<PAGE>
[LOGO OF THE GALAXY FUNDS APPEARS HERE]
[ARTWORK APPEARS HERE]
TAXABLE BOND FUNDS REPORT
Short-Term Bond Fund . Intermediate Government Income Fund .
Corporate Bond Fund . High Quality Bond Fund
Annual
Report
For The Year Ended
October 31, 1996
<PAGE>
[LOGO OF THE FLEET GALAXY
FUND APPEARS HERE]
CHAIRMAN'S
MESSAGE
Dear Shareholder:
Enclosed is your annual report for the Galaxy Taxable Bond Funds (the
"Funds") for the 12 months ended October 31, 1996. Inside, you will find a
Market Overview that explains the major market and economic events that
influenced bond returns during that time. There are also Portfolio Reviews for
each of the Funds showing the management strategies that Fleet Investment
Advisors Inc. used in this environment.
During the period, bonds earned returns that were about average by
historical standards, but their prices were much more volatile than in the
previous 12 months. Stocks and money market instruments also fluctuated as
investors became uncertain over the direction of the economy, inflation and
interest rates. Toward the end of the period, investors seemed hopeful that
economic growth and inflation would remain moderate and interest rates would
become more stable.
Such an environment shows why it may be important to maintain a well-
diversified portfolio of investments. Different asset classes often move in
different directions, so using a broad range of classes can help smooth out
returns over time. Debt-oriented investments, such as bonds, can provide a
steady stream of income that can be a useful supplement to the growth and cash
portions of your portfolio.
To stay on track, you may want to "rebalance" your portfolio each year.
This is particularly true in a year like the one just past, when market changes
were substantial. As investment classes within your portfolio gain in value, you
can maintain a diversified portfolio by reinvesting those gains in other asset
classes, which may have declined in value or stayed the same, in accordance with
your long-term allocation strategy. Of course, you should consider the tax
implications of such rebalancing.
We hope you will find the following report helpful as you review your
current portfolio. If you have questions about material in the report, or need
information on any of the Galaxy Funds, please call the Galaxy Service Center at
800-628-0414.
Sincerely,
/s/ Dwight E. Vicks, Jr.
Dwight E. Vicks, Jr.
Chairman of the Board of Trustees
MUTUAL FUNDS:
. ARE NOT BANK DEPOSITS
. ARE NOT FDIC INSURED
. ARE NOT OBLIGATIONS OF FLEET BANK
. ARE NOT GUARANTEED BY FLEET BANK
. ARE SUBJECT TO INVESTMENT RISK INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED
<PAGE>
[LOGO OF FLEET GALAXY
FUND APPEARS HERE]
"In the 12 months ended October 31, 1996, we took advantage of rising yields by
emphasizing bonds with longer maturities in the Galaxy Taxable Bond Funds."
Bond Market Overview
By Fleet Investment Advisors Inc.
After rising strongly for most of 1995, bond prices were more volatile in
1996. During that time, investors became less certain about future economic
growth, inflation and interest rates. Bond prices rose when investors thought
growth was slowing and inflation was in check. Prices then fell when investors
worried that growth was accelerating and the Federal Reserve (the "Fed") would
raise interest rates to curb inflation.
In the 12 months ended October 31, 1996, we took advantage of rising yields
by emphasizing bonds with longer maturities in the Galaxy Taxable Bond Funds.
When we were concerned about falling prices, we focused on shorter-maturity
issues. We further enhanced returns for the Funds by taking advantage of
selective opportunities in higher coupon investments.
Watching the Economy and the Fed
At the end of 1995, the economy was growing slowly and bond prices were
still rising. After advancing at an annualized rate of 3.8% in the third quarter
of the year, the gross domestic product ("GDP"), a measure of U.S. goods and
services, slowed to an annualized rate of only 0.3% in the fourth quarter. As
expected, the Fed cut its short-term Fed Funds rate from 5.75% to 5.5%. This,
plus expectations for further cuts and a balanced federal budget, drove the
yield for 30-year Treasury bonds from 6.33% at the end of October to 5.94% at
the end of December.
At the start of 1996, a stalemate in federal budget talks and signs of
stronger growth caused a sudden fall in bond prices. Although inflation remained
moderate and the Fed cut the Fed Funds rate to 5.25%, investors worried that
interest rates would soon rise. As the GDP growth accelerated to annualized
rates of 2.0% and 4.7% in the first and second quarters, respectively, declining
bond prices pushed the yield for 30-year Treasury bonds to a high of 7.2%.
Performance At-A-Glance
Average Annual Returns as of October 31, 1996
Trust Shares
Short-Term Bond Fund
Inception Date 12/30/91
[BAR GRAPH APPEARS HERE]
4.91%
4.52%
5.32%
Intermediate Government Income Fund
Inception Date 9/1/88
[BAR GRAPH APPEARS HERE]
3.88%
3.97%
5.95%
7.47%
Corporate Bond Fund
Inception Date 12/12/94
[BAR GRAPH APPEARS HERE]
5.00%
9.92%
High Quality Bond Fund
Inception Date 12/14/90
[BAR GRAPH APPEARS HERE]
4.46%
4.33%
7.69%
8.25%
1 Year 5 Years
3 Years Life of Fund
1
<PAGE>
[LOGO OF FLEET GALAXY
FUND APPEARS HERE]
"When bond prices were rising at the end of 1995, we gave greater emphasis to
longer-term bonds -- whose prices generally rise more than shorter-term issues
in a rally.
Because inflation remained in check the Fed did not raise interest rates.
This inaction, plus reports of slower growth, helped bond prices rebound in the
fall. Prices remained volatile, however, suffering near-term declines on reports
of economic strength. By October, investors seemed convinced that inflation and
interest rates had stabilized. This made bond prices more stable, too. At the
end of November, as the Commerce Department announced that GDP growth had slowed
to an annualized rate of 2.0% in the third quarter, the yield for long-term
Treasury bonds stood at 6.64%.
Adjusting to Market Changes
When bond prices were rising at the end of 1995, we gave greater emphasis
to longer-term bonds -- whose prices generally rise more than shorter-term
issues in a rally.
Corporate bonds and mortgages performed very well during this period. This
was due, partly, to reduced supplies of corporates as companies focused on
cutting costs instead of issuing debt and to increased demand for corporates as
interest rates fell. Meanwhile, yields for mortgages were attractive due to
large supplies of these issues. In this environment, we felt the yields for
lower quality corporate bonds were not strong enough to compensate for the added
risk that these securities carry. While this approach dampened performance of
the Galaxy Taxable Bond Funds in the near-term, it maintained our focus on
lower-risk issues that perform more evenly over times of uncertainty.
Performance At-A-Glance
Average Annual Returns as of October 31, 1996
Retail A Shares*
Short-Term Bond Fund
Inception Date 12/30/91
[GRAPH APPEARS HERE]
0.72%
3.01%
4.38%
Intermediate Government Income Fund
Inception Date 9/1/88
[GRAPH APPEARS HERE]
- -0.30%
2.44%
5.01%
6.88%
High Quality Bond Fund
Inception Date 12/14/90
[GRAPH APPEARS HERE]
0.37%
2.88%
6.79%
7.48%
1 Year 5 Years
3 Years Life of Fund
*Return figures have been restated to include the effect of the maximum 3.75%
front-end sales charge which became effective on December 1, 1995.
2
<PAGE>
MARKET
OVERVIEW
"Later, as yields for corporate securities and issues of U.S. government
agencies became more attractive relative to yields for Treasuries, we added
investments in these instruments."
The large positions we held in longer-term issues early in 1996, when
interest rates suddenly moved higher, also weakened performance . We soon
softened the effect of higher rates, however, by adding shorter-term securities
- -- whose prices are generally more stable. Later, as yields for corporate
securities and issues of U.S. government agencies became more attractive
relative to yields for Treasuries, we added investments in these instruments.
This strategy, plus the addition of mortgage-backed securities and continued
focus on non-callable securities, helped enhance the Funds' yields.
Market Outlook
Fleet Investment Advisors Inc. believes bond prices could improve further
in coming months. If GDP growth stays near 2%, as we expect, inflation should
remain near 3%. This should further calm investor fears about higher interest
rates and help bond prices to edge higher. We believe prices for Treasuries
could rise enough to keep long-term yields at or below 6.5% into 1997. Further
economic uncertainty, however, could cause temporary fluctuations in prices and
yields.
For this reason, we expect to focus the Galaxy Taxable Bond Funds on
securities that tend to outperform in uncertain times. For now, we're keeping
the Funds' average maturities near those of their benchmarks and we are looking
for additional opportunities in higher-coupon investments. Believing the spreads
between yields of corporate and Treasury issues will remain historically tight,
we expect to focus on shorter-term corporate bonds, mortgage-backed and
asset-backed issues.
Performance At-A-Glance
Total Returns as of October 31, 1996
Retail B Shares*
Short-Term Bond Fund
Inception Date 3/4/96
[GRAPH APPEARS HERE]
2.12%
- --2.83%
High Quality Bond Fund
Inception Date 3/4/96
[GRAPH APPEARS HERE]
1.14%
-3.74%
*Retail B Shares are subject to a 5.00% Contingent Deferred Sales Charge if
shares are redeemed within 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. Total returns are from the date of inception.
3
<PAGE>
PORTIFOLIO REVIEWS
[PHOTO OF PERRY VIETH APPEARS HERE]
Perry Vieth
Galaxy Short-Term Bond Fund
Distribution of Total Net Assets
as of October 31, 1996
[GRAPH APPEARS HERE]
Repurchase Agreement &
Net Other Assets & Liabilities 4%
Foreign Bond 1%
Asset-Backed Securities 11%
U.S. Government
& Agency Obligations 26%
Corporate Notes & Bonds 58%
Galaxy Short-Term Bond Fund
By Perry Vieth
Portfolio Manager
In the 12 months ended October 31, 1996, we added higher yielding
securities to the Galaxy Short-Term Bond Fund. During this time, the Fund's
Trust Shares earned a total return of 4.91%. During the same period, the Fund's
Retail A Shares had a total return of 4.63% before deduction of the maximum
3.75% front-end sales charge. Over the same period, the average short
intermediate investment grade bond fund tracked by Lipper Analytical Services
("Lipper") earned a return of 5.54% and the Lehman Brothers One to Three Year
Government Bond Index had a return of 5.98%. From their initial public offering
on March 4, 1996 through October 31, 1996, the Fund's Retail B Shares had a
total return of 2.12% before deduction of the maximum 5.00% contingent deferred
sales charge.
Investment Strategy
When interest rates were falling at the end of 1995, the Fund's portfolio
had a "barbelled" maturity structure with investments in zero-coupon Treasury
securities and shorter-maturity issues. Such a structure benefits from
significant changes in bond prices. At the same time, we also were purchasing
securities that could not be called in by their issuers.
At the start of 1996, after interest rates reversed, we unwound the barbell
structure and returned to a neutral weighting along the yield curve. We also
added investments in asset-backed securities that offered excellent credit
quality and attractive yields. This buffered the Fund against falling prices
while helping to maintain its income. In the second quarter, when bond prices
and yields were more attractive, we added longer-maturity issues to the
portfolio. We then sold these issues after the bond market rallied.
The Fund's income was enhanced with a significant increase in holdings of
high quality corporate issues and asset-backed securities. However, as spreads
between yields for corporate and government issues tightened, we replaced some
longer-term corporate instruments with U.S. government agency debt, including
mortgage pass-through securities. On October 31, 1996, the Fund's Trust Shares
had a 30-day SEC annualized yield of 5.17%. On the same date, Retail A Shares
had a 30-day SEC annualized yield of 4.72% after deduction of the maximum 3.75%
front-end sales charge. On October 31, 1996, Retail B Shares had a 30-day SEC
annualized yield of 4.38% after deduction of the maximum 5.00% contingent
deferred sales charge.
Looking Ahead
Given the uncertainty of the economy's strength, we will expect to keep the
Fund's average maturity close to that of its market benchmark. In addition, we
will most likely maintain the current investment mix in coming months -- keeping
sizable positions in asset-backed securities and short-term corporate issues.
Perry Vieth became manager of the Galaxy Short-Term Bond Fund in March of 1996.
He has managed fixed-income investments since 1986.
Galaxy Short-Term Bond Fund
Growth of $10,000 investment*
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Bros. Galaxy Galaxy Galaxy
One-to-three Years Retail A Institutional Retail B
Government Bond Index Shares Shares Shares
--------------------- -------- ------------- --------
<S> <C> <C> <C> <C>
91 10,000 9,625 10,000
92 10,542 10,127 10,521
93 11,150 10,833 11,256
94 11,280 10,759 11,181
95 12,276 11,758 12,249 10,000
10/31/96 13,010 12,302 12,850 9,717
</TABLE>
. Lehman Brothers One to Three Year Government Bond Index
. Galaxy Short-Term Bond Fund-Retail A Shares
. Galaxy Short-Term Bond Fund-Trust Shares
. Galaxy Short-Term Bond Fund-Retail B Shares
* Since inception on 12/30/91 for Trust and Retail A Shares. Since inception on
3/4/96 for Retail B Shares. Performance figures for Retail A Shares have been
restated to include the effect of the maximum 3.75% front-end sales charge
which became effective on December 1, 1995. Performance figures for Retail B
Shares reflect the deduction of the maximum 5.00% contingent deferred sales
charge as if shares were redeemed on October 31, 1996. The Lehman Brothers One
to Three Year Government Bond Index is an unmanaged index in which investors
cannot invest. Results for the index do not reflect the expenses and
investment management fees incurred by the Fund.
4
<PAGE>
PORTFOLIO REVIEW
[PHOTO OF MARIE SCHOFIELD APPEARS HERE]
Marie Schofield
Galaxy Intermediate
Government
Income Fund
Distribution of Total Net Assets
as of October 31, 1996
[GRAPH APPEARS HERE]
Corporate Notes & Bonds 21%
Asset-Backed Securities 9%
Repurchase Agreement
& Net Other Assets & Liabilities 2%
U.S. Government &
Agency Obligations 68%
Galaxy Intermediate
Government Income Fund
By Marie Schofield
Portfolio Manager
As interest rates rose and bond prices fell, we replaced longer-term issues
in the Galaxy Intermediate Government Income Fund with shorter-term issues. This
helped to lock in profits earned in the bond rally of 1995 and buffered the Fund
against falling prices in 1996. To increase the Fund's income during this time,
we added investments in higher-yielding securities.
For the 12 months ended October 31, 1996, the Fund's Trust Shares had a
total return of 3.88%. During the same time, its Retail A Shares had a total
return of 3.58% before deduction of the maximum 3.75% front-end sales charge.
That compares with a return of 5.14% for the average intermediate investment
grade bond fund tracked by Lipper and a return of 5.81% for the Lehman Brothers
Intermediate Government/Corporate Bond Index.
Switching Gears
When bond prices rose at the start of the period, we focused on longer-term
securities to increase potential price appreciation and lock in higher yields
for a longer period of time. We further enhanced return by adding positions in
U.S. Treasury securities, which could not be called as rates fell, and by
investing in bonds of high quality U.S. corporations and government agencies
with yields that were especially attractive.
When interest rates rose in 1996, the Fund's strong yield helped offset
falling bond prices. As higher interest rates discouraged homeowners from
prepaying their mortgages, making mortgage-backed securities more attractive, we
added investments in that sector. This, plus larger investments in asset-backed
securities and selected corporate bonds of high quality, further enhanced the
Fund's yield.
During this time, we replaced some of the Fund's longer-term securities
with shorter-term issues -- whose prices tend to hold up better when interest
rates rise. We maintained this strategy as interest rates rose further.
Throughout the period, we gave greater attention to bonds that would not be
called in from time to time by their issuers. This also helped to enhance the
Fund's yield. On October 31, 1996, the Fund's Trust Shares had a 30-day SEC
annualized yield of 5.83%. On the same date, Retail A Shares had a 30-day SEC
annualized yield of 5.30% after deduction of the maximum 3.75% front-end sales
charge.
