adviser's request, in
monitoring and developing compliance procedures for the Company which will
include, among other matters, procedures to assist the Adviser in monitoring
compliance with each Fund's investment objective, policies, restrictions, tax
matters and applicable laws and regulations;
(vii) Performing "Blue Sky" compliance functions, including
maintaining notice filings, registrations or "Blue Chip" exemptions (if
available) in all U.S. jurisdictions requested in writing by the Company,
monitoring sales of shares in all such jurisdictions and filing such additional
notice or applying for such additional or amended registrations as may be
reasonably anticipated to be necessary to permit continuous sales of the shares
of the Funds in all such jurisdictions, filing sales literature and advertising
materials to the extent required, with such Blue Sky authorities, and making and
filing all other applications, reports, notices, documents and exhibits in
connection with the foregoing;
(viii) Performing custody liaison operations, including
maintaining the day-to-day operational contact with the Custodian, calculating
daily cash availability, authorizing and monitoring cash movements, processing
corporate actions, supporting income and security settlements processed by the
Custodian and recorded by FDISG;
-3-
<PAGE> 4
(ix) Compiling data for notices to the SEC required with
respect to the registration of each Fund's shares pursuant to Rules 24e-2 and
24f-2 under the 1940 Act;
(x) Arranging for and bearing the cost of processing
purchase and redemption orders with respect to each Fund's shares;
(xi) Monitoring the Company's arrangements with respect to
services provided by Service Organizations to their customers, who are
beneficial owners of any class of shares of the Company's shares of beneficial
interest (including any class or series thereof), pursuant to Servicing
Agreements, including, among other things, reviewing the qualifications of
Service Organizations wishing to enter into Servicing Agreements with the
Company, 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 the Company 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
(xii) Furnishing all other services identified on Schedule D
attached hereto and incorporated herein which are not otherwise specifically set
forth above.
(b) In addition to the duties set forth herein, FDISG shall perform
such other duties and functions, and shall be paid such amounts therefor, as may
from time to time be agreed upon in writing by the Company and FDISG.
(c) In compliance with the requirements of Rule 3la-3 under the
1940 Act, FDISG hereby agrees that all records which it maintains for the
Company are the property of the Company, and further agrees to surrender
promptly to the Company any of such records upon the Company'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 under Rule 31a-1 of the 1940 Act.
(d) 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 the Company to obtain securities prices. Each Fund will
pay its share of the cost of such services based upon its actual use of the
services.
(e) In performing its duties under this Agreement, FDISG: (a) will
act in accordance with the Company's Declaration of Trust, Code of Regulations,
Prospectuses and with the instructions and directions of the Company and will
conform to and comply with the requirements of the 1940 Act and all other
applicable federal or state laws and regulations; and (b) will consult with
legal counsel to the Company, as necessary and appropriate. Furthermore, FDISG
shall not have or be required to have any authority to supervise the investment
or reinvestment of the securities or other properties which comprise the assets
of
-4-
<PAGE> 5
the Company or any of its Funds and shall not provide any investment advisory
services to the Company or any of its Funds.
4. Compensation and Allocation of Expenses. FDISG shall bear all
expenses in connection with the performance of its services under this
Agreement, except as indicated below.
(a) FDISG will from time to time employ or associate with itself
such person or persons as FDISG may believe to be particularly suited to assist
it in performing services under this Agreement. Such person or persons may be
officers and employees who are employed by both FDISG and the Company. The
compensation of such person or persons shall be paid by FDISG and no obligation
shall be incurred on behalf of the Company in such respect.
(b) FDISG shall not be required to pay any of the following
expenses incurred by the Company: membership dues in the Investment Company
Institute or any similar organization investment advisory fees and expenses;
interest on borrowed money; fees of Trustees of the Company who are not
affiliated with FDISG; outside auditing expenses; outside legal expenses; taxes;
brokerage fees and commissions; SEC fees and state Blue Sky qualification fees;
custodian, transfer and dividend disbursing agents' fees; certain insurance
premiums; 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; or other expenses not specified in this Section 4 which may be
properly payable by the Company. 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, except pursuant to any plan now in effect or
hereafter adopted with respect to any one or more series of shares of the Funds
pursuant to Rule 12b-I under the 1940 Act.
(c) The Company on behalf of each of the Funds will compensate
FDISG for the performance of its obligations hereunder in accordance with the
fees set forth in the written Fee Schedule attached hereto as Schedule B and
incorporated herein.
(d) The Company on behalf of each of the Funds will pay to FDISG
domestic and/or global custody fees and expenses for each Fund as set forth in
Schedule B. FDISG shall be the party responsible for payment of all fees and
expenses under the terms of the Custody Agreement.
(e) The fees set forth in Schedule B do not include out-of-pocket
disbursements of FDISG for which FDISG shall be entitled to bill separately.
Out-of-pocket disbursements shall include, but shall not be limited to, (i) the
items specified in the written schedule of out-of-pocket expenses attached
hereto as Schedule C and incorporated herein, as the same may be modified from
time to time by written agreement of the parties hereto, and (ii) the Special
Projects outlined in Schedule D hereto.
-5-
<PAGE> 6
(f) FDISG will submit a detailed bill to the Company as soon as
practicable after the end of each calendar month for all out-of-pocket
disbursements made during such month. The Company will promptly pay to FDISG the
amount of such billing.
(g) The Company acknowledges that the fees that FDISG charges the
Company under this Agreement reflect the allocation of risk between the parties,
including the disclaimer of warranties in Section 7 and the limitations on
liability in Section 5. Modifying the allocation of risk from what is stated
here would affect the fees that FDISG charges, and in consideration of those
fees, the Company agrees to the stated allocation of risk.
5. Limitation of Liability.
(a) FDISG shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Company in connection with the
performance of its obligations and duties under this Agreement, except a loss
resulting from FDISG's willful misfeasance, bad faith or negligence in the
performance of such obligations and duties, or by reason of its reckless
disregard thereof.
(b) Each party shall have the duty to mitigate damages for which
the other party may become responsible.
(c) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN
NO EVENT SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
TRUSTEES, OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE TO THE OTHER
PARTY FOR CONSEQUENTIAL DAMAGES.
6. Indemnification.
(a) The Company shall indemnify and hold FDISG harmless from and
against any and all claims, costs, expenses (including reasonable attorneys'
fees), losses, damages, charges, payments and liabilities of any sort or kind
which may be asserted against FDISG or for which FDISG may be held to be liable
(a "Claim") arising out of or attributable to any of the following, unless such
Claim resulted from a negligent act or omission to act or bad faith by FDISG in
the performance of its duties hereunder:
(i) FDISG's reasonable reliance on, or reasonable use of
information, data, records and documents received by FDISG from the Company, or
any authorized third party acting on behalf of the Company, in the performance
of FDISG's duties and obligations hereunder; and
-6-
<PAGE> 7
(ii) the Company's refusal or failure to comply with the terms
of this Agreement or any Claim which arises out of the Company's negligence or
misconduct or the breach of any representation or warranty by the Company made
herein.
(b) In any case in which the Company may be asked to indemnify or
hold FDISG harmless, FDISG will notify the Company promptly after identifying
any situation which it believes presents or appears likely to present a claim
for indemnification against the Company although the failure to do so shall not
prevent recovery by FDISG and shall keep the Company advised with respect to all
developments concerning such Indemnification Claim. The Company shall have the
option to defend FDISG against any Indemnification Claim and, in the event that
the Company so elects, such defense shall be conducted by counsel chosen by the
Company and satisfactory to FDISG, and thereupon the Company shall take over
complete defense of the Claim and FDISG shall sustain no further legal or other
expenses in respect of such Indemnification Claim. FDISG will not confess any
Indemnification Claim or make any compromise in any case in which the Company
will be asked to provide indemnification, except with the Company's prior
written consent. Subject to subsection (c) hereof, the obligations of the
parties hereto under this Section 6 shall survive the termination of this
Agreement.
(c) Any Indemnification Claim under this Agreement must be made
prior to the earlier of:
(i) one year after FDISG becomes aware of the event for which
indemnification is claimed; or
(ii) one year after the earlier of the termination of this
Agreement or the expiration of the term of this Agreement.
(d) Except for remedies that cannot be waived as a matter of law
(and injunctive or provisional relief), the provisions of this Section 6 shall
be FDISG's sole and exclusive remedy for claims or other actions or proceedings
to which the Company's indemnification obligations pursuant to this Section 6
may apply.
7. EXCLUSION OF WARRANTIES. THIS IS A SERVICE AGREEMENT. EXCEPT AS
EXPRESSLY PROVIDED IN THIS AGREEMENT, FDISG DISCLAIMS ALL OTHER REPRESENTATIONS
OR WARRANTIES, EXPRESS OR IMPLIED, MADE TO THE CONTRARY OR ANY OTHER PERSON.
8. Termination of Agreement.
(a) This Agreement shall be effective on the date first written
above and shall continue for a period of one (1) year (the "Initial Term"),
unless earlier terminated pursuant to the terms of this Agreement. Thereafter,
this Agreement shall continue automatically for additional terms of one (1) year
("Renewal Terms") each.
-7-
<PAGE> 8
(b) Either party may terminate this Agreement at the end of the
Initial Term or at the end of any subsequent Renewal Term upon not than less
than sixty (60) days prior written notice to the other party.
