GALAXY FUND /DE/, N-30D, 1998-01-08

GALAXY FUND /DE/
N-30D, 1998-01-08

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GALAXY
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FUNDS
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[GRAPHIC OMITTED]

TAXABLE BOND FUNDS REPORT

SHORT-TERM BOND FUND o INERMEDIATE GOVERNMENT INCOME FUND o
CORPORATE BOND FUND o HIGH QUALITY BOND FUND

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ANNUAL
REPORT

FOR THE YEAR ENDED
OCTOBER 31, 1997

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CHAIRMAN'S
MESSAGE
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Dear Shareholder:

Enclosed is your performance report for the Galaxy taxable bond funds for
the fiscal year ended October 31, 1997. During this time, moderate growth and
lower inflation pushed bond prices higher, making total returns for bonds better
than historical averages.
Investors will keep more of these and future returns, thanks to the
Taxpayer Relief Act of 1997 (the"Act"). Among other provisions, the Act reduces
the tax rates for long-term capital gains. For investments sold from May 7, 1997
through July 28, 1997, that you held more than 12 months, the top capital gains
rate fell from 28% to 20%. The lower rate also applies to investments sold after
July 28, 1997, that you held for more than 18 months. Under the same
circumstances, the rate for investors in the 15% income tax bracket has dropped
from 15% to 10%.
New tax breaks for individual retirement accounts should also help
investors keep more of what they earn. Beginning in 1998, there are higher
income limits for deductible contributions by investors with company retirement
plans. In addition, the participation of one spouse in a company retirement plan
will not keep the other spouse from making deductible contributions, when the
couple's joint income is less than $150,000. Furthermore, if you want to use
money from a deductible IRA you may do so without penalty, even before age
59-1/2, to pay college expenses or buy a first home.
You will also find tax savings from two new IRAs using nondeductible
contributions. With the Roth IRA, you can make after-tax contributions of up to
$2,000 each year and pay no taxes on all distributions after age 59 1/2. You may
remove up to $10,000 from a Roth IRA before age 59 1/2, without taxes or
penalty, to buy a first home. However, no tax-free distributions may be made
until at least five years after you establish a Roth IRA. With the education
IRA, you may contribute up to $500 in after-tax contributions for each child
under age 18. You can withdraw earnings from the education IRA at any time,
tax-free, to pay the child's education expenses. Both the Roth IRA and the
education IRA are subject to certain income limits.
Fleet Investment Advisors has prepared a guide to the new tax rules to
help you understand these changes. We have also added a Roth IRA and an
education IRA to our other retirement products. If you would like information on
using IRAs with Fleet Galaxy Funds, or you have questions about this report,
please call the Galaxy Information Center at 1-800-628-0414.

Sincerely,

/S/ Dwight E. Vicks, Jr.
Dwight E. Vicks, Jr.
Chairman of the Board of Trustees

MUTUAL FUNDS:

O ARE NOT BANK DEPOSITS

O ARE NOT FDIC INSURED

O ARE NOT OBLIGATIONS OF FLEET BANK

O ARE NOT GUARANTEED BY FLEET BANK

O ARE SUBJECT TO INVESTMENT RISK INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED
<PAGE>
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MARKET OVERVIEW
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BOND MARKET OVERVIEW

By Fleet Investment Advisors Inc.
Lower inflation drove interest rates down in the fiscal year ended October
31, 1997. As bond yields fell, bond prices rose, creating total returns that
were better than historical averages.
Because economic growth remained strong, investors worried frequently that
interest rates would rise. Although the Federal Reserve (the "Fed") increased
interest rates just once, ongoing uncertainty made bond prices volatile from
time to time. By adjusting maturities and asset mixes to take advantage of these
fluctuations, we helped the Galaxy taxable bond funds make the most of such an
environment.

"Because economic growth remained strong, investors worried frequently that
interest rates would rise. Although the Federal Reserve increased interest
rates just once, ongoing uncertainty made bond prices volatile from time to
time."

MODERATE GROWTH, LESS INFLATION
On November 1, 1996, when the period began, the annual rate of inflation
was about 3%, and 30-year Treasury bonds were yielding 6.64%. With signs that
economic growth was weakening, and new hope for balancing the federal budget,
long-term Treasury yields edged lower.
Although inflation fell to 2.8% in the first months of 1997, there were
signs of stronger growth. To control future inflation and curb an "irrational
exuberance" in stock prices, the Fed raised short-term interest rates a modest
25 basis points in March. This, plus expectations for further rate hikes, pushed
long-term Treasury yields to 7.17% by the middle of April, a nine-month high.
Soon, however, it was clear the economy was not growing as strongly as
investors feared, and bond yields reversed course. After improving at an
annualized rate of 4.9% in the first quarter of 1997, the gross domestic
product, which measures U.S. goods and services, grew by 3.6% in the second
quarter. Further, inflation fell to 2.2% by the summer, its best performance in
10 years.