Continued Attention to Income
Although investors remain nervous about inflation and bond prices may
continue to fluctuate, we expect prices gradually to edge higher and will look
for new ways to benefit from such gains. For the most part, however, we expect
income to constitute the majority of the Fund's return. With sizable investments
in asset-backed securities, mortgage-backed securities and high quality
corporate bonds, we believe the Fund could enjoy above-average income into next
year.
Marie Schofield has managed the Galaxy Intermediate Government Income Fund since
December of 1996. She has managed fixed-income investments since 1975. Jim Evans
managed the Fund from March of 1996 to December 1996.
Galaxy Intermediate
Government Income Fund
Growth of $10,000 investment*
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Bros.
Intermediate Galaxy Galaxy
Government/Corporate Retail A Trust
Bond Shares Shares Shares
-------------------- -------- -------------
<S> <C> <C> <C>
88 10,000 9,625 10,000
88 10,312 10,000 10,390
89 11,399 11,023 11,451
90 12,240 11,250 11,687
91 13,933 12,977 13,482
92 15,326 14,398 14,958
93 16,850 15,414 16,014
94 16,524 14,733 15,310
95 18,596 16,626 17,329
10/31/96 19,866 17,221 18,002
</TABLE>
. Lehman Brothers Intermediate Government/Corporate Bond Index
. Galaxy Intermediate Government Income Fund-Retail A Shares
. Galaxy Intermediate Government Income Fund-Trust Shares
* Since inception on 9/1/88, Performance figures for Retail A Shares have been
restated to include the effect of the maximum 3.75% front-end sales charge
which became effective on December 1, 1995. The Lehman Brothers Intermediate
Government/Corporate Bond Index is an unmanaged index in which investors
cannot invest. Results for the index do not reflect the expenses and
investment management fees incurred by the Fund.
5
<PAGE>
PORTFOLIO REVIEW
[PHOTO OF DAVID LINDSAY APPEARS HERE]
David Lindsay
Galaxy Corporate
Bond Fund
Distribution of Total Net Assets
as of October 31, 1996
U.S. Government & Agency Obligations 12%
Foreign Bonds 6%
Other Corporate Notes & Bonds 23%
Finance 22%
Utilities 13%
Transportation 6%
Manufacturing 6%
Asset-Backed Securities 9%
Repurchase Agreement &Net Other Assets & Liabilities 3%
Galaxy Corporate Bond Fund
By David Lindsay
Portfolio Manager
In the 12 months ended October 31, 1996, we restructured maturities in the
Galaxy Corporate Bond Fund to make the most of changing bond prices. We also
gave greater emphasis to corporate bonds, which performed relatively well in
this environment. With these strategies, the Fund's Trust Shares earned a total
return of 5.00%. That compares to returns of 4.82% for the average A-rated
corporate bond fund tracked by Lipper and 5.81% for the Lehman Brothers
Intermediate Government/Corporate Bond Index, the Fund's benchmark index. At the
end of the period, the Fund's Trust Shares had a 30-day SEC annualized yield of
5.90%.
Defending Share Value,
Boosting Yield
At the end of 1995, when interest rates were bottoming, we used a
"barbelled" maturity structure for the Fund's investments. For the most part, we
concentrated investments in shorter-term issues, which could outperform the
benchmark index when interest rates rose, and in longer-term issues, which could
provide the Fund with increased yield.
As interest rates rose in 1996, we added high-quality, intermediate-term
corporates from the finance, telecommunications and retail sectors. This helped
the Fund endure the accompanying decline in bond prices relatively well. While
prices for corporates fell with the rest of the bond market, an improving
economy strengthened the credit quality of corporate issuers and kept corporate
prices from falling as much as prices for other bonds.
We continued to add corporates in the second and third quarters of 1996 --
finding attractive issues from a wide range of industries. We also added
asset-backed securities, which had largely been overlooked by investors and had
yields that were especially strong.
At the same time we began to unwind the Fund's barbell maturity structure
and give even greater attention to intermediate-term issues. Since these
securities had been hit especially hard when interest rates rose, they enjoyed
strong gains as rates fell late in the period ended October 31, 1996. Many of
the bonds we bought came from the finance, paper, electric utility and
broadcasting sectors.
New Opportunities
We continue to look for high-quality corporates representing good value,
although the recent outperformance of corporates has made us quite selective. If
the economy slows, as we believe it will, corporates may underperform
temporarily. This would give us the opportunity to make additional investments
at attractive prices and yields.
In the meantime, we expect to maintain sizable positions in asset-backed
securities. Many banks are using these instruments to finance their growth. This
has boosted supplies of asset-backed issues and kept their prices and yields
quite appealing.
David Lindsay has managed the Galaxy Corporate Bond Fund since its inception in
December of 1994, Galaxy Fund II Treasury Index Fund since 1994, and managed
fixed-income portfolios for Fleet Investment Advisors Inc. since 1986.
Galaxy Corporate Bond Fund
Growth of $10,000 investment*
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Intermediate Galaxy Institutional
Corporate Bond Index Shares
-------------------- --------------------
<S> <C> <C>
94 10,000 10,000
95 10,967 11,385
10/31/96 11,658 11,954
</TABLE>
. Lehman Brothers Intermediate Government/Corporate Bond Index
. Galaxy Corporate Bond Fund-Trust Shares
* Since inception on 12/12/94. The Lehman Brothers Intermediate
Government/Corporate Bond Index is an unmanaged index in which investors
cannot invest. Results for the index do not reflect the expenses and
investment management fees incurred by the Fund.
6
<PAGE>
[LOGO OF THE FLEET GALAXY
FUND APPERS HERE]
PORTFOLIO REVIEW
Galaxy High Quality
Bond Fund
Distribution of Total Net Assets
as of October 31, 1996
Repurchase Agreement &
Net Other Assets & Liabilities 2%
Asset-Backed Securities 9%
Foreign Bond 2%
Corporate Notes & Bonds 29%
U.S. Government & Agency Obligations 58%
Galaxy High Quality Bond Fund
By Marie Schofield
Portfolio Manager
The interest rate environment of the last 12 months can best be
characterized as volatile, with yields for 30-year Treasury bonds generally
fluctuating between 6% and 7%. The period began with long-term yields near 6.25%
and ended with long-term yields near 6.75%. Such yield volatility generally
affects the prices of longer-term bonds more than the prices of short-term
bonds. The Galaxy High Quality Bond Fund adapted to this changing environment by
using defensive maturity strategies when interest rates were low and rising and
extending maturities when rates were near the high end of the range.
This was in keeping with our active duration discipline, which reviews
"real" bond yields, or yields minus inflation. Under this discipline we look to
be opportunistic and lengthen the average maturity and duration of the Fund when
real yields are high and look attractive -- which is currently around 7%. When
real yields are less attractive, we generally have a neutral to shorter maturity
structure.
For the 12 months ended October 31, 1996, the Fund's Trust Shares produced
a total return of 4.46%. During the same period, Retail A Shares produced a
total return of 4.24% before deduction of the maximum 3.75% front-end sales
charge. Over the same time, the average A-rated corporate bond fund tracked by
Lipper had a total return of 4.82% and the Lehman Brothers Long-Term Government/
Corporate Bond Index had a return of 4.39%. For the period since their intial
public offering on March 4, 1996 through October 31, 1996, the Fund's Retail B
Shares produced a total return of 1.14% before deduction of the maximum 5.00%
contingent deferred sales charge.
On October 31, 1996, the Fund's Trust Shares had a 30-day SEC annualized
yield of 5.72%. On the same date, Retail A Shares had a 30-day SEC annualized
yield of 5.29% after deduction of the maximum 3.75% front-end sales charge. On
October 31, 1996, the Fund's Retail B Shares had a 30-day SEC annualized yield
of 5.00% after deduction of the maximum 5.00% contingent deferred sales charge.
Restructuring Maturities
In the falling rate environment at the end of 1995, we emphasized longer,
non-call maturities and zero-coupon bonds. This both enhanced the Fund's
potential for capital gains and helped to lock in higher yields. When interest
rates began to rise along with accelerating economic growth during the first
quarter of 1996, we replaced securities with longer maturities and durations
with short-term issues of high quality.
7
<PAGE>
PORTFOLIO REVIEWS
As a further defensive measure, we restructured the Fund's portfolio in the
second quarter to spread maturities across the yield curve -- thereby reducing
the Fund's concentration in intermediate-term maturities. Purchases of
shorter-term issues included "AAA"-rated asset-backed securities and corporate
debt with top credit ratings and attractive yields. We also purchased government
mortgage-backed securities, which offered incremental yield and stable cash
flows. These issues had grown more appealing as higher interest rates
discouraged home loan prepayments.
In the third quarter, we reduced holdings in longer-term corporate bonds
due to our concerns over the widening in the spreads between their yields and
those of government issues and the related underperformance that could occur. We
continued to emphasize shorter-term corporates, which would be less affected by
changing yield spreads. With long-term yields near the 7.0% threshold, we
lengthened the average maturity and duration of the Fund slightly with the
purchase of longer-maturity Treasury bonds. As rates fell toward 6.75% near the
end of the fourth quarter, we took gains in these issues and adopted a more
neutral maturity position.
Future Strategies
In keeping with our active duration discipline, we expect to make similar
adjustments in the coming months. As before, we will monitor yield spreads among
the different market sectors to find investments that offer the best relative
value.
Marie Schofield has managed the Galaxy High Quality Bond Fund since March of
1996. She has managed fixed-income investments since 1975.
Galaxy High Quality Bond Fund
Growth of $10,000 investment*
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Brothers Galaxy Galaxy Galaxy
Long-Term Government/ Retail A Institutional Retail B
Corporate Bond Index Shares Shares Shares
--------------------- -------- ------------- --------
<S> <C> <C> <C> <C>
90 10,000 9,625 10,000
91 11,155 10,951 11,003
92 12,329 11,684 12,139
93 14,009 13,510 14,037
94 13,359 12,374 12,859
95 16,856 14,658 15,259 10,000
10/31/96 17,355 15,280 15,939 9,626
</TABLE>
. Lehman Brothers Long-Term Government/Corporate Bond Index
. Galaxy High Quality Bond Fund-Retail A Shares
. Galaxy High Quality Bond Fund-Trust Shares
. Galaxy High Quality Bond Fund-Retail B Shares
* Since inception on 12/14/90 for Trust and Retail A Shares. Since inception on
3/4/96 for Retail B Shares. Performance figures for Retail A Shares have been
restated to include the effect of the maximum 3.75% front-end sales charge
which became effective on December 1, 1995. Performance figures for Retail B
Shares reflect the deduction of the maximum 5.00% contingent deferred sales
charge as if shares were redeemed on October 31, 1996. The Lehman Brothers
Long-Term Government/Corporate Bond Index is an unmanaged index in which
investors cannot invest. Results for the index do not reflect the expenses and
investment management fees incurred by the Fund.
- -------------------------------------------------------------------------------
Investment returns and principal values will vary with market conditions so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. The Investment Adviser is presently waiving fees and/or
reimbursing expenses and may revise or discontinue such practice at any time.
Without such waivers and/or reimbursements, performance would be lower. Past
performance is no guarantee of future results. Unless otherwise indicated, total
return figures in this report include changes in share price, the effect of
sales charges, where applicable, and reinvestment of dividends and capital gains
distributions, if any.
8
<PAGE>
Short-Term Bond Fund
PORTFOLIO OF INVESTMENTS
[LOGO OF THE GALAXY FUND October 31, 1996
APPEARS HERE]
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
- ------------- ------------
CORPORATE NOTES AND BONDS - 58.03%
<S> <C> <C>
Finance - 34.65%
$ 1,000,000 American General Finance Corp
7.70%, 11/15/97 ..................................$ 1,018,759
1,500,000 Associates Corp. of North America
6.25%, 03/15/99 .................................. 1,507,500
3,000,000 Associates Corp. of North America
5.25%, 03/30/00 .................................. 2,902,500
5,000,000 CIT Group Holdings, Inc., MTN
6.20%, 04/15/98 .................................. 5,025,000
2,000,000 Commercial Credit Co
8.50%, 02/15/98 .................................. 2,065,000
1,000,000 Commercial Credit Co.
6.70%, 08/01/99 .................................. 1,012,500
2,000,000 Ford Motor Credit Co.
6.38%, 10/06/00 .................................. 1,995,000
2,500,000 General Electric Capital Corp., MTN
5.48%, 03/01/99 .................................. 2,471,875
5,000,000 General Motors Acceptance Corp.
8.00%, 10/01/99 .................................. 5,225,000
3,000,000 Household Finance Corp.
7.75%, 06/15/97 .................................. 3,040,287
3,000,000 Norwest Financial, Inc., MTN
6.68%, 09/15/99 .................................. 3,045,000
2,500,000 Pitney Bowes Credit Corp., MTN
6.54%, 07/15/99 .................................. 2,525,000
-----------
31,833,421
-----------
Consumer Staples - 10.03%
2,000,000 American Home Products Corp.
7.70%, 02/15/00 .................................. 2,085,000
1,000,000 Coca-Cola Enterprises, Inc.
7.00%, 11/15/99 .................................. 1,022,500
1,000,000 Procter & Gamble Co.
6.85%, 06/01/97 .................................. 1,005,929
5,000,000 Sears Roebuck & Co., MTN
7.40%, 03/16/98 .................................. 5,100,000
-----------
9,213,429
-----------
Banking - 8.97%
1,000,000 BankAmerica Corp.
6.00%, 07/15/97 .................................. 1,002,309
5,200,000 NationsBank Corp.
7.50%, 02/15/97 .................................. 5,229,739
2,000,000 Society National Bank
7.13%, 04/15/97 .................................. 2,014,340
-----------
8,246,388
-----------
Aerospace - 3.30%
3,000,000 Lockheed Martin Corp.
6.63%, 06/15/98 .................................. 3,033,750
----------
Telephone and Telecommunications - 1.08%
$ 1,000,000 New York Telephone Co.
5.25%, 09/01/98 ..................................$ 988,750
-----------
Total Corporate Notes and Bonds .................. 53,315,738
(Cost $53,065,447) -----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 25.98%
U.S. Treasury Notes - 11.19%
1,250,000 7.38%, 11/15/97 .................................. 1,272,549
5,000,000 5.88%, 08/15/98 .................................. 5,013,293
3,000,000 5.50%, 11/15/98 .................................. 2,985,657
1,000,000 6.38%, 05/15/99 .................................. 1,012,179
-----------
10,283,678
-----------
Federal Home Loan Mortgage Corporation- 8.77%
3,000,000 5.18%, 11/22/96, Discount Note ................... 2,990,490
4,731,445 5.50%, 12/01/99, Pool #G50277 .................... 4,721,093
355,238 7.00%, 05/01/19, Pool #D29158 .................... 349,576
-----------
8,061,159
-----------
Federal Home Loan Bank - 3.12%
400,000 6.85%, 02/25/97 .................................. 401,936
2,500,000 6.00%, 01/18/01 .................................. 2,460,550
-----------
2,862,486
-----------
Federal National Mortgage Association - 2.90%
200,000 6.05%, 01/12/98 .................................. 200,754
2,500,000 5.32%, 02/10/99, MTN ............................. 2,462,523
-----------
2,663,277
-----------
Total U.S. Government
and Agency Obligations .......................... 23,870,600
(Cost $23,671,807) -----------
ASSET-BACKED SECURITIES - 10.90%
5,000,000 Premier Auto Trust
1996-1 Asset Backed Note, Class A-3
6.00%, 10/06/99 .................................. 5,002,295
3,000,000 Sears Credit Account Master Trust
6.50%, 10/15/03 .................................. 3,033,657
2,000,000 Standard Credit Card Master Trust II
1993-3 Participation Certificate, Class A
5.50%, 02/07/00 .................................. 1,976,294
-----------
Total Asset-Backed Securities .................... 10,012,246
(Cost $9,950,333) -----------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Short-Term Bond Fund
PORTFOLIO OF INVESTMENTS (continued)
[LOGO OF THE GALAXY FUND October 31, 1996
APPEARS HERE]
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
--------------- ------------
FOREIGN BOND - 1.04%
<S> <C> <C>
$ 900,000 Export-Import Bank of Japan
Yankee Debenture
8.35%, 12/01/99 .............................. $ 955,125
---------
Total Foreign Bond ........................... 955,125
(Cost $959,670) ---------
REPURCHASE AGREEMENT - 3.39%
3,114,281 Chase Securites, Inc.