(c) The Company may terminate this Agreement in the event that the
negligent action or negligent omission to act on the part of FDISG causes
damages to the Company or its shareholders in excess of one hundred thousand
dollars ($100,000). "Damages to the Company" are defined as damages caused by a
single event, or cumulative series of events related to the same matter, which
generates a monetary loss. The Company's right to terminate under this Section
8(c) shall remain effective in the event FDISG has made the Company whole with
respect to the damages caused. Unless the Company provides FDISG with written
notice of the Company's intent to exercise its option under this Section 8(c)
within 30 days after the Company becomes aware of the occurrence, the Company
shall have waived its option to terminate under this provision.
(d) If a party hereto is guilty of a material failure to perform
its duties and obligations hereunder (a "Defaulting Party"), such other party
(the "Non-Defaulting Party") may give written notice thereof to the Defaulting
Party, and if such material breach shall not have been remedied within thirty
(30) days after such written notice is given, then the Non-Defaulting Party may
terminate this Agreement by giving thirty (30) days written notice of such
termination to the Defaulting Party. If FDISG is the Non-Defaulting Party, its
termination of this Agreement shall not constitute a waiver of any other rights
or remedies of FDISG with respect to services performed prior to such
termination or rights of FDISG to be reimbursed for out-of- pocket expenses. In
all cases, termination by the Non-Defaulting Party shall not constitute a waiver
by the Non-Defaulting Party of any other rights it might have under this
Agreement or otherwise against the Defaulting Party.
(e) The Company shall have the right to terminate this Agreement at
any time if the Company reorganizes into another entity, liquidates or otherwise
ceases to exist. In the event the Company terminates the Agreement pursuant to
this Section 8(e), the Company shall reimburse FDISG for all reasonable costs
associated with such termination.
(f) In the event this Agreement is terminated by the Company
pursuant to Sections 8(c) or 8(d) hereof, all reasonable expenses associated
with movement of records and materials and conversion thereof to a successor
administrator all be borne by FDISG and the Company shall not be responsible for
FDISG's costs associated with such termination. In the event of termination of
this Agreement pursuant to any other Section of this Agreement, all reasonable
expenses associated with conversion to a successor administrator will be borne
by the Company.
9. Modifications and Waivers. No change, termination, modification, or
waiver of any term or condition of this Agreement shall be valid unless in
writing signed by each party. No such writing shall be effective as against
the Company unless said writing is executed by the President of the Company. No
such writing shall be effective as against
-8-
<PAGE> 9
FDISG unless said writing is executed by a Senior Vice President, Executive Vice
President or President of FDISG. A party's waiver of a breach of any term or
condition in the Agreement shall not be deemed a waiver of any subsequent breach
of the same or another term or condition.
10. No Presumption Against Drafter. FDISG and the Company have jointly
participated in the negotiation and drafting of this Agreement. The Agreement
shall be construed as if drafted jointly by the Company and FDISG, and no
presumptions arise favoring any party by virtue of the authorship of any
provision of this Agreement.
11. Publicity. Neither FDISG nor the Company shall release or publish
news releases, public announcements, advertising or other publicity relating to
this Agreement or to the transactions contemplated by it without prior review
and written approval of the other party; provided, however, that either party
may make such disclosures as are required by legal, accounting or regulatory
requirements after making reasonable efforts in the circumstances to consult in
advance with the other party.
12. Severability. The parties intend every provision of this Agreement to
be severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
13. Miscellaneous.
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Company or FDISG shall be sufficiently
given if addressed to the party and received by it at its office set forth below
or at such other place as it may from time to time designate in writing.
To the Company:
John T. O'Neill, President
The Galaxy Fund c/o Hasbro, Inc.
200 Narragansett Park Drive
Pawtucket, Rhode Island 02862
-9-
<PAGE> 10
with a copy to:
W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
To FDISG:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, Massachusetts 01581
Attention: President
with a copy to FDISG's General Counsel
(b) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns and
is not intended to confer upon any other person any rights or remedies
hereunder. This Agreement may not be assigned or otherwise transferred by either
party hereto, without the prior written consent of the other party, which
consent shall not be unreasonably withheld; provided, however, that FDISG may,
in its sole discretion, assign all its fight, title and interest in this
Agreement to an affiliate, parent or subsidiary, provided that, in the
reasonable judgment of the Board of Trustees of the Company acting in its sole
discretion: (i) the financial capacity of such assignee is not materially less
than that of FDISG; (ii) the nature and quality of the services to be provided
hereunder are not materially adversely affected by such assignment; and (iii)
the quality and capability of the personnel and facilities of the assignee are
not materially less than those of FDISG. FDISG may, in its sole discretion,
engage subcontractors to perform any non-material or non-substantive obligations
contained in this Agreement that it is otherwise required to perform hereunder,
provided that FDISG shall be responsible for all compensation payable to such
subcontractors and shall remain responsible for the acts and omissions of such
subcontractors to the same extent that it is hereunder.
(c) The laws of the Commonwealth of Massachusetts, excluding the
laws on conflicts of laws, shall govern the interpretation, validity, and
enforcement of this Agreement. All actions arising from or related to this
Agreement shall be brought in the state and federal courts sitting in the City
of Boston, and FDISG and the Company hereby submit themselves to the exclusive
jurisdiction of those courts.
(d) This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
-10-
<PAGE> 11
(e) The captions of 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.
(f) 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.
14. Confidentiality.
(a) The parties agree that the Proprietary Information (defined
below) and the contents of this Agreement (collectively "Confidential
Information") are confidential information of the parties and their respective
licensers. The Company and FDISG shall exercise at least the same degree of
care, but not less than reasonable care, to safeguard the confidentiality of the
Confidential Information of the other as it would to protect it own Confidential
Information. The Company and FDISG may use the Confidential Information only to
exercise their respective rights or perform their respective duties under this
Agreement. Except as otherwise required by law and except as disclosed in the
Company's Registration Statement or filed as an exhibit thereto, the Company and
FDISG shall not duplicate, sell or disclose to others the Confidential
Information of the other, in whole or in part, without the prior written
permission of the other party. The Company and FDISG may, however, disclose
Confidential Information to their respective employees who have a need to know
the Confidential Information to perform work for the other, provided that the
Company and FDISG shall use reasonable efforts to ensure that the Confidential
Information is not duplicated or disclosed by their respective employees in
breach of this Agreement. The Company and FDISG may also disclose the
Confidential Information to independent contractors, auditors and professional
advisors, provided they first agree in writing to be bound by the
confidentiality obligations substantially similar to this Section 14.
Notwithstanding the previous sentence, in no event shall either the Company or
FDISG disclose the Confidential Information to any competitor of the other
without specific, prior written consent.
(b) Proprietary Information means:
(i) any data or information that is completely sensitive
material, and not generally known to the public, including, but not limited to,
information about
-11-
<PAGE> 12
product plans, marketing strategies, finance, operations, customer
relationships, customer profiles, sales estimates, business plans, and internal
performance results relating to the past, present or future business activities
of the Company or FDISG, their respective subsidiaries and affiliated companies
and the customers, clients and suppliers of any of them;
(ii) any scientific or technical information, design,
process, procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Company or FDISG a
competitive advantage over its competitors; and
(iii) all confidential or proprietary concepts,
documentation, reports, data, specifications, computer software, source code,
object code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
(c) Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
15. Force Majeure. No party shall be liable for any default or delay in
the performance of its obligations under this Agreement if and to the extent
such default or delay is caused, directly or indirectly, by circumstances beyond
such party's reasonable control. In any such event, the non-performing party
shall be excused from any further performance and observance of the obligations
so affected only for so long as such circumstances prevail and such party
continues to use commercially reasonable efforts to recommence performance or
observance as soon as practicable.
16. Entire Agreement. This Agreement, including all Schedules hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: /s/ Barbara L. Worthen
-------------------------------
Name: Barbara L. Worthen
----------------------------
Title: EVP and General Counsel
----------------------------
THE GALAXY FUND
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
-13-
<PAGE> 14
IN WITNESS W]HEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
THE GALAXY FUND
By: /s/ John T. O'Neill
-------------------------------
Name: John T. O'Neill
-----------------------------
Title: President
-----------------------------
-14-
<PAGE> 15
SCHEDULE A
Money Market Fund
Government Fund
Tax-Exempt Fund
U.S. Treasury Fund
Institutional Government 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
Rhode Island Municipal Bond Fund
-15-
<PAGE> 16
SCHEDULE B
FEE SCHEDULE
For the services to be rendered, the facilities to be furnished and the
payments to be made by FDISG, as provided for in this Agreement, the Company, on
behalf of each Fund, will pay FDISG on the first business day of each month a
fee for the previous month at the rates listed below. Upon any termination of
this Agreement before the end of any month, the fee for such part of a month
shall be prorated according to the proportion which such period bears to the
full monthly period and shall be payable upon the date of termination of this
Agreement.
All asset-based fees shall be calculated daily and paid monthly. Net
assets shall be computed in accordance with the Funds' Prospectuses and the
resolutions of the Company's Board of Trustees.
ADMINISTRATION FEES:
FDISG shall be paid an annual administration fee at the annual rate of
.09% of the first $2.5 billion of the Funds' 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 in excess of $5 billion.
FUND ACCOUNTING FEES:
FDISG shall be paid an annual fund accounting fee for each Fund based on
the average net assets of each Fund as follows:
<TABLE>
<CAPTION>
Assets Fee
------ ---
<S> <C>
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
Net assets in excess of $1 billion $125,000
</TABLE>
The annual fund accounting fee for a Fund possessing more than 25% in
non-domestic assets will be 150% of the annual fund accounting fees described
above.
DOMESTIC AND/OR GLOBAL CUSTODY FEES:
Domestic and/or global custody fees for each Fund 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
-16-
<PAGE> 17
particularly set forth in Exhibit 1 to this Schedule B, plus out-of-pocket
charges including but not limited to taxes, insurance, telephone and script
fees.
-17-
<PAGE> 18
EXHIBIT I TO SCHEDULE B
CUSTODY
DOMESTIC CUSTODY
The fees for Domestic Custody are comprised of three separate charges as
follows:
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
Note: 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 Fund 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.
-18-
<PAGE> 19
<TABLE>
<CAPTION>
Fund Net Assets Annual Fee
------------------ ----------
<S> <C> <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>
Basic Point Transaction
Country Charge Charge
------- --------- ----------
<S> <C> <C>
Argentina 22 $ 75
Australia 7 $ 30
Austria 12 $ 60
Belgium 7 $ 30
Canada 7 $ 30
Chile 20 $100
China 40 $100
Denmark 16 $ 60
Finland 16 $ 60
France 7 $ 30
Germany 7 $ 30
Greece 26 $120
Hong Kong 12 $ 60
India 40 $100
Indonesia 26 $120
Ireland 7 $ 30
Italy 7 $ 30
Japan (debt) 12 $ 60
Japan (equity) 7 $ 30
Malaysia 22 $120
Mexico 16 $ 60
Netherlands 7 $ 30
New Zealand 12 $ 60
Norway 12 $ 60
Philippines 22 $120
Singapore 22 $120
South Korea 20 $100
Spain 26 $120
Sweden 7 $ 30
Switzerland 7 $ 30
Taiwan 32.75 $120
Thailand 22 $120
Turkey 26 $120
</TABLE>
-19-
<PAGE> 20
<TABLE>
<CAPTION>
<S> <C> <C>
United Kingdom 7 $ 30
Venezuela 22 $120
</TABLE>
-20-
<PAGE> 21
Out-of-pocket charges, including but not limited to, taxes, insurance,
telephone, script fees, will be invoiced at cost.
-21-
<PAGE> 22
SCHEDULE C
OUT-OF-POCKET EXPENSES
Out-of-pocket expenses include the following:
- Postage of Board meeting materials and other materials to
the Company's Board members and service providers
(including overnight or other courier services)
- Telecommunications charges (including FAX) with respect to
communications with the Company's directors, officers and service
providers
- Duplicating charges with respect to filings with federal and state
authorities and Board meeting materials
- Courier services
- Pricing services
- Equity and bond price quotes ($.20 and $.50 per quote per day,
respectively)
- Money market price quotes ($.50 per quote per week)
- Forms and supplies for the preparation of Board meetings and other
materials for the Company
- Vendor set-up charges for Blue Sky services
- Customized programming requests
- Such other expenses as are agreed to in writing by FDISG and the
Company
-22-
<PAGE> 23
SCHEDULE D
FUND ACCOUNTING AND ADMINISTRATIVE SERVICES
ROUTINE PROJECTS
- - Daily, Weekly, and Monthly Reporting
- - Portfolio and General Ledger Accounting
- - Daily Pricing of all Securities
- - Daily Valuation and NAV Calculation
- - Comparison of NAV to market movement
- - Review of price tolerance/fluctuation report
- - Research items appearing on the price exception report
- - Weekly cost monitoring along with mark-to-market valuations in
accordance with Rule 2a-7
- - Preparation of monthly ex-dividend monitor
- - Daily cash reconciliation with the custodian bank
- - Daily updating of price and rate information to the Transfer
Agent/Insurance Agent
- - Daily support and report delivery to Portfolio Management
- - Daily calculation of Fund advisor fees and waivers
- - Daily calculation of distribution rates
- - Daily maintenance of each Fund's general ledger including expense accruals
- - Daily price notification to other vendors as required
- - Calculation of SEC yields and total returns
- - Preparation of month-end reconciliation package
- - Monthly reconciliation of Fund expense records
- - Preparation of monthly pay down gain/loss summaries
- - Preparation of all annual and semiannual audit work papers
- - Preparation and printing of financial statements
- - Providing shareholder tax information to Transfer Agent
- - Producing drafts of IRS and state tax returns
- - Treasury Services including:
Provide officers for the Company
Expense accrual monitoring
Determination of dividends
Prepare materials for review by the Board, e.g., 2a-7,
10f-3, 17a-7, 17e- 1,
Rule 144a
- - Tax and financial counsel
- - IRS and SEC compliance testing
- - Updating projections of annual expenses
- - Preparation of monthly Fund portfolio profile report
- - Preparation of various management reports
- - Reporting of Fund statistics to ICI
- - Sending of Rule 24f-2 or 24e-2 notices to the SEC in conjunction with the
Company's counsel
-23-
<PAGE> 24
DISTRIBUTION AND LEGAL, REGULATORY AND BOARD OF TRUSTEES SUPPORT
ROUTINE PROJECTS
- - Review and filing of Form N-SAR
- - Review and filing of Annual and Semi-Annual Financial Reports
- - Assistance in Preparation of Fund Registration Statements
- - Review of all Sales Material and Advertising
- - Consultations regarding legal issues as needed
- - Assist with marketing strategy and product development
- - Assist in preparation of proxy statements
- - Develop or assist in developing guidelines or procedures to improve overall
compliance by each Fund and its agents
- - Maintain legal liaison with, and provide advice to, the Company regarding
its relationships with various agents with respect to their activities on
behalf of the Company
- - Monitor and, to the extent necessary and appropriate, participate in
the preparation of documents and the overall handling of litigation
matters by outside counsel and non- routine regulatory investigations
SPECIAL PROJECTS*
- - Proxy material preparation
- - N-14 preparation (merger document)
- - Preparation of Post-Effective Amendments and Prospectus Supplements
- - Prospectus simplification
- - Exemptive order applications
- - Extraordinary non-recurring projects - e.g., arranging CDSC financing
programs
- - Basic sales, mutual fiends, and product training to branch and sales
representatives
*Charged on a project-by-project basis upon the Company's pilot written a
approval.
-24-
<PAGE> 1
EXHIBIT (9)(b)
THE GALAXY FUND
ADMINISTRATION AGREEMENT
Amendment No. 1
_________________, 1998
First Data Investor Services
Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Dear Sirs:
This letter is to confirm that the undersigned, The Galaxy Fund (the
"Trust"), a Massachusetts business trust, has agreed that the Administration
Agreement between the Trust and First Data Investor Services Group, Inc.
("FDISG") dated as of June 1, 1997 (the "Agreement") is herewith amended to
provide that FDISG shall be the administrator for the Trust's New Jersey
Municipal Bond Fund, MidCap Equity Fund and Special Equity Fund on the terms and
conditions contained in the Agreement.
If the foregoing is in accordance with your understanding, will you so
indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
THE GALAXY FUND
By:
-----------------------
Name: John T. O'Neill
Title: President
Accepted:
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By:
--------------------------
Name:
Title:
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EXHIBIT (9)(c)
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 1st day of June, 1997 between THE
GALAXY FUND (the "Fund"), a Massachusetts business trust, and FIRST DATA
INVESTOR SERVICES GROUP, INC. ("FDISG"), a Massachusetts corporation.
WITNESSETH
WHEREAS, the Fund is authorized to issue Shares in separate classes and
series, with each such class representing interests in a separate portfolio of
securities or other assets;
WHEREAS, the Fund initially intends to offer Shares in those Portfolios
identified in the attached Exhibit 1, which such Portfolios, together with all
other Portfolios subsequently established by the Fund, shall be subject to this
Agreement in accordance with Article 14; and
WHEREAS, the Fund, on behalf of the Portfolios, desires to appoint FDISG as
its transfer agent, dividend disbursing agent and agent in connection with
certain other activities and FDISG desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and FDISG agree as follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended
from time to time.
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the Fund; or (ii) any person, whether or not such
person is an officer or employee of the Fund, duly authorized to give
Oral Instructions or Written Instructions on behalf of the Fund as
indicated in writing to FDISG from time to time.
(c) "Board of Directors" shall mean the Board of Directors or
Board of Trustees of the Fund, as the case may be.
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(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under its name or account,
with such a custodian or subcustodian pursuant to a Custodian or
Subcustodian Agreement.
(f) "1933 Act" shall mean the Securities Act of 1933 and the
rules and regulations promulgated thereunder, all as amended from time
to time.
(g) "1934 Act" shall mean the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder, all as amended from
time to time.
(h) "1940 Act" shall mean the Investment Company Act of 1940 and
the rules and regulations promulgated thereunder, all as amended from
time to time.
(i) "Oral Instructions" shall mean instructions, other than
Written Instructions actually received by FDISG from an Authorized
Person or from a person reasonably believed by FDISG to be an
Authorized Person.
(j) "Portfolio" shall mean each separate class of shares offered
by the Fund representing interests in a separate portfolio of
securities and other assets.
(k) "Prospectus" shall mean the most recently dated Fund
Prospectuses and Statements of Additional Information, including any
supplements thereto if any, which have become effective under the 1933
Act and the 1940 Act.
(l) "Shares" refers collectively to such shares of capital stock
or beneficial interest, as the case may be, or class or series thereof,
of each respective Portfolio of the Fund as may be issued from time to
time.
(m) "Shareholder" shall mean a record owner of at least one Share
or any fraction thereof of each respective Portfolio of the Fund.
(n) "Written Instructions" shall mean a written communication
signed by an Authorized Person or by a person reasonably believed by
FDISG to be an Authorized Person and actually received by FDISG.
Written Instructions shall include manually executed originals and
authorized electronic transmissions, including
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telefacsimile of a manually executed original or other process.
Article 2 Appointment of FDISG.