5.45%, 11/01/96, Dated 10/31/96
Repurchase Price $3,114,752
(Collateralized By
U.S. Treasury Bond 7.25%
Due 05/15/2016;
Total Par Value $2,925,000;
Total Market Value $3,196,636) ............... 3,114,281
-----------
Total Repurchase Agreement ................... 3,114,281
(Cost $3,114,281) -----------
Total Investments - 99.34%....................................... 91,267,990
(Cost $90,761,538) -----------
Net Other Assets and Liabilities - 0.66% ........................ 607,464
-----------
Net Assets - 100.00% ............................................$ 91,875,454
===========
- ------------------------------------------
MTN Medium Term Note
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Intermediate Government Income Fund
PORTFOLIO OF INVESTMENTS
[LOGO OF THE GALAXY October 31, 1996
FUND APPEARS HERE]
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
- ------------- ----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 68.14%
Federal Home Loan
Mortgage Corporation - 15.28%
<S> <C> <C>
$ 5,348,917 7.00%, 11/01/00, Pool #G50300......... $ 5,410,761
5,825,351 7.50%, 10/01/09, Pool #E62671......... 5,930,935
14,203,981 7.00%, 12/01/10, Pool #E00407......... 14,239,491
19,543,173 6.50%, 03/01/11, Pool #E00420......... 19,256,123
------------
44,837,310
------------
U.S. Treasury Bonds - 13.49%
20,000,000 11.13%, 08/15/03....................... 25,361,380
11,000,000 10.75%, 08/15/05....................... 14,228,269
------------
39,589,649
------------
U.S. Treasury Notes - 12.99%
10,000,000 6.13%, 05/15/98........................ 10,070,200
20,000,000 6.88%, 08/31/99........................ 20,504,980
7,500,000 6.25%, 08/31/00........................ 7,559,993
------------
38,135,173
------------
Federal National
Mortgage Association - 11.93%
12,000,000 8.42%, 10/20/04, MTN................... 12,260,028
10,000,000 8.00%, 04/13/05, Pass-thru Certificate,
Pool #313180........................... 10,154,190
7,123,864 6.00%, 10/01/09, Pool #303344.......... 6,867,847
5,555,000 8.00%, 10/01/09........................ 5,726,855
------------
35,008,920
------------
U.S. Government Backed Bonds - 7.23%
10,000,000 Small Business Administration
Participation Certificates
Series SBIC-PS 1995-10B
7.25%, 05/10/05........................ 9,825,000
5,000,000 State of Israel
6.38%, 08/15/01........................ 5,012,500
6,450,000 State of Israel, Series 6-A Note
6.05%, 08/15/00........................ 6,393,563
------------
21,231,063
------------
Government National
Mortgage Association - 7.22%
779,952 7.50%, 09/15/07, Pool #329067.......... 796,282
2,842,124 7.50%, 10/15/07, Pool #332722.......... 2,901,629
1,471,784 7.50%, 03/15/08, Pool #347309.......... 1,502,599
1,597,093 7.50%, 12/15/08, Pool #345085.......... 1,630,531
9,375,050 6.50%, 07/15/09, Pool #780357.......... 9,272,505
4,743,816 9.00%, 12/15/17, Pool #780047.......... 5,093,673
------------
21,197,219
------------
Total U.S. Government
and Agency Obligations................ 199,999,334
(Cost $198,865,096) ------------
Value
Par Value (Note 2)
- ------------- ----------
CORPORATE NOTES AND BONDS - 21.42%
Finance - 11.41%
$ 7,500,000 Associates Corp. N.A., MTN
6.00%, 03/15/99........................$ 7,500,000
5,000,000 Commercial Credit Co., Note
5.55%, 02/15/01........................ 4,837,500
5,000,000 Ford Motor Credit Co., Sr. Note
6.25%, 11/08/00........................ 4,962,500
6,000,000 General Motors Acceptance Corp.
7.13%, 06/01/99........................ 6,127,500
5,000,000 IBM Credit Corp., MTN
5.86%, 07/28/98........................ 4,987,500
5,000,000 Pitney Bowes Credit Corp., Series C, MTN
6.78%, 07/16/01........................ 5,075,000
------------
33,490,000
------------
Banking - 7.78%
7,500,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01........................ 7,490,625
7,550,000 Branch Banking & Trust Co., Sr. Note
5.70%, 02/01/01........................ 7,351,813
8,000,000 NationsBank Texas,
National Association, Sr. Note, MTN
6.35%, 03/15/01........................ 7,980,000
------------
22,822,438
------------
Healthcare - 1.72%
5,000,000 Columbia/HCA Healthcare Corp.
6.50%, 03/15/99........................ 5,043,750
------------
Retail - 0.51%
1,500,000 May Department Stores
6.88%, 11/01/05........................ 1,500,000
------------
Total Corporate Notes and Bonds........ 62,856,188
(Cost $62,084,373) ------------
ASSET-BACKED SECURITIES - 9.22%
5,000,000 Ford Credit Owner Trust
Series 1996-A, Class A-3
6.50%, 11/15/99........................ 5,053,265
750,000 Guaranteed Trade Trust
Series 1993-A, Class A
4.86%, 04/01/98........................ 747,186
6,500,000 MBNA Master Credit Card Trust
Series 1993-3, Class A
5.40%, 09/15/00........................ 6,419,387
5,000,000 Signet Credit Card Master Trust
1993-1 Credit Card Participation
Certificate, Class A
5.20%, 02/15/02........................ 4,921,765
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Intermediate Government Income Fund
PORTFOLIO OF INVESTMENTS (continued)
[LOGO OF THE GALAXY October 31, 1996
FUND APPEARS HERE]
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
- --------------- ----------
<S> <C> <C>
$ 5,000,000 Standard Credit Card Master Trust I
Series 1993-3 Participation Certificate
Class A, Eurodollar
5.50%, 02/07/00........................... $ 4,940,735
5,000,000 Standard Credit Card Master Trust I
Series 1995-10 Participation Certificate
Class A
5.90%, 02/07/01........................... 4,977,020
--------------
Total Asset-Backed Securities............. 27,059,358
(Cost $26,868,281) --------------
REPURCHASE AGREEMENT - 1.14%
3,333,250 Chase Securities, Inc.
5.45%, 11/01/96, Dated 10/31/96
Repurchase Price $3,333,755
(Collateralized by U.S. Treasury Bond
7.25% Due 05/15/2016;
Total Par Value $3,130,000;
Total Market Value $3,420,673)............ 3,333,250
--------------
Total Repurchase Agreement................ 3,333,250
(Cost $3,333,250) --------------
Total Investments - 99.92%.................................. 293,248,130
(Cost $291,151,000) --------------
Net Other Assets and Liabilities - 0.08%.................... 242,679
--------------
Net Assets - 100.00%........................................ $ 293,490,809
==============
</TABLE>
- -----------------------------------
MTN Medium Term Note
See Notes to Financial Statements.
12
<PAGE>
Corporate Bond Fund
[LOGO OF FLEET GALAXY FUND PORTFOLIO OF INVESTMENTS
APPEARS HERE] October 31, 1996
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
- ------------ ----------
CORPORATE NOTES AND BONDS - 69.88%
<S> <C> <C>
Finance - 22.12%
$ 600,000 Ameritech Capital Funding
7.50%, 04/01/05........................ $ 627,750
100,000 Aristar, Inc.
6.30%, 07/15/00........................ 99,625
750,000 Associates Corp. of North America
8.38%, 01/15/98........................ 772,500
500,000 Associates Corp. of North America
5.25%, 09/01/98........................ 494,375
1,000,000 Caterpillar Financial Services Corp.
6.87%, 11/30/99........................ 1,017,500
1,000,000 Chase Manhattan Corp.
6.63%, 01/15/98........................ 1,008,750
300,000 Chrysler Building New York, Inc.
9.13%, 05/01/99........................ 320,625
1,000,000 CIT Group Holdings, Inc., MTN
6.20%, 04/15/98........................ 1,005,000
750,000 Commercial Credit Co.
6.70%, 08/01/99........................ 759,375
300,000 Commercial Credit Co.
8.70%, 06/15/09........................ 343,125
1,000,000 Commercial Credit Co.,
Debenture
9.60%, 05/15/99........................ 1,080,000
500,000 Dean Witter Discover & Co.
6.75%, 08/15/00........................ 506,250
600,000 Dow Capital BV, Debenture
9.00%, 05/15/10........................ 687,750
600,000 Fletcher Challenge Financial USA, Inc.
9.80%, 06/15/98........................ 634,500
1,000,000 Ford Motor Credit Co.
8.88%, 06/15/99........................ 1,063,750
500,000 Ford Motor Credit Co.
6.85%, 08/15/00........................ 506,250
500,000 Ford Motor Credit Co., Sr. Note
6.25%, 11/08/00........................ 496,250
150,000 General Motors Acceptance Corp.
5.63%, 02/01/99........................ 148,312
160,000 General Motors Acceptance Corp.
9.38%, 04/01/00........................ 174,200
200,000 General Motors Acceptance Corp.
9.63%, 05/15/00........................ 219,750
200,000 General Motors Acceptance Corp.
9.63%, 12/15/01........................ 227,000
1,300,000 General Motors Acceptance Corp.
8.88%, 06/01/10........................ 1,516,125
1,800,000 General Motors Acceptance Corp.,
MTN
7.50%, 06/01/99........................ 1,854,000
350,000 Great Western Financial Corp.
6.13%, 06/15/98........................ 351,312
525,000 Great Western Financial Corp.
6.38%, 07/01/00........................ 524,344
1,000,000 Household Finance Corp.
8.95%, 09/15/99........................ 1,070,000
1,000,000 International Lease Finance Corp.
6.13%, 11/01/99........................ 996,250
</TABLE>
Finance (continued)
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
- ------------ ----------
<S> <C> <C>
$ 1,000,000 Norwest Financial, Inc.
6.88%, 06/15/00........................ $1,017,500
600,000 NZI Capital Corp.
8.25%, 03/15/97........................ 605,471
1,000,000 Pitney Bowes Credit Corp., MTN
6.54%, 07/15/99........................ 1,010,000
250,000 Textron Financial Corp., MTN
9.45%, 04/10/01........................ 275,938
300,000 Travelers Group, Inc.
6.13%, 06/15/00........................ 295,875
250,000 Travelers Group, Inc.
6.63%, 09/15/05........................ 246,250
1,000,000 Travelers Group, Inc.
6.88%, 06/01/25........................ 1,003,750
620,000 United States Leasing International, Inc.
8.75%, 12/01/01........................ 679,675
180,000 USL Capital Corp.
8.13%, 02/15/00........................ 188,550
----------
23,827,677
----------
Utilities - 12.65%
500,000 Alabama Power Co.
6.38%, 08/01/99........................ 503,125
300,000 Baltimore Gas & Electric Co.
8.40%, 10/15/99........................ 317,625
1,000,000 Baltimore Gas & Electric Co.
8.38%, 08/15/01........................ 1,078,750
1,000,000 Cincinnati Gas & Electric Co.
5.80%, 02/15/99........................ 990,000
300,000 Consumers Power Co.
8.75%, 02/15/98........................ 309,750
1,080,000 Cox Communications, Inc.
6.38%, 06/15/00........................ 1,077,300
383,000 Cox Communications, Inc.
6.50%, 11/15/02........................ 380,606
1,000,000 Florida Power & Light Co.
5.50%, 07/01/99........................ 981,250
455,000 GTE California, Inc.
6.75%, 03/15/04........................ 455,569
350,000 GTE Corp.
9.38%, 12/01/00........................ 385,437
500,000 GTE Florida, Inc.
6.25%, 11/15/05........................ 481,875
400,000 GTE South, Inc., Series B, Debenture
7.25%, 08/01/02........................ 414,500
1,500,000 GTE Southwest, Inc.
6.00%, 01/15/06........................ 1,415,625
600,000 Hydro-Quebec
11.75%, 02/01/12....................... 831,750
150,000 Kansas Gas & Electric Co.
6.50%, 08/01/05........................ 145,500
100,000 Orange & Rockland Utilities, Inc.
9.38%, 03/15/00........................ 108,500
300,000 Orange & Rockland Utilities, Inc.,
Debenture
6.50%, 10/15/97........................ 301,875
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
Corporate Bond Fund
[LOGO OF FLEET GALAXY FUND PORTFOLIO OF INVESTMENTS (continued)
APPEARS HERE] October 31, 1996
Value
Par Value (Note 2)
- ------------ ----------
<TABLE>
<CAPTION>
<S> <C> <C>
Utilities (continued)
$ 180,000 Peco Energy Corp.
9.25%, 10/01/99........................ $ 193,950
200,000 Public Service Electric & Gas Co.,
Series II
7.63%, 02/01/00........................ 207,000
365,000 Public Service Electric & Gas Co.,
Series KK
6.88%, 06/01/97........................ 367,281
300,000 Sprint Corp.
9.75%, 04/01/00........................ 330,750
1,000,000 Texas Utilities Electric Co.
5.75%, 07/01/98........................ 996,250
250,000 Unicom Corp.
9.38%, 02/15/00........................ 270,625
500,000 Virginia Electric & Power Co.
6.25%, 08/01/98........................ 502,500
250,000 Virginia Electric & Power Co., MTN
9.40%, 05/27/99........................ 266,590
300,000 Virginia Electric & Power Co.,
Series 1992 D
7.63%, 07/01/07........................ 316,125
------------
13,630,108
------------
Transportation - 6.01%
250,000 Atchinson, Topeka & Santa Fe
Railway Co., Series X
6.00%, 07/01/00........................ 246,875
800,000 Carnival Corp.
5.75%, 03/15/98........................ 799,000
500,000 Carnival Corp.
6.15%, 10/01/03........................ 487,500
300,000 CSX Corp.
9.50%, 08/01/00........................ 331,125
200,000 Federal Express Corp.
10.00%, 04/15/99....................... 216,250
1,000,000 Hertz Corp.
9.75%, 02/01/98........................ 1,046,250
150,000 Hertz Corp.
6.00%, 02/01/01........................ 147,000
1,100,000 Lockheed Martin Corp.
5.88%, 03/15/98........................ 1,100,000
500,000 Southwest Airlines Co.
9.40%, 07/01/01........................ 554,375
300,000 Southwest Airlines Co.
8.00%, 03/01/05........................ 318,750
250,000 Union Pacific Corp.
7.60%, 05/01/05........................ 262,187
1,000,000 Union Pacific Corp.
6.40%, 02/01/06........................ 970,000
------------
6,479,312
------------
</TABLE>
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
- ----------- ----------
<S> <C> <C>
Manufacturing - 5.71%
$ 500,000 Crown Cork & Seal, Inc.
8.38%, 01/15/05........................ $ 539,375
1,375,000 Georgia-Pacific Corp.
9.95%, 06/15/02........................ 1,577,813
1,000,000 International Paper Co.
7.63%, 08/01/04........................ 1,045,000
500,000 Loral Corp.
7.63%, 06/15/04........................ 518,125
1,500,000 Raytheon Co.