The Fund, on behalf of the Portfolios, hereby appoints and constitutes
FDISG as transfer agent and dividend disbursing agent for Shares of each
respective Portfolio of the Fund and as shareholder servicing agent for the Fund
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 or
reclassify Shares of each class or series. FDISG 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. FDISG accepts such appointment and agrees to furnish the services
herein set forth and in accordance with the written procedures which may be
agreed to in writing from time to time by the Fund and FDISG, in return for the
compensation as provided in Section 6 of this Agreement, subject, however, to
the performance standards set forth in Appendix I to this Agreement.
Article 3 Duties of FDISG.
3.1 FDISG shall be responsible for:
(a) Administering and/or performing the customary services of a
transfer agent; acting as service agent in connection with dividend and
distribution functions; and performing shareholder account and
administrative agent functions in connection with the issuance, transfer
and redemption or repurchase (including coordination with the Custodian) of
Shares of each Portfolio, as more fully described in the written schedule
of Duties of FDISG annexed hereto as Schedule A and incorporated herein,
and in accordance with the terms of the Prospectus of the Fund on behalf of
the applicable Portfolio, applicable law and the procedures agreed to in
writing from time to time by FDISG and the Fund.
(b) Recording the issuance of Shares and maintaining pursuant to
Rule 17Ad-10(e) of the 1934 Act a record of the total number of Shares of
each Portfolio which are authorized, based upon data provided to it by the
Fund, and issued and outstanding. FDISG shall provide the Fund on a regular
basis with the total number of Shares of each Portfolio which are
authorized and issued and outstanding and shall have no obligation, when
recording the issuance of Shares, to monitor the issuance of such Shares or
to take cognizance of any laws
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relating to the issue or sale of such Shares, which functions shall be the
sole responsibility of the Fund.
(c) In addition to providing the foregoing services, the Fund hereby
engages FDISG to provide the print/mail services as set forth in Schedule B
annexed hereto and incorporated herein, for the fees also identified in
Schedule B. FDISG agrees to perform such print/mail services subject to the
terms and conditions of this Agreement.
(d) Notwithstanding any of the foregoing provisions of this
Agreement, FDISG shall be under no duty or obligation to inquire into, and
shall not be liable for: (i) the legality of the issuance or sale of any
Shares or the sufficiency of the amount to be received therefor; (ii) the
legality of the redemption of any Shares, or the propriety of the amount to
be paid therefor; (iii) the legality of the declaration of any dividend by
the Board of Directors, or the legality of the issuance of any Shares in
payment of any dividend; or (iv) the legality of any recapitalization or
readjustment of the Shares.
3.2 In addition, the Fund shall (i) identify to FDISG in writing those
transactions and assets to be treated as exempt from blue sky reporting for each
state and (ii) verify the establishment of transactions for each state on the
system prior to activation and thereafter monitor the daily activity for each
state. The responsibility of FDISG for the Fund's blue sky state registration
status is solely limited to the initial establishment of transactions subject to
blue sky compliance by the Fund and the reporting of such transactions to the
Fund as provided above.
3.3 In addition to the duties set forth herein, FDISG shall perform such
other duties and functions, and shall be paid such amounts therefor, as may from
time to time be agreed upon in writing by the Fund and FDISG.
Article 4 Recordkeeping and Other Information.
4.1 FDISG shall create and maintain all records required of it pursuant
to its duties hereunder and as set forth in Schedule A in accordance with all
applicable laws, rules and regulations, including records required by Section
31(a) of the 1940 Act. Where applicable, such records shall be maintained by
FDISG for the periods and in the places required by Rule 31a-2 under the 1940
Act.
4.2 To the extent required by Section 31 of the 1940 Act, FDISG agrees
that all such records prepared or maintained by FDISG relating to the services
to be performed by FDISG hereunder are the property of the Fund and will be
preserved, maintained and made
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available in accordance with such Section and other applicable securities laws
and rules and regulations. The Fund, or the Fund's authorized representatives,
shall have access to such records at all times during FDISG's normal business
hours and such records will be surrendered promptly to the Fund on and in
accordance with the Fund's request. Upon the reasonable request of the Fund,
copies of any such records shall be provided by FDISG to the Fund or the Fund's
authorized representatives at the Fund's expense.
4.3 In case of any requests or demands for the inspection of Shareholder
records of the Fund, FDISG will endeavor to notify the Fund of such request and
secure Written Instructions as to the handling of such request. FDISG reserves
the right, however, to exhibit the Shareholder records to any person whenever it
is advised by its counsel that it may be held liable for the failure to comply
with such request.
Article 5 Fund Instructions.
5.1 Subject to FDISG meeting the standard of care set forth in Article 11,
FDISG will have no liability when acting upon Written or Oral Instructions
reasonably believed to have been executed or orally communicated by an
Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from the
Fund. FDISG will also have no liability when processing Share certificates which
it reasonably believes to bear the proper manual or facsimile signatures of the
officers of the Fund and the proper countersignature of FDISG.
5.2 At any time, FDISG may request Written Instructions from the Fund and
may seek advice from legal counsel for the Fund, or its own legal counsel, at
its own expense, with respect to any matter arising in connection with this
Agreement, and subject to FDISG meeting the standard of care set forth in
Article 11, it shall not be liable for any action taken or not taken by it in
good faith in accordance with such Written Instructions or in accordance with
the advice of counsel for the Fund or for FDISG. Written Instructions requested
by FDISG pursuant to this Section 5.2 will be provided by the Fund within a
reasonable period of time.
5.3 Unless otherwise provided in this Agreement, FDISG, its officers,
agents or employees, shall act only upon Oral Instructions or Written
Instructions and shall be entitled to rely upon any Oral Instructions and any
Written Instructions actually received by them pursuant to this Agreement,
provided that such Oral Instructions and Written Instructions reasonably appear
to have been given by an Authorized Person. The Fund agrees that all Oral
Instructions shall be followed within one business day by confirming Written
Instructions, and that the Fund's failure to so
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confirm shall not impair in any respect FDISG's right to rely on Oral
Instructions.
Article 6 Compensation.
6.1 The Fund on behalf of each of the Portfolios will compensate FDISG for
the performance of its obligations hereunder in accordance with the fees set
forth in the written Fee Schedule annexed hereto as Schedule B and incorporated
herein, subject, however, to the performance standards set forth in Appendix I
to this Agreement.
6.2 In addition to those fees set forth in Section 6.1 above, the Fund on
behalf of each of the Portfolios agrees to pay, and will be billed separately
for, out-of-pocket expenses incurred by FDISG in the performance of its duties
hereunder. Out-of-pocket expenses shall include, but shall not be limited to,
the items specified in the written schedule of out-of-pocket charges annexed
hereto as Schedule C and incorporated herein. Unspecified out-of- pocket
expenses shall be limited to those out-of-pocket expenses reasonably incurred by
FDISG in the performance of its obligations hereunder. In the event that the
cost of unspecified out-of-pocket expenses exceeds one thousand dollars
($1,000), FDISG will receive prior written approval from the Fund before
incurring such expenses.
6.3 The Fund on behalf of each of the Portfolios agrees to pay all fees
and out-of-pocket expenses within thirty (30) days following the receipt of the
respective invoice.
6.4 Any compensation payable to FDISG hereunder pursuant to Schedules B
and C hereof may be adjusted from time to time by attaching hereto a revised
Schedule B or C, as the case may be, executed and dated by the parties hereto.
6.5 The Fund acknowledges that the fees that FDISG charges the Fund under
this Agreement reflect the allocation of risk between the parties, including the
disclaimer of warranties in Section 9.3 and the limitations on liability in
Article 12. Modifying the allocation of risk from what is stated here would
affect the fees that FDISG charges, and in consideration of those fees, the Fund
agrees to the stated allocation of risk.
Article 7 Documents.
In connection with the appointment of FDISG, the Fund shall, on or before
the date this Agreement goes into effect, but in any case within a reasonable
period of time for FDISG to prepare to perform its duties hereunder, deliver or
cause to be delivered to
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FDISG the documents set forth in the written schedule of Fund Documents annexed
hereto as Schedule D.
Article 8 Transfer Agent System.
8.1 FDISG shall retain title to and ownership of any and all data bases,
computer, programs, screen formats, report formats, interactive design
techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade secrets,
and other related legal rights utilized by FDISG in connection with the services
provided by FDISG to the Fund herein (the "FDISG System").
8.2 FDISG hereby grants to the Fund a limited license to the FDISG System
for the sole and limited purpose of having FDISG provide the services
contemplated hereunder and nothing contained in this Agreement shall be
construed or interpreted otherwise and such license shall immediately terminate
with the termination of this Agreement.
8.3 In the event that the Fund, including any affiliate or agent of the
Fund or any third party acting on behalf of the Fund is provided with direct
access to the FDISG System for either account inquiry or to transmit transaction
information, including but not limited to maintenance, exchanges, purchases and
redemptions, such direct access capability shall be limited to direct entry to
the FDISG System by means of on-line mainframe terminal entry or PC emulation of
such mainframe terminal entry and any other non-conforming method of
transmission of information to the FDISG System is strictly prohibited without
the prior written consent of FDISG.
Article 9 Representations and Warranties.
9.1 FDISG represents and warrants to the Fund that:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to authorize
it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory agency as a
transfer agent and such registration will remain in effect for the duration
of this Agreement; and
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(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations
under this Agreement.
9.2 The Fund represents and warrants to FDISG that:
(a) it is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into this Agreement;
(c) all corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable laws have been taken to authorize it
to enter into this Agreement;
(d) a registration statement under the 1933 Act and the 1940 Act on
behalf of each of the Portfolios is currently effective and will remain
effective, and all appropriate state securities law filings have been made
and will continue to be made, with respect to all Shares of the Fund being
offered for sale; and
(e) all outstanding Shares are validly issued, fully paid and
non-assessable and when Shares are hereafter issued in accordance with the
terms of the Fund's Articles of Incorporation and its Prospectus with
respect to each Portfolio, such Shares shall be validly issued, fully paid
and non-assessable.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, FDISG DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, MADE TO THE FUND OR ANY OTHER PERSON.
Article 10 Indemnification.
10.1 FDISG shall not be responsible for and the Fund on behalf of each
Portfolio shall indemnify and hold FDISG harmless from and against any and all
claims, costs, expenses (including reasonable attorneys' fees), losses, damages,
charges, payments and liabilities of any sort or kind which may be asserted
against FDISG or for which FDISG may be held to be liable (a "Claim") arising
out of or attributable to any of the following unless such Claim resulted from a
negligent act or omission to act or bad faith by FDISG in the performance of its
duties hereunder:
(a) FDISG's reasonable reliance on, or reasonable use of information,
data, records and documents (including but not
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limited to magnetic tapes, computer printouts, hard copies and microfilm
copies) received by FDISG from the Fund, or any authorized third party
acting on behalf of the Fund, including but not limited to the prior
transfer agent for the Fund, in the performance of FDISG's duties and
obligations hereunder;
(b) the reliance on, or the implementation of, any Written or Oral
Instructions or any other instructions or requests of the Fund on behalf of
the applicable Portfolio;
(c) the offer or sale of Shares in violation of any requirement under
the securities laws or regulations of any state that such Shares be
registered in such state or in violation of any stop order or other
determination or ruling by any state with respect to the offer or sale of
such Shares in such state; and
(d) the Fund's refusal or failure to comply with the terms of this
Agreement, or any Claim which arises out of the Fund's negligence or
misconduct or the breach of any, representation or warranty of the Fund
made herein.
10.2 In any case in which the Fund may be asked to indemnify or hold FDISG
harmless, FDISG will notify the Fund promptly after identifying any situation
which it believes presents or appears likely to present a claim for
indemnification ("Indemnification Claim") against the Fund although the failure
to do so shall not prevent recovery by FDISG and shall keep the Fund advised
with respect to all developments concerning such Indemnification Claim. The Fund
shall have the option to defend FDISG against any Indemnification Claim which
may be the subject of this indemnification, and, in the event that the Fund so
elects, such defense shall be conducted by counsel chosen by the Fund and
satisfactory to FDISG, and thereupon the Fund shall take over complete defense
of the Indemnification Claim and FDISG shall sustain no further legal or other
expenses in respect of such Indemnification Claim. FDISG will not confess any
Indemnification Claim or make any compromise in any case in which the Fund will
be asked to provide indemnification, except with the Fund's prior written
consent. Subject to Section 10.3 hereof, the obligations of the parties hereto
under this Article 10 shall survive the termination of this Agreement.
10.3 Any Indemnification Claim under this Agreement must be made prior to
the earlier of:
(a) one year after FDISG becomes aware of the event for which
indemnification is claimed; or
(b) one year after the earlier of the termination of this Agreement
or the expiration of the term of this Agreement.
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10.4 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
FDISG's sole and exclusive remedy for claims or other actions or proceedings to
which the Fund's indemnification obligations pursuant to this Article 10 may
apply.
Article 11 Standard of Care.
11.1 In the performance of its duties hereunder, FDISG shall be obligated
to exercise care and diligence and to act in good faith and to use its best
efforts within commercially reasonable limits to ensure the accuracy of all
services performed under this Agreement, but assumes no responsibility for loss
or damage to the Fund unless said loss or damages are caused by FDISG's own
negligence, bad faith or willful misconduct or that of its employees, agents or
representatives.
11.2 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
Article 12 Consequential Damages.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, TRUSTEE,
OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE TO THE OTHER PARTY FOR
CONSEQUENTIAL DAMAGES.
Article 13 Term and Termination.
13.1 This Agreement shall be effective on the date first written above and
shall continue for a period of one (1) year (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
continue automatically for successive terms of one (1) year ("Renewal Terms")
each, unless the Fund or FDISG provides written notice to the other of its
intent not to renew. Such notice must be received not less than sixty (60) days
prior to the expiration of the Initial Term or the then current Renewal Term.
13.3 The Fund may terminate this Agreement in the event that the negligent
action or negligent omission to act on the part of FDISG causes damages to the
Fund or its shareholders in excess of one hundred thousand dollars ($100,000).
"Damages to the Fund" are defined as damages caused by a single event, or
cumulative series of events related to the same matter, which generates a
monetary loss. The Fund's right to terminate under this Section 13.3 shall
remain effective in the event FDISG has made the Fund whole with respect to the
damages caused. Unless the Fund provides FDISG with
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written notice of the Fund's intent to exercise its option under this Section
13.3 within 30 days after the Fund becomes aware of the occurrence, the Fund
shall have waived its option to terminate under this provision.
13.4 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party"), the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party. If FDISG is the Non-Defaulting Party, its termination of
this Agreement shall not constitute a waiver of any other rights or remedies of
FDISG with respect to services performed prior to such termination or rights of
FDISG to be reimbursed for out-of-pocket expenses. In all cases, termination by
the Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting
Party of any other rights it might have under this Agreement or otherwise
against the Defaulting Party.
13.5 The Fund shall have the right to terminate this Agreement at any time
if the Fund reorganizes into another entity, liquidates or otherwise ceases to
exist. In the event the Fund terminates the Agreement pursuant to this Section
13.5, the Fund shall reimburse FDISG for all reasonable costs associated with
such termination.
13.6 In the event that FDISG fails to be registered as a transfer agent
with the appropriate federal agency at any time during the term of this
Agreement, the Fund may, upon written notice to FDISG, immediately terminate
this Agreement.
13.7 In the event this Agreement is terminated by the Fund pursuant to
Sections 13.3, 13.4 or 13.6 hereof or pursuant to paragraph (d) of the
Performance Standards set forth in Appendix I hereto, all reasonable expenses
associated with movement of records and materials and conversion thereof to a
successor transfer agent will be become by FDISG and the Fund shall not be
responsible for FDISG's costs associated with such termination. In the event of
termination of this Agreement pursuant to any other Sections of this Agreement,
all reasonable expenses associated with conversion will be borne by the Fund.
Article 14 Additional Portfolios
14.1 In the event that the Fund establishes one or more Portfolios in
addition to those identified in Exhibit I with respect to which the Fund desires
to have FDISG render services as transfer agent under the terms hereof, the Fund
shall so notify
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FDISG in writing, and if FDISG agrees in writing to provide such services,
Exhibit I shall be amended to include such additional Portfolios.
Article 15 Confidentiality.
15.1 The parties agree that the Proprietary Information (defined below)
and the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The Fund
and FDISG shall exercise at least the same degree of care, but not less than
reasonable care, to safeguard the confidentiality of the Confidential
Information of the other as it would exercise to protect its own Confidential
Information. The Fund and FDISG may use the Confidential Information only to
exercise their respective rights or perform their respective duties under this
Agreement. Except as required by law and except as disclosed in the Fund's
registration statement or filed as an exhibit thereto, the Fund and FDISG shall
not duplicate, sell or disclose to others the Confidential Information of the
other, in whole or in part, without the prior written permission of the other
party. The Fund and FDISG may, however, disclose Confidential Information to
their respective employees who have a need to know the Confidential Information
to perform work for the other, provided that the Fund and FDISG shall use
reasonable efforts to ensure that the Confidential Information is not duplicated
or disclosed by their respective employees in breach of this Agreement. The Fund
and FDISG may also disclose the Confidential Information to independent
contractors, auditors, and professional advisors, provided they first agree in
writing to be bound by confidentiality obligations substantially similar to this
Section 15.1. Notwithstanding the previous sentence, in no event shall either
the Fund or FDISG disclose the Confidential Information to any competitor of the
other without specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive material,
and not generally known to the public, including, but not limited to,
information about product plans, marketing strategies, finance, operations,
customer relationships, customer profiles, sales estimates, business plans,
and internal performance results relating to the past, present or future
business activities of the Fund or FDISG, their respective subsidiaries and
affiliated companies and the customers, clients and suppliers of any of
them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and secret
in the sense that its
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confidentiality affords the Fund or FDISG a competitive advantage over its
competitors; and
(c) all confidential or proprietary concepts, documentation, reports,
data, specifications, computer software, source code, object code, flow
charts, databases, inventions, know-how, show-how and trade secrets,
whether or not patentable or copyrightable.
15.3 Confidential Information includes, without limitations all documents,
inventions, substances, engineering and laboratory notebooks, drawings,
diagrams, specifications, bills of material, equipment, prototypes and models,
and any other tangible manifestation of the foregoing of either party which now
exist or come into the control or possession of the other.
Article 16 Force Majeure.
16.1 No party shall be liable for any default or delay in the performance
of its obligations under this Agreement if and to the extent such default or
delay is caused, directly or indirectly, by circumstances beyond such party's
reasonable control. In any such event, the non-performing party shall be excused
from any further performance and observance of the obligations so affected only
for as long as such circumstances prevail and such party continues to use
commercially reasonable efforts to recommence performance or observance as soon
as practicable.
16.2 Notwithstanding Section 16.1, in the event of equipment failures
beyond FDISG's control, FDISG shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions but shall have no liability
with respect thereto. FDISG shall enter into and 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.