6.50%, 07/15/05........................ 1,477,500
1,000,000 Snap-On, Inc.
6.63%, 10/01/05........................ 997,500
----------
6,155,313
----------
Consumer Staples - 4.69%
250,000 American Home Products Corp.
7.90%, 02/15/05....................... 267,500
150,000 Becton Dickinson & Co.
8.80%, 03/01/01....................... 163,125
400,000 Champion International Corp.
7.10%, 09/01/05....................... 401,000
1,000,000 Dillard Department Stores, Inc.
7.38%, 06/15/99....................... 1,026,250
1,000,000 Lilly (Eli) & Co.
7.13%, 06/01/25....................... 987,500
300,000 Limited, Inc.
9.13%, 02/01/01....................... 323,625
250,000 Penney (J.C.) & Co., Inc.
9.05%, 03/01/01....................... 274,062
1,000,000 Penney (J.C.) & Co., Inc., MTN
6.38%, 09/15/00....................... 998,750
300,000 Seagram Ltd., Debenture
6.50%, 04/01/03....................... 297,750
300,000 Sears Roebuck & Co., Series V, MTN
9.31%, 07/24/98....................... 316,125
----------
5,055,687
----------
Banking - 3.46%
305,000 Bank of New York, Inc.
7.88%, 11/15/02...................... 324,444
1,000,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01...................... 998,750
1,000,000 Branch Banking & Trust Co., Sr. Note
5.70%, 02/01/01...................... 973,750
1,000,000 National City Bank of Kentucky
6.30%, 02/15/11...................... 920,000
500,000 Wachovia Corp.
7.00%, 12/15/99...................... 512,500
----------
3,729,444
----------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
[LOGO OF THE GALAXY FUND APPEARS HERE]
Corporate Bond Fund
PORTFOLIO OF INVESTMENTS (continued)
October 31, 1996
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
- ----------- ----------
<S> <C> <C>
Insurance - 3.01%
$ 210,000 American General Corp.
9.63%, 07/15/00.............. $ 231,525
341,000 Chubb Corp., Debenture
8.75%, 11/15/99.............. 363,591
1,000,000 ITT Hartford Group, Inc.
6.38%, 11/01/02.............. 985,000
750,000 Progressive Corp., Ohio
10.00%, 12/15/00............. 841,875
150,000 Progressive Corp., Ohio
6.60%, 01/15/04.............. 148,125
300,000 Torchmark Corp.
9.63%, 05/01/98.............. 314,625
340,000 Transamerica Corp.
9.88%, 01/01/98.............. 354,875
-----------
3,239,616
-----------
Oil, Gas and Petroleum - 3.00%
300,000 Anadarko Petroleum Corp., Debenture
6.75%, 03/15/03.............. 302,250
500,000 Atlantic Richfield Co., Debenture
10.88%, 07/15/05............. 628,125
1,000,000 Burlington Resources, Inc., Debenture
6.88%, 02/15/26.............. 923,750
300,000 Enron Corp.
10.00%, 06/01/98............. 316,875
100,000 Occidental Petroleum Corp.
10.13%, 11/15/01............. 114,375
300,000 Phillips Petroleum Co.
9.00%, 06/01/01.............. 328,875
300,000 Sun Co., Inc.
7.13%, 03/15/04.............. 302,250
150,000 Texaco Capital, Inc.
8.65%, 01/30/98.............. 155,063
150,000 Unocal Corp., Series A, MTN
9.25%, 08/02/99.............. 161,063
----------
3,232,626
----------
Basic Materials - 2.47%
560,000 Alcan Aluminum, Ltd.
5.88%, 04/01/00.............. 552,300
400,000 Cyprus Amax Minerals Co.
10.13%, 04/01/02............. 458,500
360,000 Reynolds Metals Co., Debenture
9.38%, 06/15/99.............. 386,100
1,000,000 Weyerhaeuser Co.
8.38%, 02/15/07.............. 1,116,250
150,000 Weyerhaeuser Co., Debenture
7.13%, 07/15/23.............. 145,313
----------
2,658,463
----------
Processed Foods - 2.37%
$ 1,600,000 CPC International, Inc.
6.15%, 01/15/06.............. $1,532,000
1,000,000 Sysco Corp.
7.00%, 05/01/06.............. 1,018,750
----------
2,550,750
----------
Consumer Cyclicals - 2.21%
600,000 Armstrong World Industries, Inc.
9.75%, 04/15/08.............. 718,500
100,000 Comdisco, Inc.
9.75%, 01/15/97.............. 100,774
100,000 Comdisco, Inc.
6.50%, 06/15/00.............. 100,000
1,000,000 New York Times Co.
7.63%, 03/15/05.............. 1,060,000
150,000 Times Mirror Co., Debenture
7.50%, 07/01/23.............. 152,625
100,000 Whitman Corp.
7.50%, 08/15/01.............. 103,000
150,000 Whitman Corp.
6.50%, 02/01/06.............. 143,438
----------
2,378,337
----------
Technology - 1.40%
1,500,000 International Business Machines Corp.
6.38%, 06/15/00.............. 1,503,750
----------
Industrial - 0.67%
726,000 Fischbach Corp.
4.75%, 04/01/97.............. 723,046
----------
Capital Goods - 0.11%
104,000 Alco Standard Corp.
8.88%, 04/15/01.............. 112,970
----------
Total Corporate Notes and Bonds 75,277,099
----------
(Cost $75,175,887)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 11.99%
Federal National Mortgage Association - 4.55%
25,756 8.00%, 01/01/99, Pool #145891.... 26,424
223,162 7.50%, 11/07/07, Pool #188629.... 226,928
168,085 5.00%, 08/01/10, Series A-1, CMO. 154,953
1,954 12.50%, 12/01/13, Pool #2443..... 2,225
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
Corporate Bond Fund
PORTFOLIO OF INVESTMENTS (continued)
[LOGO OF THE GALAXY October 31, 1996
FUND APPEARS HERE]
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
----------- ----------
<S> <C> <C>
Federal National
Mortgage Association (continued)
$ 3,885,036 6.00%, 11/01/23, Pool #50940................. $ 3,620,368
907,024 6.50%, 12/01/23, Pool #50946................. 868,191
---------------
4,899,089
---------------
U.S. Treasury Notes - 2.72%
500,000 6.00%, 12/31/97.............................. 502,570
1,086,000 8.88%, 11/15/98.............................. 1,150,366
750,000 6.38%, 01/15/99.............................. 759,652
500,000 7.13%, 02/29/00.............................. 517,439
---------------
2,930,027
---------------
U.S. Treasury Bonds - 2.66%
2,000,000 11.63%, 11/15/02............................. 2,546,478
300,000 7.25%, 05/15/16.............................. 317,817
---------------
2,864,295
---------------
Federal Home Loan
Mortgage Corporation - 1.63%
57,512 8.75%, 08/01/01, Pool #220011................ 59,256
127,810 7.00%, 06/01/04, Pool #189683................ 125,773
117,944 7.50%, 08/01/08, Pool #181313................ 118,424
40,326 7.00%, 05/01/16, Pool #272046................ 39,683
225,339 7.00%, 02/01/17, Pool #289284................ 221,747
142,130 8.90%, 05/15/19, Series 82,
Class C, CMO................................. 143,712
165,880 8.00%, 07/01/21, Pool #C00068................ 169,664
88,665 8.00%, 10/01/21, Pool #D11045................ 90,688
265,462 7.00%, 10/01/22, Pool # C00184............... 261,231
268,677 7.00%, 02/01/23, Pool #C00213................ 264,394
283,630 6.00%, 09/01/23, Pool #D41208................ 264,662
---------------
1,759,234
---------------
Government National
Mortgage Association - 0.43%
149,951 9.00%, 09/15/04, Pool #003669................ 158,666
75,282 9.00%, 12/15/08, Pool #027562................ 79,658
226,678 8.00%, 05/15/22, Pool #319062................ 231,920
---------------
470,244
---------------
Total U.S. Government and
Agency Obligations.......................... 12,922,889
---------------
(Cost $13,007,014)
ASSET-BACKED SECURITIES - 8.90%
$ 1,000,000 Chemical Master Credit Card Trust I,
Series 1996-1, Class A
5.55%, 09/15/03.............................. $ 973,925
1,000,000 Ford Credit Auto Loan Master Trust,
Series 1995-1, Class A
6.50%, 08/15/02.............................. 1,006,100
1,000,000 Ford Credit Owner Trust
Series 1996-A, Class A-3
6.50%, 11/15/99.............................. 1,010,653
1,489,361 Guaranteed Export Trust Certificates
Series 1993-D, Class A
5.23%, 05/15/05.............................. 1,429,783
750,000 Guaranteed Trade Trust
Series 1993-A, Class A
4.86%, 04/01/98.............................. 747,186
1,000,000 NationsBank Auto Owner Trust
Series 1996-A, Class A-3
6.38%, 07/15/00.............................. 1,006,563
1,000,000 Premier Auto Trust
Series 1996-3, Class A-3
6.50%, 03/06/00.............................. 1,009,097
600,000 Standard Credit Card Trust, Series 1990-3
Class A
9.50%, 05/10/97.............................. 612,029
1,800,000 Standard Credit Card Master Trust I,
Series 1995-10 Participation Certificate,
Class A
5.90%, 02/07/01.............................. 1,791,727
---------------
Total Asset-Backed Securities 9,587,063
---------------
(Cost $9,562,220)
FOREIGN BONDS - 5.76%
1,000,000 Korea Development Bank
6.25%, 05/01/00.............................. 992,500
300,000 Manitoba Province of Canada,
Series BM, Debenture
9.13%, 01/15/18.............................. 363,375
300,000 Manitoba Province of Canada,
Debenture
8.80%, 01/15/20.............................. 354,375
1,000,000 Province of Newfoundland
7.32%, 10/13/23.............................. 983,750
3,300,000 Republic of Indonesia
7.80%, 10/15/22.............................. 3,516,150
---------------
Total Foreign Bonds.......................... 6,210,150
---------------
(Cost $6,383,834)
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
Corporate Bond Fund
PORTFOLIO OF INVESTMENTS (continued)
[LOGO OF THE GALAXY October 31, 1996
FUND APPEARS HERE]
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
- ----------- ----------
<S> <C> <C>
REPURCHASE AGREEMENT - 2.29%
$ 2,463,354 Chase Securities, Inc.
5.45%, 11/01/96, Dated 10/31/96
Repurchase Price $2,463,726
(Collateralized by U.S. Treasury Bond
7.25% Due 05/15/2016;
Total Par Value $2,315,000;
Total Market Value $2,529,987)............... $ 2,463,354
---------------
Total Repurchase Agreement................... 2,463,354
---------------
(Cost $2,463,354)
Total Investments - 98.82%...................................... 106,460,555
---------------
(Cost $106,592,309)
Net Other Assets and Liabilities - 1.18%........................ 1,267,233
---------------
Net Assets - 100.00%............................................ $ 107,727,788
===============
</TABLE>
- -----------------------------------------
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
See Notes to Financial Statements.
17
<PAGE>
[Logo of Gateway Fund High Quality Bond Fund
appears here.] PORTFOLIO OF INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
- ----------- ----------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 58.07%
U.S. Treasury Bonds - 25.10%
$ 5,000,000 8.38%, 08/15/08.............................. $ 5,576,845
1,700,000 9.88%, 11/15/15.............................. 2,280,276
11,500,000 7.50%, 11/15/16.............................. 12,479,225
2,000,000 9.00%, 11/15/18.............................. 2,517,620
4,500,000 7.88%, 02/15/21.............................. 5,099,715
1,700,000 8.13%, 05/15/21.............................. 1,978,290
6,800,000 8.13%, 08/15/21.............................. 7,916,832
1,000,000 8.00%, 11/15/21.............................. 1,150,000
6,000,000 7.25%, 08/15/22.............................. 6,363,294
---------------
45,362,097
---------------
U.S. Treasury Notes - 16.82%
2,500,000 6.13%, 05/15/98.............................. 2,517,550
1,500,000 6.00%, 09/30/98.............................. 1,507,679
2,000,000 8.88%, 02/15/99.............................. 2,129,740
2,000,000 6.88%, 07/31/99.............................. 2,049,078
3,500,000 6.63%, 06/30/01.............................. 3,576,051
2,000,000 6.50%, 08/31/01.............................. 2,033,660
1,500,000 7.88%, 11/15/04.............................. 1,647,164
5,000,000 6.50%, 05/15/05.............................. 5,055,195
3,000,000 6.50%, 08/15/05.............................. 3,033,600
2,200,000 5.88%, 11/15/05.............................. 2,130,348
4,500,000 7.00%, 07/15/06.............................. 4,702,275
---------------
30,382,340
---------------
Federal National
Mortgage Association - 7.62%
500,000 8.15%, 05/11/98.............................. 517,149
6,013,143 6.50%, 12/01/02.............................. 5,986,836
1,000,000 7.86%, 05/25/04, MTN......................... 1,024,269
2,000,000 7.85%, 09/10/04.............................. 2,052,938
1,000,000 8.18%, 09/22/04, MTN......................... 1,013,949
3,000,000 8.50%, 08/01/05.............................. 3,173,637
---------------
13,768,778
---------------
Government National
Mortgage Association - 4.16%
7,201,098 8.00%, 02/15/08, Pool #780424................ 7,520,647
---------------
Federal Home Loan
Mortgage Corporation - 3.11%
592,681 6.50%, 07/01/99, Pool #L73248................ 598,608
2,866,757 5.50%, 08/01/99, Pool #G50195................ 2,835,402
2,167,349 6.50%, 09/01/99, Pool #G50194................ 2,189,023
---------------
5,623,033
---------------
U.S. Government Backed Bonds - 1.26%
$ 500,000 Farm Credit System
Financial Assistance Corp.
9.45%, 11/21/03.............................. $ 531,875
1,800,000 Israel Aid
5.45%, 02/15/01.............................. 1,741,500
---------------
2,273,375
---------------
Total U.S. Government
and Agency Obligations...................... 104,930,270
---------------
(Cost $102,722,380)
CORPORATE NOTES AND BONDS - 29.67%
Finance - 20.65%
2,000,000 Associates Corp. of North America
6.63%, 05/15/01.............................. 2,015,000
4,000,000 Associates Corp. of North America
MTN
6.00%, 03/15/99.............................. 4,000,000
2,000,000 Associates Corp. of North America,
MTN
7.40%, 05/03/02.............................. 2,082,500
4,000,000 Bank One Milwaukee,
National Association, MTN
6.35%, 03/19/01.............................. 3,995,000
200,000 Chubb Corp., Debenture
8.75%, 11/15/99.............................. 213,250
3,800,000 CIT Group Holdings, Inc.
6.75%, 04/30/98.............................. 3,847,500
4,520,000 CIT Group Holdings, Inc., MTN
6.20%, 04/15/98.............................. 4,542,600
250,000 General Electric Capital Corp.
8.30%, 09/20/09.............................. 282,812
1,000,000 General Electric Capital Corp., MTN
8.13%, 02/01/99.............................. 1,043,750
4,500,000 National Rural Utilities
Cooperative Finance Corp.
7.30%, 09/15/06.............................. 4,635,000
3,000,000 Norwest Financial, Inc.
8.50%, 08/15/98.............................. 3,131,250
4,500,000 Paccar Financial Corp., MTN
6.06%, 03/15/99.............................. 4,494,375
3,000,000 Pitney Bowes Credit Corp., MTN
6.54%, 07/15/99.............................. 3,030,000
---------------
37,313,037
---------------
Consumer Staples - 7.04%
2,500,000 Anheuser Busch Cos.
6.90%, 10/01/02.............................. 2,521,875
3,600,000 Coca-Cola Enterprises, Inc.
7.00%, 11/15/99.............................. 3,681,000
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
High Quality Bond Fund
PORTFOLIO OF INVESTMENTS (continued)
October 31, 1996
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
- ----------- ----------
<S> <C> <C>
Consumer Staples (continued)
$ 3,000,000 General Electric Co.
7.88%, 09/15/98.............................. $ 3,105,000
250,000 Procter & Gamble Co.
8.50%, 08/10/09.............................. 286,875
3,000,000 Sara Lee Corp., MTN
7.40%, 03/22/02.............................. 3,131,250
---------------
12,726,000
---------------
Technology - 1.44%
2,500,000 International Business Machines Corp.
7.25%, 11/01/02.............................. 2,596,875
---------------
Utilities - 0.54%
1,000,000 New England Telephone & Telegraph Co.
5.05%, 10/01/98.............................. 981,250
---------------
Total Corporate Notes and Bonds.............. 53,617,162
---------------
(Cost $52,663,352)
ASSET-BACKED SECURITIES - 8.69%
4,168,775 Banc One Auto Grantor Trust
1996-A Certificate, Class A
6.10%, 10/15/02.............................. 4,181,065
5,500,000 Discover Card Trust
1993-A Credit Card Pass-thru Certificate,
Class A
6.25%, 08/16/00.............................. 5,513,315
3,000,000 NationsBank Auto Owner Trust
Series 1996-A, Class A-3
6.38%, 07/15/00.............................. 3,019,689
3,000,000 Sears Credit Account Master Trust II
1996-1 Certificate, Class A
6.20%, 02/16/06.............................. 2,994,582
---------------
Total Asset-Backed Securities................ 15,708,651
---------------
(Cost $15,620,224)
FOREIGN BOND - 1.74%
$ 3,000,000 Province of Ontario
7.38%, 01/27/03.............................. $ 3,138,750
---------------
Total Foreign Bond........................... 3,138,750
---------------
(Cost $2,994,750)
REPURCHASE AGREEMENT - 1.72%
3,113,332 Chase Securities, Inc.
5.45%, 11/01/96, Dated 10/31/96
Repurchase Price $3,113,803
(Collateralized by U.S. Treasury Bond 7.25%
Due 05/15/2016; Total Par Value $2,925,000;
Total Market Value $3,196,636)............... 3,113,332
---------------
Total Repurchase Agreement................... 3,113,332
---------------
(Cost $3,113,332)
Total Investments - 99.89%...................................... 180,508,165
---------------
(Cost $177,114,038)
Net Other Assets and Liabilities - 0.11%........................ 196,727
---------------
Net Assets - 100.00%............................................ $ 180,704,892
</TABLE>
- -----------------------------------
MTN Medium Term Note
See Notes to Financial Statements.
19
<PAGE>
[LOGO OF THE GALAXY STATEMENTS OF ASSETS AND LIABILITIES
FUND APPEARS HERE] October 31, 1996
<TABLE>
<CAPTION>
Intermediate
Short-Term Government Corporate High Quality
Bond Fund Income Fund Bond Fund Bond Fund
---------- ------------ --------- ------------
ASSETS:
<S> <C> <C> <C> <C>
Investments (Note 2):
Investments at cost........................................ $ 87,647,257 $ 287,817,750 $ 104,128,955 $ 174,000,706
Repurchase agreements...................................... 3,114,281 3,333,250 2,463,354 3,113,332
Net unrealized appreciation (depreciation)................. 506,452 2,097,130 (131,754) 3,394,127
------------- ------------- ------------- ------------
Total investments at value.............................. 91,267,990 293,248,130 106,460,555 180,508,165
Receivable for investments sold.............................. -- -- 9,215 --
Receivable for shares sold................................... 111,200 38,645 16,929 59,795
Interest and dividend receivables............................ 1,069,322 3,200,089 1,892,507 2,753,459
Receivable from Investment Adviser (Note 4).................. 2,858 1,146 16,233 617
Deferred organizational expense (Note 2)..................... 600 -- 12,263 880
------------- ------------- ------------- -------------
Total Assets............................................. 92,451,970 296,488,010 108,407,702 183,322,916
------------- ------------- ------------- -------------
LIABILITIES:
Dividends payable............................................ 182,967 916,149 267,522 303,358
Payable for investments purchased............................ -- 1,500,859 -- 2,054,938
Payable to Custodian......................................... -- 12,604 3,669 3,116
Payable for shares redeemed.................................. 258,303 285,691 213,064 87,032
Advisory fee payable (Note 3)................................ 42,583 140,244 49,563 82,354
Payable to Fleet and affiliates (Note 3)..................... 5,759 12,294 18,121 17,212
Payable to FDISG (Note 3).................................... 35,171 64,310 28,005 24,279
Trustees' fees and expenses payable (Note 3)................. 1,180 5,371 8,391 2,396
Accrued expenses and other payables.......................... 50,553 59,679 91,579 43,339
------------- ------------- ------------- -------------
Total Liabilities........................................ 576,516 2,997,201 679,914 2,618,024
------------- ------------- ------------- -------------
NET ASSETS.................................................... $ 91,875,454 $ 293,490,809 $ 107,727,788 $ 180,704,892
============= ============= ============= =============
NET ASSETS consist of:
Par value (Note 5)........................................... $ 9,194 $ 29,164 $ 10,229 $ 17,264
Paid-in capital in excess of par value....................... 97,258,093 319,175,117 110,066,489 181,791,367
Undistributed net investment income.......................... 130,065 525,316 224,825 121,385
Accumulated net realized gain (loss) on investments sold..... (6,028,350) (28,335,918) (2,442,001) (4,619,251)
Net unrealized appreciation (depreciation) of investments.... 506,452 2,097,130 (131,754) 3,394,127
------------- ------------- ------------- -------------
TOTAL NET ASSETS.............................................. $ 91,875,454 $ 293,490,809 $ 107,727,788 $ 180,704,892
============= ============= ============= =============
Retail A Shares:
Net Assets................................................... $ 33,387,721 $ 79,740,652 $ -- $ 30,984,198
Shares of beneficial interest outstanding.................... 3,341,269 7,923,739 -- 2,960,244
NET ASSET VALUE and redemption
price per share............................................ $ 9.99 $ 10.06 $ -- $ 10.47
Sales charge -- 3.75% of offering price...................... 0.39 0.39 -- 0.41
------------- ------------- ------------- -------------
Maximum offering price per share............................. $ 10.38 $ 10.45 $ -- $ 10.88
============= ============= ============= =============
Retail B Shares:
Net Assets................................................... $ 260,068 $ -- $ -- $ 646,349
Shares of beneficial interest outstanding.................... 26,023 -- -- 61,751
NET ASSET VALUE and offering
price per share*........................................... $ 9.99 $ -- $ -- $ 10.47
============= ============= ============= =============
Trust Shares:
Net Assets................................................... $ 58,227,665 $ 213,750,157 $ 107,727,788 $ 149,074,345
Shares of beneficial interest outstanding.................... 5,826,883 21,239,771 10,228,835 14,242,458
NET ASSET VALUE, offering and redemption
price per share*........................................... $ 9.99 $ 10.06 $ 10.53 $ 10.47
============= ============= ============= =============
</TABLE>
*Redemption price per share is equal to the Net Asset Value per share less any
applicable contingent deferred sales charge.
See Notes to Financial Statements.
20
<PAGE>
[LOGO OF THE GALAXY STATEMENTS OF OPERATIONS
FUND APPEARS HERE] For the year ended October 31, 1996
<TABLE>
<CAPTION>
Intermediate
Short-Term Government Corporate High Quality
Bond Fund Income Fund Bond Fund Bond Fund
---------- ------------ --------- ------------
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Interest (Note 2).................................. $ 6,101,390 $ 20,251,099 $ 7,635,846 $ 11,446,222
Dividends (Note 2)................................. 17,209 25,551 37,220 --
----------- ------------ ----------- ------------
Total Investment income........................ 6,118,599 20,276,650 7,673,066 11,446,222
----------- ------------ ----------- ------------
EXPENSES:
Investment advisory fee (Note 3)................... 724,764 2,262,188 824,075 1,271,428
Administration fee (Note 3)........................ 82,440 256,059 93,185 143,905
Custodian fee...................................... 20,993 21,360 19,596 20,971
Fund accounting fee (Note 3)....................... 56,208 66,100 47,479 54,748
Legal fee (Note 3)................................. 3,864 14,655 5,225 7,649
Audit fee.......................................... 19,605 20,030 11,160 15,199
Transfer agent fee (Note 3)........................ 80,371 210,596 104,198 229,684
12b-1 fee (Note 3)................................. 822 -- -- 1,580
Shareholder servicing fee (Note 3)................. 54,786 122,781 -- 46,303
Trustees' fees and expenses (Note 3)............... 2,989 10,083 1,772 5,550
Amortization of organization costs (Note 2)........ 3,649 -- 3,949 785
Reports to shareholders............................ 38,267 80,119 6,208 35,098
Registration fees.................................. 47,115 18,831 33,986 26,457
Insurance.......................................... 2,950 6,571 95 3,293
Miscellaneous...................................... 5,414 13,824 1,966 3,336
----------- ------------ ----------- ------------
Total expenses before reimbursement/waiver..... 1,144,237 3,103,197 1,152,894 1,865,986
Less: reimbursement/waiver (Note 4)............ (234,077) (608,385) (219,753) (342,003)
----------- ------------ ----------- ------------
Total expenses net of reimbursement/waiver..... 910,160 2,494,812 933,141 1,523,983
----------- ------------ ----------- ------------
NET INVESTMENT INCOME............................... 5,208,439 17,781,838 6,739,925 9,922,239
----------- ------------ ----------- ------------
NET REALIZED AND UNREALIZED
GAIN(LOSS) ON INVESTMENTS (Note 2):
Net realized gain (loss) on investments sold....... 112,054 (2,311,334) 1,258,135 1,020,018
Net change in unrealized appreciation
(depreciation) of investments.................... (568,149) (3,748,553) (2,341,149) (3,640,756)
----------- ------------ ----------- ------------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS..................................... (456,095) (6,059,887) (1,083,014) (2,620,738)
----------- ------------ ----------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.......................... $ 4,752,344 $ 11,721,951 $ 5,656,911 $ 7,301,501
=========== ============ =========== ============
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
[LOGO OF THE GALAXY STATEMENTS OF CHANGES IN NET ASSETS
FUND APPEARS HERE]
<TABLE>
<CAPTION>
Intermediate Government
Short-Term Bond Fund Income Fund
----------------------------- ------------------------------
Years ended October 31,
--------------------------------------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET ASSETS at beginning of period.......................... $ 66,629,823 $ 73,904,105 $ 265,595,212 $ 306,813,102
------------- ------------- ------------- -------------
Increase in Net Assets resulting from operations:
Net investment income.................................... 5,208,439 3,704,119 17,781,838 17,527,248
Net realized gain (loss) on investments sold............. 112,054 (421,060) (2,311,334) (2,953,843)
Net change in unrealized appreciation (depreciation)
of investments......................................... (568,149) 2,480,497 (3,748,553) 19,422,871
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations... 4,752,344 5,763,556 11,721,951 33,996,276
------------- ------------- ------------- -------------
Dividends to shareholders from:
Retail A Shares:
Net investment income.................................... (1,899,771) (1,667,283) (4,849,267) (4,989,851)
------------- ------------- ------------- -------------
Total Dividends........................................ (1,899,771) (1,667,283) (4,849,267) (4,989,851)
------------- ------------- ------------- -------------
Retail B Shares:
Net investment income.................................... (5,986) -- N/A N/A
------------- ------------- ------------- -------------
Total Dividends........................................ (5,986) -- N/A N/A
------------- ------------- ------------- -------------
Trust Shares:
Net investment income.................................... (3,302,682) (2,036,836) (12,933,355) (12,537,397)
------------- ------------- ------------- -------------
Total Dividends........................................ (3,302,682) (2,036,836) (12,933,355) (12,537,397)
------------- ------------- ------------- -------------
Total Dividends to shareholders.......................... (5,208,439) (3,704,119) (17,782,622) (17,527,248)
------------- ------------- ------------- -------------
Net increase (decrease) from share transactions /(1)/...... 25,701,726 (9,333,719) 33,956,268 (57,686,918)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets.................. 25,245,631 (7,274,282) 27,895,597 (41,217,890)
------------- ------------- ------------- -------------
NET ASSETS at end of period (including line A)............ $ 91,875,454 $ 66,629,823 $ 293,490,809 $ 265,595,212
============= ============= ============= =============
(A) Undistributed net investment income.................... $ 130,065 $ 19,340 $ 525,316 $ 298,687
============= ============= ============= =============
</TABLE>
- -----------------------------
(1) For detail on share transactions by series, see Statements of Changes in Net
Assets - Capital Stock Activity on pages 24 and 25.
See Notes to Financial Statements.
22
<PAGE>
[LOGO OF THE GALAXY STATEMENTS OF CHANGES IN NET ASSETS
FUND APPEARS HERE]
<TABLE>
<CAPTION>
Corporate Bond Fund High Quality Bond Fund
----------------------------- -------------------------------
Years ended October 31,
----------------------------------------------------------------
1996 1995/(1)/ 1996 1995
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
NET ASSETS at beginning of period $ 37,390,970 $ -- $ 164,723,305 $ 145,429,196
-------------- ------------- -------------- -------------
Increase in Net Assets resulting from operations:
Net investment income................................. 6,739,925 2,067,947 9,922,239 9,372,737
Net realized gain (loss) on investments sold.......... 1,258,135 281,758 1,020,018 (2,232,295)
Net change in unrealized appreciation (depreciation)
of investments...................................... (2,341,149) 2,209,395 (3,640,756) 18,291,500
-------------- ------------- -------------- -------------
Net increase in net assets resulting
from operations..................................... 5,656,911 4,559,100 7,301,501 25,431,942
-------------- ------------- -------------- -------------
Dividends to shareholders from:
Retail A Shares:
Net investment income................................ -- -- (1,722,962) (1,631,664)
Dividends in excess of net investment income......... -- -- -- (3,143)
-------------- ------------- -------------- -------------
Total Dividends..................................... -- -- (1,722,962) (1,634,807)
-------------- ------------- -------------- -------------
Retail B Shares:
Net investment income................................ N/A N/A (12,988) --
-------------- ------------- -------------- -------------
Total Dividends..................................... N/A N/A (12,988) --
-------------- ------------- -------------- -------------
Trust Shares:
Net investment income................................. (6,740,091) (2,067,947) (8,186,289) (7,723,052)
Dividends in excess of net investment income.......... -- -- -- (14,878)
Net realized gain on investments...................... (269,505) -- -- --
-------------- ------------- -------------- -------------
Total Dividends..................................... (7,009,596) (2,067,947) (8,186,289) (7,737,930)
-------------- ------------- -------------- -------------
Total Dividends to shareholders................... (7,009,596) (2,067,947) (9,922,239) (9,372,737)
-------------- ------------- -------------- -------------
Net increase from share transactions/(2)/.............. 71,689,503 34,899,817 18,602,325 3,234,904
-------------- ------------- -------------- -------------
Net increase in net assets........................ 70,336,818 37,390,970 15,981,587 19,294,109
-------------- ------------- -------------- -------------
NET ASSETS at end of period (including line A)......... $ 107,727,788 $ 37,390,970 $ 180,704,892 $ 164,723,305
============== ============= ============== =============
(A) Undistributed net investment income................ $ 224,825 $ 12,253 $ 121,385 $ 73,096
============== ============= ============== =============
</TABLE>
- ----------------------------------
(1) The Corporate Bond Fund commenced operations on December 12, 1994.
(2) For detail on share transactions by series, see Statements of Changes in Net
Assets - Capital Stock Activity on pages 24 and 25.
See Notes to Financial Statements.