Article 17 Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that FDISG
may, in its sole discretion, assign all its right title and interest in this
Agreement to an affiliate, parent or subsidiary, provided that, in the
reasonable judgment of the Board of Trustees of the Fund acting in its sole
discretion: (i) the financial capacity of such assignee is not materially less
than that of
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FDISG; (ii) the nature and quality of the services to be provided hereunder,
including the Performance Standards set forth in Appendix I, are not materially
adversely affected by such assignment; and (iii) the quality and capability of
the personnel and facilities of the assignee are not materially less than those
of FDISG. FDISG may, in its sole discretion, engage subcontractors to perform
any non-material or non-substantive obligations contained in this Agreement that
it is otherwise required to perform hereunder, provided that FDISG shall be
responsible for all compensation payable to such subcontractors and shall remain
responsible for the acts and omissions of such subcontractors to the same extent
that it is hereunder.
Article 18 Notice.
Any notice or other instrument authorized or required by this Agreement to
be given in writing to the Fund or FDISG, shall be sufficiently given if
addressed to that party and received by it at its office set forth below or at
such other place as it may from time to time designate in writing.
To the Fund:
John T. O'Neill, President
The Galaxy Fund
c/o Hasbro, Inc.
200 Narragansett Park Drive
Pawtucket, Rhode Island 02862
with a copy to:
W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
To FDISG:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to FDISG's General Counsel
-14-
<PAGE> 15
Article 19 Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement of
this Agreement. All actions arising from or related to this Agreement shall be
brought in the state and federal courts sitting in the City of Boston, and FDISG
and the Fund hereby submit themselves to the exclusive jurisdiction of those
courts.
Article 20 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Article 21 Captions.
The captions of this Agreement are included for convenience of reference
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
Article 22 Publicity.
Neither FDISG nor the Fund shall release or publish news releases, public
announcements, advertising or other publicity relating to this Agreement or to
the transactions contemplated by it without the prior review and written
approval of the other party; provided, however, that either party may make such
disclosures as are required by legal, accounting or regulatory requirements
after making reasonable efforts in the circumstances to consult in advance with
the other party.
-15-
<PAGE> 16
Article 23 Relationship of Parties.
The parties agree that they are independent contractors and not partners or
co-venturers and nothing contained herein shall be interpreted or construed
otherwise.
Article 24 Cooperation with Accountants
FDISG 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.
Article 25 Entire Agreement; Severability; Release.
25.1 This Agreement, including the Schedules, Addenda, and Exhibits
hereto, constitutes the entire Agreement between the parties with respect to
the subject matter hereof and supersedes all prior and contemporaneous
proposals, agreements, contracts, representations, and understandings, whether
written or oral, between the parties with respect to the subject matter hereof.
No change, termination, modification, or waiver of any term or condition of the
Agreement shall be valid unless in writing signed by each party. No such
writing shall be effective as against the Fund unless said writing is executed
by the President of the Fund. No such writing shall be effective as against
FDISG unless said writing is executed by a Senior Vice President, Executive
Vice President, or President of FDISG. A party's waiver of a breach of any term
or condition in the Agreement shall not be deemed a waiver of any subsequent
breach of the same or another term or condition.
25.2 The parties intend every provision of this Agreement to be severable.
If a court of competent jurisdiction determines that any term or provision is
illegal or invalid for any reason, the illegality or invalidity shall not affect
the validity of the remainder of this Agreement. In such case, the parties shall
in good faith modify or substitute such provision consistent with the original
intent of the parties. Without limiting the generality of this paragraph, if a
court determines that any remedy stated in this Agreement has failed of its
essential purpose, then all other provisions of this Agreement, including the
limitations on liability and exclusion of damages, shall remain fully effective.
25.3 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
-16-
<PAGE> 17
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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
THE GALAXY FUND
By:
--------------------------------------
Title:
-----------------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:/s/ Barbara L. Worthen
--------------------------------------
Title:EVP: General Counsel
-----------------------------------
-17-
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
THE GALAXY FUND
By:/s/ John T. O'Neill
--------------------------------
Title:President
-----------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:
--------------------------------
Title:
-----------------------------
-18-
<PAGE> 19
Exhibit I
LIST OF PORTFOLIOS
Money Market Fund
Government Fund
Tax-Exempt Fund
U.S. Treasury Fund
Institutional Government 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
Rhode Island Municipal Bond Fund
-19-
<PAGE> 20
Schedule A
DUTIES OF FDISG
1. Shareholder Information. (a) FDISG shall maintain a record of the
number of Shares held by each Shareholder of record which shall include name,
address, taxpayer identification number and which shall indicate whether such
Shares are held in certificated or uncertificated form and shall include
historical information regarding the account of each Shareholder, including
dividends and distributions paid and the date and price for all transactions in
a Shareholder's account; any stop or restraining order placed against a
Shareholder's account; information with respect to withholdings; any information
required for FDISG to perform any calculations contemplated or required by the
Agreement to which this is a Schedule (the "Agreement"). FDISG shall keep a
record of all redemption checks and dividend checks returned by the postal
authorities, and shall maintain such records as are required by law.
(b) FDISG 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.
2. Shareholder Services. FDISG shall respond as appropriate to all
inquiries and communications from Shareholders, securities brokers and others
relating to Shareholder accounts with respect to its duties hereunder and such
other information and communications as may be from time to time mutually agreed
upon in writing by FDISG and the Fund.
3. Share Certificates.
(a) At the expense of the Fund, the Fund shall supply FDISG with an
adequate supply of blank share certificates to meet FDISG requirements therefor.
Such Share certificates shall be property signed by facsimile. The Fund agrees
that, notwithstanding the death, resignation, or removal of any officer of the
Fund whose signature appears on such certificates, FDISG or its agent may
continue to countersign certificates which bear such signatures until otherwise
directed by Written Instructions.
(b) FDISG shall issue replacement Share certificates in lieu of
certificates which have been lost, stolen or destroyed, upon receipt by FDISG of
properly executed affidavits and lost certificate bonds, in form satisfactory to
FDISG, with the Fund and FDISG named as obligees under the bond.
(c) FDISG shall also maintain a record of each certificate issued,
the number of Shares represented thereby and
<PAGE> 21
the Shareholder of record. With respect to Shares held in open accounts or
uncertificated form (i.e., no certificate being issued with respect thereto),
FDISG shall maintain comparable records of the Shareholders thereof, including
their names, addresses and taxpayer identification numbers. FDISG shall further
maintain a stop transfer record on lost and/or replaced certificates.
4. Mailing Communications to Shareholders; Proxy Materials. FDISG 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 the Fund's meetings of
Shareholders. In connection with meetings of Shareholders, FDISG will prepare
Shareholder lists, mail and certify as to the mailing of proxy materials,
process and tabulate returned proxy cards, report on provides voted prior to
meetings, act as inspector of election at meetings and certify Shares voted at
meetings.
5. Sales of Shares.
(a) FDISG shall not be required to issue any Shares of the Fund where
it has received Written Instructions from the Fund or official notice from any
appropriate authority that the sale of the Shares of the Fund has been suspended
or discontinued. The existence of such Written Instructions or such official
notice shall be conclusive evidence of the right of FDISG to rely on such
Written Instructions or official notice.
(b) In the event that any check or other order for the payment of
money is returned unpaid for any reason, FDISG will endeavor to: (i) give prompt
notice of such return to the Fund or its designee; (ii) place a stop transfer
order against all Shares issued as a result of such check or order; and (iii)
take such actions as FDISG may from time to time deem appropriate.
6. Transfer and Repurchase.
(a) FDISG shall process all requests to transfer or redeem Shares in
accordance with the transfer or repurchase procedures set forth in the Funds
Prospectus.
(b) FDISG will transfer or repurchase Shares upon receipt of Oral or
Written Instructions or otherwise pursuant to the Prospectus and Share
certificates, if any, properly endorsed for transfer or redemption, accompanied
by such documents as FDISG reasonably may deem necessary.
(c) FDISG reserves the right to refuse to transfer or repurchase
Shares until it is satisfied that the endorsement on the instructions is valid
and genuine. FDISG also reserves the right to refuse to transfer or repurchase
Shares until it is satisfied that the requested transfer or repurchase is
legally authorized,
<PAGE> 22
and it shall incur no liability for the refusal, in good faith, to make
transfers or repurchases which FDISG, in its good judgment, deems improper or
unauthorized, or until it is reasonably satisfied that there is no basis to any
claims adverse to such transfer or repurchase.
(d) When Shares are redeemed, FDISG shall, upon receipt of the
instructions and documents in proper form, deliver to the Custodian and the Fund
or its designee a notification setting forth the number of Shares to be
repurchased. Such repurchased shares shall be reflected on appropriate accounts
maintained by FDISG reflecting outstanding Shares of the Fund and Shares
attributed to individual accounts.
(e) FDISG, upon receipt of the monies provided to it by the Custodian
for the repurchase of Shares, shall disburse (i) the amount of any contingent
deferred sales charge payable to the Fund's distributor with respect to Retail B
Shares of the Fund, and (ii) the balance of the redemption proceeds to the
person entitled to such proceeds, all in accordance with the procedures and
controls as are mutually agreed to in writing from time to time by the Fund,
FDISG and the Custodian.
(f) FDISG shall not process or effect any repurchase with respect to
Shares of the Fund after receipt by FDISG or its agent of notification of the
suspension of the determination of the net asset value of the Fund.
7. Dividends
(a) Upon the declaration of each dividend and each capital gains
distribution by the Board of Directors of the Fund with respect to Shares of the
Fund, the Fund shall furnish or cause to be furnished to FDISG Written
Instructions setting forth the date of the declaration of such dividend or
distribution, the ex- dividend date, the date of payment thereof the record date
as of which Shareholders entitled to payment shall be determined, the amount
payable per Share to the Shareholders of record as of that date, the total
amount payable on the payment date and whether such dividend or distribution is
to be paid in Shares at net asset value.