23
<PAGE>
[LOGO OF THE GALAXY STATEMENTS OF CHANGES IN NET ASSETS -
FUND APPEARS HERE] Capital Stock Activity
<TABLE>
<CAPTION>
Short-Term Bond Fund Intermediate Government Income Fund
---------------------------- ------------------------------------
Years ended October 31,
--------------------------------------------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
DOLLAR AMOUNTS
Retail A Shares:
Sold........................... $ 9,555,879 $ 8,050,740 $ 10,050,205 $ 8,076,188
Issued in connection with
acquisition (Note 7)......... 7,787,792 -- 10,486,443 --
Issued to shareholders in
reinvestment of dividends.... 1,599,869 1,308,564 3,514,752 3,456,642
Repurchased..................... (16,939,526) (12,823,541) (22,121,133) (31,399,298)
------------ ------------ ------------ ------------
Net increase (decrease) in
shares outstanding........... $ 2,004,014 $ (3,464,237) $ 1,930,267 $(19,866,468)
============ ============ ============ ============
Retail B Shares:
Sold........................... $ 301,660 -- N/A N/A
Issued to shareholders in
reinvestment of dividends.... 5,137 -- N/A N/A
Repurchased.................... (47,553) -- N/A N/A
------------ ------------ ------------ ------------
Net increase in
shares outstanding........... $ 259,244 -- N/A N/A
============ ============ ============ ============
Trust Shares:
Sold........................... $ 42,871,945 $ 10,145,423 $ 34,811,806 $ 22,701,923
Issued in connection with
acquisition (Note 7)......... 30,804,627 -- 46,190,350 --
Issued to shareholders in
reinvestment of dividends.... 1,175,479 1,360,406 3,100,671 4,002,421
Repurchased.................... (51,413,583) (17,375,311) (52,076,826) (64,524,794)
------------ ------------ ------------ ------------
Net increase (decrease) in
shares outstanding........... $ 23,438,468 $ (5,869,482) $ 32,026,001 $(37,820,450)
============ ============ ============ ============
SHARE ACTIVITY
Retail A Shares:
Sold........................... 972,793 809,377 1,020,915 804,775
Issued in connection with
acquisition (Note 7)......... 769,928 -- 1,010,018 --
Issued to shareholders in
reinvestment of dividends.... 160,014 132,385 347,896 346,569
Repurchased.................... (1,697,523) (1,305,939) (2,195,110) (3,194,928)
------------ ------------ ------------ ------------
Net increase (decrease) in
shares outstanding........... 205,212 (364,177) 183,719 (2,043,584)
============ ============ ============ ============
Retail B Shares:
Sold........................... 30,291 -- N/A N/A
Issued to shareholders in
reinvestment of dividends.... 517 -- N/A N/A
Repurchased.................... (4,785) -- N/A N/A
------------ ------------ ------------ ------------
Net increase in
shares outstanding........... 26,023 -- N/A N/A
============ ============ ============ ============
Trust Shares:
Sold........................... 4,305,171 1,020,628 3,525,379 2,266,661
Issued in connection with
acquisition (Note 7)......... 3,042,900 -- 4,449,125 --
Issued to shareholders in
reinvestment of dividends.... 117,626 137,810 306,699 401,560
Repurchased.................... (5,127,353) (1,764,334) (5,140,526) (6,493,207)
------------ ------------ ------------ ------------
Net increase (decrease) in
shares outstanding........... 2,338,344 (605,896) 3,140,677 (3,824,986)
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
[LOGO OF THE GALAXY STATEMENTS OF CHANGES IN NET ASSETS -
FUND APPEARS HERE] Capital Stock Activity (continued)
<TABLE>
<CAPTION>
Corporate Bond Fund High Quality Bond Fund
---------------------------- ----------------------------
Years ended October 31,
--------------------------------------------------------------
1996 1995 1996 1995
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
DOLLAR AMOUNTS
Retail A Shares:
Sold........................... N/A N/A $ 11,663,127 $ 8,003,866
Issued to shareholders in
reinvestment of dividends.... N/A N/A 1,325,701 1,132,273
Repurchased.................... N/A N/A (11,581,369) (8,535,985)
------------ ----------- ------------ ------------
Net increase in
shares outstanding........... N/A N/A $ 1,407,459 $ 600,154
============ =========== ============ ============
Retail B Shares:
Sold........................... N/A N/A $ 650,504 $ --
Issued to shareholders in
reinvestment of dividends.... N/A N/A 11,298 --
Repurchased.................... N/A N/A (25,139) --
------------ ----------- ------------ ------------
Net increase in
shares outstanding........... N/A N/A $ 636,663 $ --
============ =========== ============ ============
Trust Shares:
Sold........................... $ 20,658,393 $39,666,165 $ 49,925,801 $ 36,501,865
Issued in connection with
acquisition (Note 7)......... 88,144,360 -- -- --
Issued to shareholders in
reinvestment of dividends.... 3,047,222 2,040,905 5,272,956 5,380,120
Repurchased.................... (40,160,472) (6,807,253) (38,640,554) (39,247,235)
------------ ----------- ------------ ------------
Net increase in
shares outstanding........... $ 71,689,503 $34,899,817 $ 16,558,203 $ 2,634,750
============ =========== ============ ============
SHARE ACTIVITY
Retail A Shares:
Sold........................... N/A N/A 1,104,626 788,979
Issued to shareholders in
reinvestment of dividends.... N/A N/A 126,818 112,202
Repurchased.................... N/A N/A (1,101,738) (864,201)
------------ ----------- ------------ ------------
Net increase in
shares outstanding........... N/A N/A 129,706 36,980
============ =========== ============ ============
Retail B Shares:
Sold........................... N/A N/A 63,032 --
Issued to shareholders in
reinvestment of dividends.... N/A N/A 1,098 --
Repurchased.................... N/A N/A (2,379) --
------------ ----------- ------------ ------------
Net increase in
shares outstanding........... N/A N/A 61,751 --
============ =========== ============ ============
Trust Shares:
Sold........................... 2,097,643 3,956,883 4,770,415 3,623,670
Issued in connection with
acquisition (Note 7)......... 8,188,057 -- -- --
Issued to shareholders in
reinvestment of dividends.... 289,501 195,224 504,257 534,027
Repurchased.................... (3,827,076) (671,397) (3,695,189) (3,943,913)
------------ ----------- ------------ ------------
Net increase in
shares outstanding........... 6,748,125 3,480,710 1,579,483 213,784
============ =========== ============ ============
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
Short-Term Bond Fund
FINANCIAL HIGHLIGHTS
For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
-------------------------------------------------------------------
1996 1995 1994 1993/(2)/ 1992/(1)(2)/
-------- ------- ------- --------- --------------
<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 (A).............................. 0.52 0.55 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:..................... 0.45 0.88 (0.07) 0.69 0.51
------- ------- ------- ------- --------
Less Dividends:
Dividends from net investment income................... (0.52) (0.55) (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:...................................... (0.52) (0.55) (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)/........................................ 4.63% 9.28% (0.68)% 6.98% 5.21%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's)........................ $33,388 $31,542 $34,061 $85,211 $ 57,403
Ratios to average net assets:
Net investment income including reimbursement/waiver... 5.22% 5.54% 4.43% 4.51% 5.77%*
Operating expenses including reimbursement/waiver...... 1.11% 0.99% 0.93% 0.86% 0.90%*
Operating expenses excluding reimbursement/waiver...... 1.35% 1.32% 1.14% 1.06% 1.20%*
Portfolio Turnover Rate.................................. 214% 289% 233% 100% 114%**
</TABLE>
_________________________________________________________
* Annualized
** Not Annualized
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both
Retail A Shares and Trust Shares.
(3) The Fund began offering Retail B Shares on March 4, 1996.
(4) Calculation does not include sales charge for Retail A Shares and Retail B
Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator was as follows:
<TABLE>
<CAPTION>
as follows:
Years ended October 31,
-----------------------------------------------------
1996 1995 1994 1993/(2)/ 1992/(2)/
---- ---- ---- -------- ---------
<S> <C> <C> <C> <C> <C>
Retail A Shares $0.50 $0.52 $0.42 $ 0.45 $ 0.40
Trust Shares 0.53 0.54 0.42 0.45 0.40
Retail B Shares 0.29 -- -- -- --
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
<TABLE>
<CAPTION>
Trust Shares Retail B Shares
Years ended October 31,
------------------------------------------------------------------------------
1996 1995 1994 1993/(2)/ 1992/(1)(2)/ 1996/(3)/
----------- ------------ ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
$ 10.06 $ 9.73 $ 10.30 $ 10.09 $ 10.00 $ 10.09
----------- ------------ ----------- ---------- ---------- -------------
0.55 0.57 0.44 0.47 0.42 0.31
(0.07) 0.33 (0.51) 0.22 0.09 (0.10)
----------- ------------ ----------- ---------- ---------- -------------
0.48 0.90 (0.07) 0.69 0.51 0.21
----------- ------------ ----------- ---------- ---------- -------------
(0.55) (0.57) (0.44) (0.47) (0.42) (0.31)
-- -- -- (0.01) -- --
-- -- (0.06) -- -- --
---------- ------------ ----------- ---------- ---------- -------------
(0.55) (0.57) (0.50) (0.48) (0.42) (0.31)
---------- ------------ ----------- ---------- ---------- -------------
(0.07) 0.33 (0.57) 0.21 0.09 (0.10)
---------- ------------ ----------- ---------- ---------- -------------
$ 9.99 $ 10.06 $ 9.73 $10.30 $10.09 $ 9.99
========== ============ =========== ========== ========== =============
4.91% 9.55% (0.66)% 6.98% 5.21%** 2.12%**
$ 58,227 $ 35,088 $ 39,843 $ 85,211 $ 57,403 $ 260
5.49% 5.79% 4.45% 4.51% 5.77%* 4.73%*
0.84% 0.74% 0.91% 0.86% 0.90%* 1.77%*
1.08% 1.02% 1.11% 1.06% 1.20%* 1.98%*
214% 289% 233% 100% 114%** 214%
</TABLE>
<PAGE>
Intermediate Government Income Fund
[LOGO OF FLEET GALAXY FINANCIAL HIGHLIGHTS
APPEARS HERE] For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
-------------------------------------------------------------
1996 1995 1994 1993/(1)/ 1992/(1)/
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........... $ 10.28 $ 9.68 $ 10.72 $ 10.83 $ 10.46
--------- --------- --------- --------- ---------
Income from Investment Operations:
Net investment income (A)..................... 0.57 0.61 0.57 0.65 0.71
Net realized and unrealized gain (loss)
on investments.............................. (0.22) 0.60 (1.03) 0.10 0.40
--------- --------- --------- --------- ---------
Total from Investment Operations:........... 0.35 1.21 (0.46) 0.75 1.11
--------- --------- --------- --------- ---------
Less Dividends:
Dividends from net investment income.......... (0.57) (0.61) (0.56) (0.64) (0.74)
Dividends in excess of net
investment income........................... -- -- (0.01) (0.03) --
Dividends from net realized capital gains..... -- -- -- (0.19) --
Dividends in excess of
net realized capital gains.................. -- -- (0.01) -- --
--------- --------- --------- --------- ---------
Total Dividends:............................ (0.57) (0.61) (0.58) (0.86) (0.74)
--------- --------- --------- --------- ---------
Net increase (decrease) in net asset value..... (0.22) 0.60 (1.04) (0.11) 0.37
--------- --------- --------- --------- ---------
Net Asset Value, End of Period................. $ 10.06 $ 10.28 $ 9.68 $ 10.72 $ 10.83
========= ========= ========= ========= =========
Total Return/(2)/.............................. 3.58% 12.85% (4.42)% 7.06% 10.95%
Ratios/Supplemental Data:
Net Assets, End of Period (000's).............. $ 79,741 $ 79,558 $ 94,669 $ 447,359 $ 199,135
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................ 5.69% 6.10% 5.58% 6.03% 6.52%
Operating expenses including
reimbursement/waiver........................ 1.04% 1.02% 0.78% 0.80% 0.80%
Operating expenses excluding
reimbursement/waiver........................ 1.24% 1.26% 0.99% 1.00% 0.94%
Portfolio Turnover Rate........................ 235% 145% 124% 153% 103%
</TABLE>
- -----------------------------------------
(1) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail A Shares
and Trust Shares.
(2) Calculation does not include sales charge for Retail A Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator was as follows:
Years ended October 31,
------------------------------------------------------------
1996 1995 1994 1993/(1)/ 1992/(1)/
-------- -------- -------- -------- --------
Retail A Shares $ 0.55 $ 0.58 $ 0.54 $ 0.63 $ 0.70
Trust Shares 0.58 0.62 0.54 0.63 0.70
See Notes to Financial Statements.
28
<PAGE>
Trust Shares
<TABLE>
<CAPTION>
Years ended October 31,
------------------------------------------------------------
1996 1995 1994 1993/(1)/ 1992/(1)/
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 10.28 $ 9.68 $ 10.72 $ 10.83 $ 10.46
-------- -------- -------- -------- --------
0.60 0.64 0.57 0.65 0.71
(0.22) 0.60 (1.03) 0.10 0.40
-------- -------- -------- -------- --------
0.38 1.24 (0.46) 0.75 1.11
-------- -------- -------- -------- --------
(0.60) (0.64) (0.56) (0.64) (0.74)
-- -- (0.01) (0.03) --
-- -- -- (0.19) --
-- -- (0.01) -- --
-------- -------- -------- -------- --------
(0.60) (0.64) (0.58) (0.86) (0.74)
-------- -------- -------- -------- --------
(0.22) 0.60 (1.04) (0.11) 0.37
-------- -------- -------- -------- --------
$ 10.06 $ 10.28 $ 9.68 $ 10.72 $ 10.83
======== ======== ======== ======== ========
3.88% 13.18% (4.39)% 7.06% 10.95%
$213,750 $186,037 $212,144 $447,359 $199,135
5.98% 6.39% 5.61% 6.03% 6.52%
0.75% 0.73% 0.75% 0.80% 0.80%
0.95% 0.94% 0.95% 1.00% 0.94%
235% 145% 124% 153% 103%
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
Corporate Bond Fund
[LOGO OF GALAXY FINANCIAL HIGHLIGHTS
APPEARS HERE] For a Share outstanding throughout each period.
Trust Shares
<TABLE>
<CAPTION>
Year ended Period ended
October 31, 1996 October 31, 1995/(1)/
------------------ -----------------------
<S> <C> <C>
Net Asset Value, Beginning of Period........................... $ 10.74 $ 10.00
------------- --------------
Income from Investment Operations:
Net investment income (A)..................................... 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 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%**
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%*
Operating expenses including
reimbursement/waiver........................................ 0.85% 1.06%*
Operating expenses excluding
reimbursement/waiver........................................ 1.05% 1.26%*
Portfolio Turnover Rate........................................ 84% 41%**
</TABLE>
- ---------------------------------------------------
* Annualized
** Not Annualized
(1) The Fund commenced operations on December 12, 1994.
(A) Net investment income per share before reimbursement/waiver of fees by the
Investment Adviser and/or Administrator for the year ended October 31, 1996
and for the period ended October 31, 1995 were $0.62 and $0.57,
respectively.
See Notes to Financial Statements.
30
<PAGE>
High Quality Bond Fund
[LOGO OF GALAXY FINANCIAL HIGHLIGHTS
APPEARS HERE] For a Share outstanding throughout each period.
Retail A Shares
<TABLE>
<CAPTION>
Years ended October 31,
-------------------------------------------------------------
1996 1995 1994 1993/(1)/ 1992/(1)/
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .......... $ 10.63 $ 9.54 $ 11.37 $ 10.60 $ 10.35
--------- --------- --------- --------- ---------
Income from Investment Operations:
Net investment income (A) 0.59 0.62 0.64 0.66 0.68
Net realized and unrealized gain (loss)
on investments ............................. (0.16) 1.09 (1.56) 0.93 0.36
--------- --------- --------- --------- ---------
Total from Investment Operations: ......... 0.43 1.71 (0.92) 1.59 1.04
--------- --------- --------- --------- ---------
Less Dividends:
Dividends from net investment income ........ (0.59) (0.62) (0.64) (0.66) (0.71)
Dividends from net realized capital gains ... -- -- -- (0.16) (0.08)
Dividends in excess of
net realized capital gains ................ -- -- (0.27) -- --
--------- --------- --------- --------- ---------
Total Dividends: ...................... (0.59) (0.62) (0.91) (0.82) (0.79)
--------- --------- --------- --------- ---------
Net increase (decrease) in net asset value .... (0.16) 1.09 (1.83) 0.77 0.25
--------- --------- --------- --------- ---------
Net Asset Value, End of Period ................ $ 10.47 $ 10.63 $ 9.54 $ 11.37 $ 10.60
========= ========= ========= ========= =========
Total Return/(2)/ ............................. 4.24% 18.46% (8.41)% 15.63% 10.32%
Ratios/Supplemental Data:
Net Assets, End of Period (000's) ............. $ 30,984 $ 30,093 $ 26,654 $ 162,594 $ 108,774
Ratios to average net assets:
Net investment income including
reimbursement/waiver ....................... 5.66% 6.16% 6.25% 5.98% 6.55%
Operating expenses including
reimbursement/waiver ....................... 1.07% 1.02% 0.81% 0.76% 0.87%
Operating expenses excluding
reimbursement/waiver ....................... 1.28% 1.26% 1.02% 0.96% 0.94%
Portfolio Turnover Rate ....................... 163% 110% 108% 128% 121%
</TABLE>
- ------------------------------------------------
(1) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail A Shares
and Trust Shares.
(2) Calculation does not include sales charge for Retail A Shares.
(A) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by the Investment Adviser and/or Administrator
for the years ended October 31, 1996, 1995, 1994, 1993 and 1992 were $0.57,
$0.59, $0.62, $0.63 and $0.67, respectively.
See Notes to Financial Statements.
31
<PAGE>
High Quality Bond Fund
[LOGO OF GALAXY FINANCIAL HIGHLIGHTS
APPEARS HERE] For a Share outstanding throughout each period.
<TABLE>
<CAPTION>
Trust Shares Retail B Shares
Years ended October 31,
----------------------------------------------------------------------------------
1996 1995 1994 1993/(1)/ 1992/(1)/ 1996/(2)/
--------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.......... $ 10.63 $ 9.54 $ 11.37 $ 10.60 $ 10.35 $ 10.72
--------- --------- --------- --------- --------- ------------
Income from Investment Operations:
Net investment income (A & B)................ 0.62 0.64 0.65 0.66 0.68 0.36
Net realized and unrealized gain (loss)
on investments............................. (0.16) 1.09 (1.56) 0.93 0.36 (0.25)
--------- --------- --------- --------- --------- ------------
Total from Investment Operations:........ 0.46 1.73 (0.91) 1.59 1.04 0.11
--------- --------- --------- --------- --------- ------------
Less Dividends:
Dividends from net investment income......... (0.62) (0.64) (0.65) (0.66) (0.71) (0.36)
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) (0.36)
--------- --------- --------- --------- --------- ------------
Net increase (decrease) in net asset value.... (0.16) 1.09 (1.83) 0.77 0.25 (0.25)
--------- --------- --------- --------- --------- ------------
Net Asset Value, End of Period................ $ 10.47 $ 10.63 $ 9.54 $ 11.37 $ 10.60 $ 10.47
========= ========= ========= ========= ========= ============
Total Return/(3)/............................. 4.46% 18.66% (8.39)% 15.63% 10.32% 1.14%**
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............. $149,075 $134,631 $118,776 $162,594 $108,774 $ 646
Ratios to average net assets:
Net investment income including
reimbursement/waiver....................... 5.88% 6.33% 6.28% 5.98% 6.55% 5.34%*
Operating expenses including
reimbursement/waiver....................... 0.85% 0.85% 0.78% 0.76% 0.87% 1.60%*
Operating expenses excluding
reimbursement/waiver....................... 1.06% 1.07% 0.98% 0.96% 0.94% 1.81%*
Portfolio Turnover Rate....................... 163% 110% 108% 128% 121% 163%
- --------------------------------------------------
</TABLE>
* Annualized
** Not Annualized
(1) For periods prior to the year ended October 31, 1994, the per share
amounts and selected ratios reflect the financial results of both Retail A
Shares and Trust Shares.
(2) The Fund began offering Retail B Shares on March 4, 1996.
(3) Calculation does not include sales charge for Retail B Shares.
(A) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by the Investment Adviser and/or
Administrator for the years ended October 31, 1996, 1995, 1994, 1993 and
1992 were $ 0.60, $0.62, $0.63, $0.63 and $0.67, respectively.
(B) Net investment income per share for Retail B Shares before
reimbursement/waiver of fees by the Investment Adviser and/or
Administrator for the year ended October 31, 1996 was $ 0.34.
See Notes to Financial Statements.
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The Galaxy Fund
1. Organization
The Galaxy Fund, a Massachusetts business trust (the "Trust"), is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. As of the date of this report, the Trust offered
twenty-four managed investment portfolios. The accompanying financial statements
and financial highlights are those of the Short-Term Bond, Intermediate
Government Income, Corporate Bond and High Quality Bond Funds (individually, a
"Fund", collectively, the "Funds") only.
The Short-Term Bond and High Quality Bond Funds are authorized to issue
three series of shares (Trust Shares, Retail A Shares and Retail B Shares). The
Intermediate Government Income and Corporate Bond Funds are authorized to issue
two series of shares (Trust Shares and Retail A Shares). Currently, the Short-
Term Bond and High Quality Bond Funds offer all three series of shares, the
Intermediate Government Income Fund offers Trust Shares and Retail A Shares and
the Corporate Bond Fund offers Trust Shares only. Trust Shares, Retail A Shares
and Retail B Shares are substantially the same except that (i) Retail A Shares
are subject to a maximum 3.75% front-end sales charge, (ii) Retail B Shares are
subject to a maximum 5.00% contingent deferred sales charge, and (iii) series
specific expenses (distribution and shareholder servicing fees and transfer
agent fees) are borne by the specific series of shares to which they relate. Six
years after purchase, Retail B Shares will convert automatically to Retail A
Shares.
2. Significant Accounting Policies
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates. The following is a
summary of significant accounting policies in conformity with generally accepted
accounting principles consistently followed by the Funds in the preparation of
their financial statements.
Portfolio Valuation: Investment securities are valued by an independent
pricing service approved by the Trust's Board of Trustees. When, in the judgment
of the service, quoted bid prices are readily available and are representative
of the bid side of the market, investments are valued at the mean between quoted
bid prices and asked prices. 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. Short-term obligations
that mature in 60 days or less are valued at amortized cost, which constitutes
fair value as determined by the Board of Trustees of the Trust. All other
securities and other assets are appraised at their fair value as determined in
good faith under consistently applied procedures established by and under the
general supervision of the Board of Trustees.
Securities Transactions and Investment Income: Securities transactions are
accounted for on a trade date basis. Net realized gains or losses on sales of
securities are determined by the identified cost method. Interest income is
recorded on the accrual basis. Investment income and realized and unrealized
gains and losses are allocated to the separate series of a Fund based upon the
relative net assets of each series.
Dividends to Shareholders: Dividends from net investment income are
determined separately for each series and are declared daily and paid monthly.
Net realized capital gains, if any, are distributed at least annually.
Income dividends and capital gain dividends are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Federal Income Taxes: The Trust treats each Fund as a separate entity for
federal income tax purposes. Each Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended. By so qualifying, each Fund will not be subject to federal
income taxes to the extent that it distributes substantially all of its taxable
or tax-exempt income, if any, for its tax year ending October 31. In addition,
by distributing in each calendar year substantially all of its net investment
income, capital gains and certain other amounts, if any, each Fund will not be
subject to a federal excise tax. Therefore, no federal income or excise tax
provision is recorded.
Repurchase Agreements: Each Fund may engage in repurchase agreement
transactions with institutions that the Trust's investment adviser has
determined are creditworthy pursuant to guidelines established by the Trust's
Board of Trustees. Each repurchase agreement transac-
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
[LOGO OF THE GALAXY
FUND APPEARS HERE]
tion is recorded at cost. Each Fund requires that the securities purchased in a
repurchase agreement transaction be transferred to the Trust's custodian (or
sub-custodian) in a manner that is intended to enable the Fund to obtain those
securities in the event of a counterparty default. The value of the securities,
including accrued interest, is monitored daily to ensure that the value of the
collateral, including accrued interest, equals or exceeds amounts due under the
repurchase agreement. Repurchase agreement transactions involve certain risks in
the event of default or insolvency of the counterparty, including possible
delays or restrictions upon a Fund's ability to dispose of the underlying
securities and a possible decline in the value of the underlying securities
during the period while the Fund seeks to assert its rights.
Expenses: The Trust accounts separately for the assets, liabilities and
operations of each Fund. Expenses directly attributable to a Fund are charged to
the Fund, while expenses which are attributable to more than one Fund of the
Trust are allocated among the respective Funds.
In addition, expenses of a Fund not directly attributable to the operations
of a particular series of shares of the Fund are allocated to the separate
series based upon the relative net assets of each series. Operating expenses
directly attributable to a series of shares of a Fund are charged to the
operations of that series.
Organization Costs: Each Fund bears all costs in connection with its
organization, including the fees and expenses of registering and qualifying its
initial shares for distribution under federal and state securities laws. All
such costs are amortized using the straight-line method over a period of five
years beginning with the commencement of each Fund's operations. In the event
that any of the initial shares purchased by a Fund's sponsor are redeemed during
such period by any holder thereof, the Fund involved will be reimbursed by such
holder for any unamortized organization costs in the same proportion as the
number of initial shares being redeemed bears to the number of initial shares
outstanding at the time of redemption.
3. Investment Advisory, Administration, Shareholder Services and Other Fees
The Trust and Fleet Investment Advisors Inc. (the "Investment Adviser"), an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc., are parties to
an investment advisory agreement under which the Investment Adviser provides
services for a fee, computed daily and paid monthly, at the annual rate of 0.75%
of the average daily net assets of each Fund (See Note 4).
The Trust and First Data Investor Services Group, Inc. ("FDISG") (formerly
known as The Shareholder Services Group, Inc. doing business as 440 Financial),
a wholly-owned subsidiary of First Data Corporation, are parties to an
administration agreement under which FDISG (the "Administrator") provides
services for a fee, computed daily and paid monthly, at the annual rate of 0.09%
of the first $2.5 billion of the combined average daily net assets of the Funds
and the other funds offered by the Trust (whose financial reports are disclosed
under a separate cover), 0.085% of the next $2.5 billion of combined average
daily net assets and 0.075% of combined average daily net assets over $5
billion.
Prior to September 5, 1996, FDISG was entitled to receive administration
fees, computed daily and paid monthly, at the annual rate of 0.09% of the first
$2.5 billion of the combined average daily net assets of the Funds and the other
funds offered by the Trust (whose financial reports are disclosed under a
separate cover), 0.085% of the next $2.5 billion of the combined average daily
net assets and 0.08% of combined average daily net assets over $5 billion.
In addition, FDISG also provides certain fund accounting, custody
administration and transfer agency services pursuant to certain fee
arrangements. Pursuant to these fee arrangements, FDISG compensates Chase
Manhattan Bank, N.A., the Trust's custodian bank, for its services. Prior to
March 31, 1995, the fund administration, fund accounting, custody administration
and transfer agency services described above were provided by 440 Financial
Group of Worcester, Inc., a wholly-owned subsidiary of State Mutual Life
Assurance Company of America ("State Mutual"), for the same annual fees. On
March 31, 1995, FDISG acquired substantially all of the assets of 440 Financial
Group of Worcester, Inc.
440 Financial Distributors, Inc. (the "Distributor"), a wholly-owned
subsidiary of FDISG and an indirect wholly-owned subsidiary of First Data
Corporation, serves as the exclusive distributor of the Trust's shares. Prior to
March 31, 1995, the Distributor was a wholly-owned subsidiary of 440 Financial
Group of Worcester, Inc. and an indirect wholly-owned subsidiary of State
Mutual.
On October 1, 1994, the Trust implemented a shareholder services plan
("Services Plan") with respect to Retail A Shares of the Funds. Currently, the
Services Plan has not been implemented with respect to the
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
[LOGO OF THE GALAXY
FUND APPEARS HERE]
Funds' Trust Shares. The Services Plan provides compensation to institutions
(including and currently limited to Fleet Bank and its affiliates) which provide
administrative and support services to their customers who beneficially own
Retail A Shares at an aggregate annual rate not to exceed 0.30% of the average
daily net asset value of the outstanding Retail A Shares of each Fund
beneficially owned by such customers. The Trust, under the direction of the
Board of Trustees, is currently limiting fees payable under the Services Plan
with respect to each Fund to an aggregate annual rate not to exceed 0.15% of the
average daily net asset value of the outstanding Retail A Shares beneficially
owned by such customers.
The Trust has adopted a distribution and shareholder services plan (the
"12b -1 Plan") with respect to Retail B Shares of the Short-Term Bond and High
Quality Bond Funds. Under the 12b-1 Plan, the Trust may pay (i) the Distributor
or another person for expenses and activities intended to result in the sale of
Retail B Shares, (ii) institutions for shareholder liaison services and (iii)
institutions for administrative support services. Currently, payments are being
made solely to Fleet Bank and its affiliates. Payments for distribution expenses
may not exceed an annual rate of 0.65% of the average daily assets attributable
to each of the Funds' outstanding Retail B Shares. The fees paid for shareholder
liaison services and/or administrative support services may not exceed the
annual rates of 0.15% and 0.15%, respectively, of the average daily net assets
attributable to each of the Funds' outstanding Retail B Shares owned of record
or beneficially by the institution's customers. The Trust, under the direction
of the Board of Trustees, is currently limiting each Fund's payments for
shareholder liaison and administrative support services under the 12b-1 Plan to
an aggregate fee of not more than 0.15% of the average daily net asset value of
Retail B Shares owned of record or beneficially by the institution's customers.
For the year ended October 31, 1996, the Funds paid shareholder servicing fees
and/or distribution fees under the Services Plan and 12b-1 Plan as follows:
<TABLE>
<CAPTION>
Shareholder Services Distribution
-------------------- ------------
Fund Retail A Retail B Retail B
- ---- -------- -------- -----------
<S> <C> <C> <C>
Short-Term Bond..................... $ 54,596 $190 $ 822
Intermediate Government Income...... 122,781 -- --
Corporate Bond...................... N/A N/A N/A
High Quality Bond................... 45,938 365 1,580
</TABLE>
Effective October 1, 1994, with respect to Retail A Shares and Trust
Shares, and effective March 1, 1996, with respect to Retail B Shares, the Funds
bear series specific transfer agent charges based upon the number of shareholder
accounts for each series. In addition, effective November 1, 1994, Trust Shares
also bear additional transfer agency fees in order to compensate FDISG for
payments made to Fleet Bank, an affiliate of the Investment Adviser, for
performing certain sub-accounting and administrative functions on a per account
basis with respect to Trust Shares held by defined contribution plans. For the
year ended October 31, 1996, transfer agent charges for each series were as
follows:
<TABLE>
<CAPTION>
Fund Retail A Retail B Trust
- ----- -------- -------- --------
<S> <C> <C> <C>
Short-Term Bond........... $ 58,166 $136 $ 22,069
Intermediate
Government Income...... 150,600 -- 59,996
Corporate Bond............ -- -- 104,198
High Quality Bond......... 58,870 151 170,663
</TABLE>
Certain officers of the Trust may be officers of the Administrator and/or
Distributor. Such officers receive no compensation from the Trust for serving in
their respective roles. No officer, director or employee of the Investment
Adviser serves as an officer, Trustee or employee of the Trust. For the period
covered by this report, each Trustee was entitled to receive for services as a
trustee of the Trust and The Galaxy VIP Fund ("VIP") an aggregate fee of $18,000
per annum plus certain other fees for attending or participating in meetings as
well as reimbursement for expenses incurred in attending meetings. The Chairman
of the Boards of Trustees of the Trust and VIPand the President and Treasurer of
the Trust and VIP were entitled to additional annual fees for their services in
these capacities. Effective November 1, 1996, each Trustee is entitled to
receive for services as a trustee of the Trust, VIP and Galaxy Fund II ("Galaxy
II") an aggregate fee of $29,000 per annum plus certain other fees for attending
or participating in meetings as well as reimbursement for expenses incurred in
attending meetings. The Chairman of the Boards of Trustees, and the President
and Treasurer of the Trust, VIP and Galaxy II are also entitled to additional
fees for their services in these capacities. These fees are allocated among the
funds of the Trust, VIP and Galaxy II based on their relative net assets. In
addition, effective March 1, 1996, each Trustee became eligible to participate
in the Trust's Deferred Compensation Plan (the "Plan"), an unfunded, non-
qualified deferred compensation plan. The Plan allows each Trustee to defer
receipt of all or a percentage of fees which otherwise would be payable for
services performed.