(b) On or before the payment date specified in such resolution of the
Board of Directors, the Fund will provide FDISG with sufficient cash to make
payment on the payment date to the Shareholders as of the record date.
(c) If FDISG does not receive sufficient cash from the Fund to make
total dividend and/or distribution payments on the date of payment to all
Shareholders of the Fund as of the record date, FDISG will notify the Fund. The
Fund hereby instructs FDISG to process dividend and/or distribution payments to
all
<PAGE> 23
Shareholders as of the record date regardless of whether sufficient cash is
available on the payment date. Subject to FDISG meeting the standard of care set
forth in Article 11 hereof, the Fund shall be responsible for and shall
indemnify and hold FDISG harmless from all claims asserted by others with
respect to the actions of FDISG in complying with the foregoing sentence.
(d) FDISG 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, FDISG 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. Ongoing Functions. FDISG will perform the following functions on
an ongoing basis for each class or series of Shares 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 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 FDISG, 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 FDISG;
<PAGE> 24
(g) provide Shareholder lists and statistical information concerning
accounts to the Funds; and
(h) provide timely notification of Fund activity, and such other
information as may be agreed upon from time to time by FDISG and the Custodian,
to the Fund or the Custodian.
9. In addition to and neither in lieu nor in contravention of the
services set forth above, FDISG shall: (i) perform all the customary services of
a transfer agent, registrar, dividend disbursing agent and agent of the dividend
reinvestment and cash purchase plan as described herein consistent with those
requirements in effect as at the date of this Agreement. The detailed
definition, frequency, limitations and associated costs (if any) set out in the
attached fee schedule, include but are not limited to: maintaining all
Shareholder accounts, preparing Shareholder meeting lists, mailing proxies,
tabulating proxies, mailing Shareholder reports to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts where
applicable, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders.
<PAGE> 25
Schedule B
FEE SCHEDULE
For the services to be rendered, the facilities to be furnished and the
payments to be made by FDISG, as provided for in this Agreement, the Fund, on
behalf of each Portfolio, will pay FDISG on the first business day of each month
a fee for the previous month at the rates listed below. Upon any termination of
this Agreement before the end of any month, the fee for such part of a month
shall be prorated according to the proportion which such period bears to the
full monthly period and shall be payable upon the date of termination of this
Agreement.
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
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.
<PAGE> 26
DAILY, MONTHLY AND DIVIDEND STATEMENTS
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
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
<PAGE> 27
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
PROXIES
Proxy Base Stock $.023 8/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 3,501 pieces .0105/ea
2,501 to 3,500 .12/ea
1,501 to 2,500 .15/ea
1 to 1,500 .17/ea
<PAGE> 28
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
<PAGE> 29
Schedule C
OUT-OF-POCKET EXPENSES
The Fund shall reimburse FDISG monthly for applicable out-of- pocket
expenses, including, but not limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks and
stationery
- Postage (bulk pre-sort ZIP+4, barcoding, first class) direct pass
through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs, including all lease,
maintenance and line costs
- Ad hoc reports
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end forms and mailings
- Terminals, communication lines, printers and other equipment and any
expenses incurred in connection with such terminals and lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Overtime, as approved in advance by the Fund
- Temporary staff, as approved in advance by the Fund
- Travel and entertainment, as approved in advance by the Fund
- Record retention as required by the Fund, retrieval and destruction
costs, including, but not limited to exit fees charged by third party
record keeping vendors
- Third party audit reviews
- Ad hoc SQL time
- Insurance
- Such other miscellaneous expenses reasonably incurred by FDISG in
performing its duties and responsibilities under this Agreement.
The Fund agrees that postage and mailing expenses will be paid on the day
of or prior to mailing as agreed with FDISG. In addition, the Fund will promptly
reimburse FDISG for any other unscheduled expenses incurred by FDISG whenever
the Fund and FDISG mutually agree that such expenses are not otherwise properly
borne by FDISG as part of its duties and obligations under the Agreement.
<PAGE> 30
Schedule D
FUND DOCUMENTS
- Certified copy of the Articles of Incorporation of the Fund, as amended
- Certified copy of the By-laws of the Fund, as amended
- Copy of the resolutions of the Board of Directors authorizing the
execution and delivery of this Agreement
- Specimens of the certificates for Shares of the Fund, if applicable, in
the form approved by the Board of Directors of the Fund, with a
certificate of the Secretary of the Fund as to such approval
- All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered by the
Fund
- All notices issued by the Fund with respect to the Shares in
accordance with and pursuant to the Articles of Incorporation or
By-Laws of the Fund or as required by law.
<PAGE> 1
EXHIBIT (9)(d)
THE GALAXY FUND
TRANSFER AGENCY AND SERVICES AGREEMENT
Amendment No. 1
_____________, 1998
First Data Investor Services
Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Dear Sirs:
This letter is to confirm that the undersigned, The Galaxy Fund (the
"Trust"), a Massachusetts business trust, has agreed that the Transfer Agency
and Services Agreement ("Agreement") between the Trust and First Data Investor
Services Group, Inc. ("FDISG") dated as of June 1, 1997, is herewith amended to
provide that FDISG shall be the transfer agent and dividend disbursing agent for
the Trust's New Jersey Municipal Bond Fund, MidCap Equity Fund and Special
Equity Fund on the terms and conditions contained in the Agreement.
If the foregoing is in accordance with your understanding, will you so
indicate by signing and returning to us the enclosed copy thereof.
Very truly yours,
THE GALAXY FUND
By:
------------------------------
Name: John T. O'Neill
Title: President
Accepted:
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By:
-----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT (9)(e)
THE GALAXY FUND
SHAREHOLDER SERVICES PLAN
Section 1. 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, MidCap Equity, Equity Value, Equity Growth, Equity
Income, Small Cap Value, Growth and Income, Special Equity, International
Equity, Asset Allocation, Short-Term Bond, Intermediate Government Income, High
Quality Bond, Corporate Bond, Tax-Exempt Bond, New Jersey Municipal 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
<PAGE> 2
execute, any Servicing Agreement with any qualifying Service Organization.
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 31,
1998 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, May
23, 1996, May 29, 1997 and December 4, 1997.
-2-
<PAGE> 3
THE GALAXY FUND
SERVICING AGREEMENT
(Small Company Equity, MidCap Equity, Equity Value, Equity Growth, Equity
Income, International Equity, Asset Allocation, Small Cap Value, Growth and
Income, Special Equity, Short-Term Bond, Intermediate Government Income, High
Quality Bond, Corporate Bond, Tax-Exempt Bond, New Jersey Municipal 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,
MidCap Equity, Equity Value, Equity Growth, Equity Income, International Equity,
Asset Allocation, Small Cap Value, Growth and Income, Special Equity, Short-Term
Bond, Intermediate Government Income, High Quality Bond, Corporate Bond,
Tax-Exempt Bond, New Jersey Municipal 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 Z - 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 AA - 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 Y - 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, MidCap
Equity, Equity Value, Equity Growth, Equity Income, International Equity, Asset
Allocation, Small Cap Value, Growth and Income, Special Equity, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New Jersey Municipal 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:
<PAGE> 4
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) arranging for bank wires; (iii) providing
subaccounting with respect to 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
-2-
<PAGE> 5
then current prospectuses and statements 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 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, MidCap
Equity Fund, Equity Value Fund, Equity Growth Fund, Equity Income Fund,
International Equity Fund, Asset Allocation Fund, Small Cap Value Fund, Growth
and Income Fund and Special Equity 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 Jersey Municipal 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
-3-
<PAGE> 6
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 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
-4-
<PAGE> 7
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 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 31, 1998, 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
-5-
<PAGE> 8
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,
please sign a copy of this letter where indicated below and promptly return it
to the Trust, c/o Jylanne Dunne, 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> 9
THE GALAXY FUND
SERVICING AGREEMENT
(Small Company Equity, MidCap Equity, Equity Value, Equity Growth, Equity
Income, International Equity, Asset Allocation, Small Cap Value, Growth and
Income, Special Equity, Short-Term Bond, Intermediate Government Income, High
Quality Bond, Corporate Bond, Tax-Exempt Bond, New Jersey Municipal 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,
MidCap Equity, Equity Value, Equity Growth, Equity Income, International Equity,
Asset Allocation, Small Cap Value, Growth and Income, Special Equity, Short-Term
Bond, Intermediate Government Income, High Quality Bond, Corporate Bond,
Tax-Exempt Bond, New Jersey Municipal 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 Z - 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 AA - 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 Y - 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, MidCap Equity, Equity Value, Equity Growth,
Equity Income, International Equity, Asset Allocation, Small Cap Value, Growth
and Income, Special Equity, Short-Term Bond, Intermediate Government Income,
High Quality Bond, Corporate Bond, Tax-Exempt Bond, New Jersey Municipal 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> 10
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
-2-
<PAGE> 11
then current prospectuses and statements 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, MidCap
Equity Fund, Equity Value Fund, Equity Growth Fund, Equity Income Fund,
International Equity Fund, Asset Allocation Fund, Small Cap Value Fund, Growth
and Income Fund and Special Equity 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 Jersey Municipal 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
-3-
<PAGE> 12
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 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
-4-
<PAGE> 13
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 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 31, 1998 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
-5-
<PAGE> 14
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,
please sign a copy of this letter where indicated below and promptly return it
to the Trust, c/o Jylanne Dunne, 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> 15
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> 16
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
statements 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> 17
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> 18
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 31, 1998 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> 19
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 Jylanne Dunne, 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> 20
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> 21
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
statements 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> 22
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> 23
(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 31, 1998 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> 24
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 Jylanne Dunne, 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> 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 Statements of Additional
Information that are included in Post-Effective Amendment No. 31 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.