Expenses for the year ended October 31, 1996 include legal fees paid to
Drinker Biddle & Reath. A partner of that firm is Secretary to the Trust.
4. Waiver of Fees and Reimbursement of Expenses
The Investment Adviser voluntarily agreed to waive a portion of its fees
and to reimburse the Funds for certain
35
<PAGE>
[LOGO OF FLEET GALAXY
FUND APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS (continued)
expenses so that total expenses would not exceed certain expense limitations
established for each series. The Investment Adviser may revise or discontinue
the voluntary fee waivers and expense reimbursements at any time. For the year
ended October 31, 1996, the Investment Adviser waived fees and/or reimbursed
expenses with respect to the Funds in the following amounts:
<TABLE>
<CAPTION>
Fees Waived Reimbursement
by by
Investment Investment
Fund Adviser Adviser
- ---- ----------- -------------
<S> <C> <C>
Short-Term Bond........... $193,702 $40,375
Intermediate
Government Income....... 608,385 --
Corporate Bond............ 219,753 --
High Quality Bond......... 339,047 2,956
</TABLE>
5. Shares of Beneficial Interest
The Trust's Declaration of Trust authorizes the Trustees to issue an
unlimited number of shares of beneficial interest, each with a par value of
$0.001. Shares of the Trust are currently classified into twenty-four classes of
shares each consisting of one or more series including: Class L - Series 1
Shares (Trust Shares), Class L - Series 2 Shares (Retail A Shares) and Class L -
Series 3 Shares (Retail B Shares)- Short-Term Bond Fund; Class D Shares (Trust
Shares) and Class D- Special Series 1 Shares (Retail A Shares)- Intermediate
Government Income Fund; Class T - Series 1 Shares (Trust Shares) and Class T -
Series 2 Shares (Retail A Shares)- Corporate Bond Fund; and Class J - Series 1
Shares (Trust Shares), Class J - Series 2 Shares (Retail A Shares) and Class J -
Series 3 Shares (Retail B Shares) - High Quality Bond Fund. Each share
represents an equal proportionate interest in the respective Fund, bears the
same fees and expenses (except that Retail A Shares bear the expense of payments
under the Services Plan and Trust Shares and Retail A Shares bear series
specific transfer agent charges, and Retail B Shares bear the expense of
payments under the 12b-1 Plan and series specific transfer agent charges) and
are entitled to such dividends and distributions of income earned as are
declared at the discretion of the Trust's Board of Trustees.
Shareholders are entitled to one vote for each full share held and will
vote in the aggregate and not by class 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.
6. Purchases and Sales of Securities
The cost of purchases and proceeds from sales of securities, excluding short-
term investments, for the year ended October 31, 1996 were as follows:
<TABLE>
<CAPTION>
Fund
Purchases Government Other
- ---------
<S> <C> <C>
Short-Term Bond $ 95,918,232 $ 87,710,291
Intermediate
Government Income 542,168,990 173,867,382
Corporate Bond 58,289,733 94,953,838
High Quality Bond 219,349,433 69,085,749
Sales
- -----
Short-Term Bond $130,096,341 $ 42,665,493
Intermediate
Government Income 521,134,240 147,814,739
Corporate Bond 54,110,444 29,897,130
High Quality Bond 234,251,920 35,776,213
</TABLE>
The aggregate gross unrealized appreciation and depreciation, net unrealized
appreciation (depreciation), and cost for all securities as computed on a
federal income tax basis at October 31, 1996 for each Fund is as follows:
<TABLE>
<CAPTION>
Fund Appreciation (Depreciation)
- ---- ------------- --------------
<S> <C> <C>
Short-Term Bond........... $ 651,094 $ (147,005)
Intermediate Government
Income.................. 2,871,760 (837,130)
Corporate Bond............ 1,593,911 (1,725,665)
High Quality Bond......... 3,793,524 (401,584)
Fund Net Cost
- ---- --- ----
Short-Term Bond........... $ 504,089 $ 90,763,901
Intermediate Government
Income.................. 2,034,630 291,213,500
Corporate Bond............ (131,754) 106,592,309
High Quality Bond......... 3,391,940 177,116,225
</TABLE>
At October 31, 1996 the following Funds had capital loss carryforwards:
<TABLE>
<CAPTION>
Fund Amount Expiration
- ---- ------ ----------
<S> <C> <C>
Short-Term Bond........... $ 166,802 2000
1,797,977 2001
2,843,359 2002
1,206,932 2003
10,917 2004
Intermediate Government
Income.................. 1,515,799 2001
20,986,933 2002
3,291,626 2003
2,479,060 2004
Corporate Bond............ 73,972 2001
1,153,008 2002
1,309,536 2003
High Quality Bond......... 1,618,642 2002
2,998,422 2003
</TABLE>
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
[LOGO OF THE GALAXY
FUND APPEARS HERE]
7. Acquisition of The Shawmut Funds
At a meeting held on June 12, 1995, the Board of Trustees of the Trust
approved an Agreement and Plan of Reorganization (the "Agreement") for the
acquisition of The Shawmut Funds ("Shawmut") by the Trust. Pursuant to the
Agreement, all of the assets and liabilities of the Shawmut Limited Term Income
Fund, the Shawmut Intermediate Government Income Fund and the Shawmut Fixed
Income Fund were transferred to the Galaxy Short-Term Bond Fund, the Galaxy
Intermediate Government Income Fund and the Galaxy Corporate Bond Fund,
respectively, in exchange for Retail A and Trust Shares of the Galaxy Short-Term
Bond Fund, Retail A and Trust Shares of the Galaxy Intermediate Government
Income Fund and Trust Shares of the Galaxy Corporate Bond Fund, respectively.
Accordingly, the net assets of the Shawmut Limited-Term Income Fund, the Shawmut
Intermediate Government Income Fund and the Shawmut Fixed Income Fund,
respectively were exchanged for 769,928 Retail A Shares and 3,042,900 Trust
Shares of the Galaxy Short-Term Bond Fund, 1,010,018 Retail A Shares and
4,449,125 Trust Shares of the Galaxy Intermediate Income Fund and 8,188,057
Trust Shares of the Galaxy Corporate Bond Fund, respectively. In related
transactions, the assets and liabilities of the other Shawmut portfolios were
transferred to corresponding Galaxy portfolios in exchange for shares in such
Galaxy portfolios. The reorganization, which qualified as a tax-free
reorganization for federal income tax purposes, was completed on December 4,
1995 following approval of the reorganization by The Shawmut Fund shareholders.
Certain share registration fees incurred in connection with the reorganization
were borne by the Trust. The following is a summary of the Net Assets, Shares
Outstanding, Net Asset Values per share and Unrealized Appreciation associated
with the transaction:
<TABLE>
<CAPTION>
Before Acquisition After Acquisition
---------------------------- -------------------
Galaxy Shawmut Galaxy
Short-Term Limited Term Short-Term
Bond Income Bond
------------- ------------ --------------
<S> <C> <C> <C>
Net Assets $ 67,193,642 $38,592,419 $105,786,061
Shares outstanding 6,639,613 4,010,158 10,452,440
Retail A Net Asset Value, per share $ 10.12 $ 9.63 $ 10.12
Trust Net Asset Value, per share $ 10.12 $ 9.62 $ 10.12
Unrealized Appreciation $ 1,401,348 $ 520,971
Before Acquisition After Acquisition
----------------------------- -----------------
Galaxy Shawmut Galaxy
Intermediate Intermediate Intermediate
Government Government Government
Income Income Income
------------- ------------ ---------------
Net Assets $268,704,491 $56,676,793 $325,381,284
Shares outstanding 25,878,466 5,718,050 31,337,609
Retail A and Trust Net Asset Value, per share $ 10.38 $ 9.91 $ 10.38
Unrealized Appreciation $ 8,182,521 $ 1,253,530
Before Acquisition After Acquisition
---------------------------- -----------------
Galaxy Shawmut Galaxy
Corporate Fixed Corporate
Bond Income Bond
------------ ----------- -----------------
Net Assets $ 37,891,079 $88,144,360 $126,035,439
Shares outstanding 3,518,577 8,818,538 11,706,634
Retail A and Trust Net Asset Value, per share $ 10.77 $ 10.00 $ 10.77
Unrealized Appreciation $ 2,501,831 $ 1,370,661
</TABLE>
8. Imposition of Front-End Sales Load
Effective December 1, 1995, 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, if applicable, a maximum 3.75% front-end sales charge. Reduced sales
charges are available. No sales charge is assessed on certain transactions
and/or investors, including purchases by persons who were beneficial owners of
shares of Galaxy or any other funds advised by Fleet Investment Advisors Inc. or
its affiliates before December 1, 1995.
37
<PAGE>
[LOGO OF THE GALAXY
FUND APPEARS HERE]
Tax Information (unaudited):
During the fiscal year ended October 31, 1996, the following Funds earned
income from direct obligations of the U.S. Government:
U.S. Government
Fund Income
- ---- ---------------
Short-Term Bond 47.02%
Intermediate Government Income 66.58%
Corporate Bond 29.28%
High Quality Bond 64.57%
Appropriate tax information detailing the government income percentages on a
calendar year basis will accompany your year end statement. As each state's
rules on the exemption of this income differs, please consult your tax advisor
regarding specific tax treatment.
38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To Shareholders and the Board of Trustees of
The Galaxy Fund:
We have audited the accompanying statements of assets and liabilities of
the Short-Term Bond Fund, Corporate Bond Fund, Intermediate Government Income
Fund and High Quality Bond Fund (four series of The Galaxy Fund), including the
portfolios of investments, as of October 31, 1996, and the related statements of
operations, the statements of changes in net assets, and financial highlights
for each of the periods indicated therein. These financial statements and
financial highlights are the responsibility of The Galaxy Fund's management.
Our responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
aforementioned series of The Galaxy Fund as of October 31, 1996, the results of
their operations, the changes in their net assets, and their financial
highlights for each of the periods indicated therein, in conformity with
generally accepted accounting principles.
Boston, Massachusetts Coopers & Lybrand L.L.P.
December 16, 1996
<PAGE>
[LOGO OF THE GALAXY
FUND APPEARS HERE]
"A well-balanced asset allocation plan may help to control your risk while
pursuing your goals."
Automatic Investment Program
The Golden Rule of investing is "pay yourself first." That is easy to do with
Galaxy's Automatic Investment Program. For as little as $50 per month deducted
directly from your checking savings or bank money market account, you can
consistently and conveniently add to your Galaxy investment. When you establish
an Automatic Investment Program, the $2,500 initial investment requirement for
Galaxy is waived. Of course, such a program does not assure a profit and does
not protect against loss in a declining market.
Diversification
A fundamental investment practice is "diversification." A well-balanced asset
allocation plan may help to control your risk while pursuing your goals. Many
mutual funds offer a low-cost way to diversify your investments while you
benefit from professional management. Galaxy's comprehensive array of investment
choices can be used in combination to match the needs of nearly everyone.
Exchange Privileges
As your investment needs change, you can conveniently exchange your shares in
one fund for shares in another fund.
Quarterly Magazine
Service also means giving you the practical information you need, in language
you can understand, to make smart investment decisions. The quarterly magazine,
Galaxy Observer, brings news, strategies and simple, straight-forward
explanations of investment basics and terminology.
Consolidated Statements
Timely, comprehensive mutual fund account statements offer detailed information
on your individual account. If you have a Fleet One or a Fleet Private Banking
Account, your Galaxy Fund information can be added to these statements.
Investment Specialists
In many Fleet branch offices or in the convenience of your home or office, you
can visit one-on-one with an Investment Specialist* who can help you select the
investments that match your individual needs. This service is at no cost to you.
24-Hour Access to Registered Representatives
24 hours a day, seven days a week, 365 days a year, we are ready and available
to help. Our toll-free telephone lines offer round-the-clock access to Fund
information and service. Call 1-800-628-0414 for information on initial
purchases and current performance.
Customer Service
Quality customer service is only a phone call away. Call 1-800-628-0414 between
9 a.m. and 5 p.m. to arrange bank wires, or to make telephone exchanges and
redemptions.
In addition, Galaxy's state-of-the-art InvestConnect automated voice response
system is available to serve you 24-hours a day, seven days a week by calling 1-
800-FOR-GLXY (367-4599).
Certain shareholder services may not be available for Trust Share investors.
Please consult your Fund Prospectus.
* Shares of the Funds are distributed through 440 Financial Distributors, Inc.,
member NASD and SIPC. Investment Specialists are registered representatives of
FISSecurities, Inc., member NASD, Fleet Enterprises, Inc., member NASD and SIPC,
or MDS Securities Inc., member NASD and SIPC.
<PAGE>
Trustees
and Officers
Dwight E. Vicks, Jr.
Chairman and Trustee
John T. O'Neill
President, Treasurer
and Trustee
Louis DeThomasis,
F.S.C., Ph.D.
Trustee
Donald B. Miller
Trustee
James M. Seed
Trustee
Bradford S. Wellman
Trustee
W. Bruce
McConnel, III, Esq.
Secretary
Neil Forrest
Vice President &
Assistant Treasurer
Investment Adviser
Fleet Investment
Advisors Inc.
75 State Street
Boston, Massachusetts
02109
Distributor
440 Financial
Distributors, Inc.
4400 Computer Drive
Westborough,
Massachusetts 01581-5108
Administrator
First Data Investor
Services Group, Inc.
4400 Computer Drive
Westborough,
Massachusetts 01581-5108
This report is submitted for the general information of shareholders of The
Galaxy Fund. It is not authorized for distribution to prospective investors
unless accompanied or preceded by an effective prospectus for the Fund, which
contains more information concerning the Fund's investment policies, as well as
fees and expenses and other pertinent information. Read the prospectus carefully
before you invest.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by Fleet Financial Group, Inc. or any of its affiliates, Fleet
Investment Advisors Inc. or any Fleet bank. Shares of the Funds are not
federally insured by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. Investment return
and principal value will vary as a result of market conditions or other factors
so that shares of the Funds, when redeemed, may be worth more or less than their
original cost. An investment in the Funds involves investment risks, including
the possible loss of principal.
[RECYCLE LOGO APPEARS HERE]
This report was printed on recycled paper.
<PAGE>
[LOGO OF THE GALAXY FUND APPEARS HERE]
4400 Computer Drive BULK RATE
Box 5108 U. S. POSTAGE PAID
Westborough, MA 01581-5108 PERMIT NO. 105
NORTH READING, MA