/s/Drinker Biddle & Reath LLP
-----------------------------
Philadelphia, Pennsylvania Drinker Biddle & Reath LLP
December 15, 1997
<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. 31 to the
Registration Statement of Form N-1A under the Securities Act of 1933, as
amended, and Amendment No. 32 to the Registration Statement on Form N-1A under
the Investment Company Act of 1940, as amended (Nos. 33-4806 and 811-4536) of
The Galaxy Funds -- New York Municipal Bond Fund.
/s/ Willkie Farr & Gallagher
----------------------------
Willkie Farr & Gallagher
December 12, 1997
New York, New York
<PAGE> 1
Exhibit(11)(e)
December 11, 1997
The Galaxy Fund
4400 Computer Drive
Westboro, 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. 31 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)
December 15, 1997
The Galaxy Fund
4400 Computer Drive
Westboro, Massachusetts 01581-5108
Re: Connecticut Municipal Bond Fund and
Connecticut Municipal Money Market Fund
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 Statements of Additional Information included in Post-Effective Amendment
No. 31 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 (13)(h)
PURCHASE AGREEMENT
The Galaxy Fund, a Massachusetts business trust (the "Trust"), and
First Data Distributors Inc., a Massachusetts corporation ("FD Distributors"),
hereby agree with each other as follows:
1. The Trust hereby offers FD Distributors and FD
Distributors hereby purchases one (1) Class Y - Series 1 share and one (1) Class
Y - Series 2 share, each share representing an interest in the Trust's New
Jersey Municipal Bond Fund, at a purchase price of $10 per share, aggregating to
two (2) shares of beneficial interest in the Trust (such shares of beneficial
interest in the Trust being hereinafter collectively known as "Shares"). FD
Distributors hereby acknowledges purchase of the Shares and the Trust hereby
acknowledges receipt from FD Distributors of funds in the amount of $20 in full
payment for the Shares.
2. FD Distributors represents and warrants to the Trust
that the Shares are being acquired for investment purposes and not with a view
to the distribution thereof.
3. 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the ____ day of _______________, 1998.
THE GALAXY FUND
By:
-----------------------------
FIRST DATA DISTRIBUTORS INC.
By:
-----------------------------
<PAGE> 1
EXHIBIT (13)(i)
PURCHASE AGREEMENT
The Galaxy Fund, a Massachusetts business trust (the "Trust"), and
First Data Distributors Inc., a Massachusetts corporation ("FD Distributors"),
hereby agree with each other as follows:
1. The Trust hereby offers FD Distributors and FD
Distributors hereby purchases one (1) Class Z - Series 1 share, one (1) Class Z
- - Series 2 share and one (1) Class Z - Series 3 share, each share representing
an interest in the Trust's MidCap Equity Fund, at a purchase price of $10 per
share, aggregating to three (3) shares of beneficial interest in the Trust (such
shares of beneficial interest in the Trust being hereinafter collectively known
as "Shares"). FD Distributors hereby acknowledges purchase of the Shares and the
Trust hereby acknowledges receipt from FD Distributors of funds in the amount of
$30 in full payment for the Shares.
2. FD Distributors represents and warrants to the Trust
that the Shares are being acquired for investment purposes and not with a view
to the distribution thereof.
3. 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the ____ day of _______________, 1998.
THE GALAXY FUND
By:
-----------------------------
FIRST DATA DISTRIBUTORS INC.
By:
-----------------------------
<PAGE> 1
EXHIBIT (13)(j)
PURCHASE AGREEMENT
The Galaxy Fund, a Massachusetts business trust (the "Trust"), and
First Data Distributors Inc., a Massachusetts corporation ("FD Distributors"),
hereby agree with each other as follows:
1. The Trust hereby offers FD Distributors and FD
Distributors hereby purchases one (1) Class AA - Series 1 share, one (1) Class
AA - Series 2 share and one (1) Class AA - Series 3 share, each share
representing an interest in the Trust's Special Equity Fund, at a purchase price
of $10 per share, aggregating to three (3) shares of beneficial interest in the
Trust (such shares of beneficial interest in the Trust being hereinafter
collectively known as "Shares"). FD Distributors hereby acknowledges purchase of
the Shares and the Trust hereby acknowledges receipt from FD Distributors of
funds in the amount of $30 in full payment for the Shares.
2. FD Distributors represents and warrants to the Trust
that the Shares are being acquired for investment purposes and not with a view
to the distribution thereof.
3. 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the ____ day of _______________, 1998.
THE GALAXY FUND
By:
-----------------------------
FIRST DATA DISTRIBUTORS INC.
By:
-----------------------------
<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, MidCap Equity
Fund, Equity Growth Fund, Asset Allocation Fund, Equity Value Fund, Growth and
Income Fund, Special Equity 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 Statements 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
<PAGE> 2
"Distribution Organization") with respect to a Fund's B Shares 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
their 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 customers' 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%
-2-
<PAGE> 3
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) "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,
1998, and thereafter for so long as
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<PAGE> 4
its continuance is specifically approved at least annually by the 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
Revised: December 5, 1996, December 4, 1997
Reapproved: September 5, 1996, September 4, 1997
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<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 customers' 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, MidCap Equity Fund,
Equity Growth Fund, Asset Allocation Fund, Equity Value Fund, Growth and Income
Fund and Special Equity 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, 1998], 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
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<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.
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.
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<PAGE> 8
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
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<PAGE> 9
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:
<TABLE>
<CAPTION>
Shareholder Liaison Services Administrative Support Services
- ---------------------------- -------------------------------
<S> <C>
[ ] Small Company Equity Fund [ ] Small Company Equity Fund
[ ] MidCap Equity Fund [ ] Midcap 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
[ ] Special Equity Fund [ ] Special Equity 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
</TABLE>
- -------------------------------------------
(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 "1996-1 Prior Plan"), which had been
approved by the Board of Trustees of Galaxy on December 7, 1995. On December 30,
1996, Galaxy filed an Amended and Restated Plan pursuant to Rule 18f-3 for
operation of a multi-class system (the "1996-2 Prior Plan"), which had been
approved by the Board of Trustees of Galaxy on December 5, 1996. On September 4,
1997 the Board of Trustees of Galaxy approved an Amended and Restated Plan
pursuant to Rule 18f-3 for operation of a multi-class system (the "1997-1 Prior
Plan"). 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 4, 1997, supersedes the 1995 Prior Plan, the
1996-1 Prior Plan, the 1996-2 Prior Plan and the 1997-1 Prior Plan.
<PAGE> 2
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, MidCap Equity Fund, Asset Allocation
Fund, Growth and Income Fund and Special Equity 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,
Corporate Bond Fund, New Jersey Municipal Bond Fund, New York Municipal Bond
Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal Bond Fund and
Rhode Island Municipal 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
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<PAGE> 3
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) 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 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") 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 (subject to the reductions and
exemptions described in the prospectus for such Shares). When the aggregate
offering price of Retail A Shares of the Equity and Bond Portfolios purchased by
an investor qualifies the investor to purchase such Retail A Shares without
payment of a front-end sales charge, a contingent deferred sales charge of 1%
may be imposed if such Retail A Shares are redeemed within one year of purchase.
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
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<PAGE> 4
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 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 (subject to the reductions and
exemptions described in the prospectus for such Shares).
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
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<PAGE> 5
administrative support services with respect to such customers' Retail B Shares.
Galaxy shall initially limit the total fees payable
by Retail B Shares of the Equity Funds for shareholder liaison services and
administrative support services pursuant to the Distribution and Services Plan
adopted for that class to an amount not to exceed .30% (on an annualized basis)
of the average daily net asset value of Retail B Shares owned of record or
beneficially by customers of Service Organizations.
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 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 Oechsle
International Advisors, L.P., 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.
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<PAGE> 6
2. Bond Funds
RETAIL A SHARES
Retail A Shares of the Bond Funds 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 (subject to the reductions and
exemptions described in the prospectus for such Shares). When the aggregate
offering price of Retail A Shares of the Equity and Bond Portfolios purchased by
an investor qualifies the investor to purchase such Retail A Shares without
payment of a front-end sales charge, a contingent deferred sales charge of 1%
may be imposed if such Retail A Shares are redeemed within one year of purchase.
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% (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.
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<PAGE> 7
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 (subject to the reductions and
exemptions described in the prospectus for such Shares).
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.
Galaxy shall initially limit the total fees payable
by Retail B Shares of the Bond Funds for shareholder liaison services and
administrative support services pursuant to the Distribution and Services Plan
adopted for that class to an amount not to exceed .15% (on an annualized basis)
of the average daily net asset value of Retail B Shares owned of record or
beneficially by customers of Service Organizations.
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 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
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<PAGE> 8
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 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 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
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their position in shares; (d) providing sub-accounting with respect to Retail A
Shares or the information necessary for sub-accounting; 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 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 Money Market Fund, 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 (subject to the reductions and
exemptions described in the prospectus for such Shares).
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 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.
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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.
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.
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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 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) 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.
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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.
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.
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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.
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
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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.
F. Methodology for Allocating Expenses Among Classes
Class-specific expenses of a Fund shall be allocated to the
specific class of shares of that Fund. Non-class-specific expenses of a Fund
shall be allocated in accordance with Rule 18f-3(c) under the 1940 Act.
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