PERFORMANCE AT-A-GLANCE

Average Annual Returns as of October 31, 1997
Trust Shares

SHORT-TERM BOND FUND
Inception Date 12/30/91

1 yr. 5.77%
3 yrs. 6.73%
5 yrs. 5.26%
Life 5.40%

INTERMEDIATE GOVERNMENT INCOME FUND
Inception Date 9/1/88

1 yr. 7.63%
3 yrs. 8.16%
5 yrs. 5.31%
Life 7.48%

CORPORATE BOND FUND
Inception Date 12/12/94

1 yr. 7.56%
Life 9.10%

HIGH QUALITY BOND FUND
Inception Date 12/14/90

1 yr. 8.36%
3 yrs. 10.33%
5 yrs. 7.31%
Life 8.27%

Overall, growth moderated again in the third quarter, further depressing
yields, interrupted by a brief backup in August. Then, with inflation headed
even lower, bond prices quickly rebounded. The rally steepened late in the
period, when economic problems in Asia drove both domestic and foreign investors
to U.S. bonds. On October 31, 1997, after a 554-point loss in the Dow Jones
Industrial Average, long-term Treasury yields stood at 6.14%.

"The rally steepened late in the period, when economic problems in Asia drove
both domestic and foreign investors to U.S. bonds. On October 31, 1997, after
a 554-point loss in the Dow Jones Industrial Average, long-term Treasury
yields stood at 6.14%."

IMPROVING TOTAL RETURN
During this time we found many opportunities to benefit from changes in
the spreads between yields of different fixed income securities. After spreads
widened, we added mortgage-backed securities, which benefited as higher interest
rates reduced home loan prepayments.
Following the move to higher rates in August, we added to longer-term
maturities in Corporate and Treasury securities. When the risk of home loan
prepayments increased, and yield spreads for mortgage investments and Treasuries
narrowed, we traded mortgages for government securities.
For most of the year yield spreads for government issues and corporate
bonds were relatively tight. When economic concerns and changes in supply made
corporate prices more attractive, however, we added investments from that
sector. These investments performed well when investors favored corporate issues
again.

PERFORMANCE AT-A-GLANCE

Average Annual Returns* as of October 31, 1997
Retail A Shares

SHORT-TERM BOND FUND
Inception Date 12/30/91

1 yr. 1.67%
3 yrs. 5.14%
5 yrs. 4.32%
Life 4.59%

INTERMEDIATE GOVERNMENT INCOME FUND
Inception Date 9/1/88

1 yr. 3.33%
3 yrs. 6.48%
5 yrs. 4.32%
Life 6.93%

HIGH QUALITY BOND FUND
Inception Date 12/14/90

1 yr. 4.14%
3 yrs. 8.76%
5 yrs. 6.38%
Life 7.58%

*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.

SLOWER GROWTH, LOW RATES AHEAD
We believe that in the months ahead economic growth may begin to slow.
Gains in productivity are peaking, while consumer spending is exhibiting signs
of a slowdown. If inflation continues at its moderate pace, there will be little
reason for the Federal Reserve to raise short term interest rates in the
immediate future.
With low inflation expectations going forward, the current yield levels in
the bond market look attractive. Therefore, we are inclined to keep the duration
of the investments in the Galaxy taxable funds slightly longer than their
respective benchmarks. With anticipation of future lower interest rates, we will
continue to be very cautious of those mortgage-backed securities that will be
susceptible to higher levels of homeowner prepayments. With economic growth and
corporate earnings slowing, we believe that there may be some dislocation in
corporate bond yield spreads over Treasury securities, creating appropriate
investment opportunities in this sector.

PERFORMANCE AT-A-GLANCE

Average Annual Returns* as of October 31, 1997
Retail B Shares

SHORT-TERM BOND FUND
Inception Date 3/4/96

4.99% One year returns before contingent deferred sales charge deducted.
- -0.01% One year returns after contingent deferred sales charge deducted as if
shares were redeemed at end of period.
4.29% Life of fund reurns before contingent deferred sales charge deducted.
1.95% Life of fund returns after contingent deferred sales charge deducted as
if shares were redeemed at end of period.

HIGH QUALITY BOND FUND
Inception Date 3/4/96

7.59% One year returns before contingent deferred sales charge deducted.
2.59% One year returns after contingent deferred sales charge deducted as if
shares were redeemed at end of period.
5.22% Life of fund reurns before contingent deferred sales charge deducted.
2.88% Life of fund returns after contingent deferred sales charge deducted as
if shares were redeemed at end of period.

*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, respecively. Retail B Shares automatically convert to Retail A
Shares after six years. Total returns are from the date of inception.
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PORTFOLIO REVIEWS
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GALAXY SHORT-TERM BOND FUND

By Perry Vieth
Portfolio Manager

[PHOTO OF PERRY VIETH]

GALAXY SHORT-TERM
BOND FUND

Distribution of Total Net Assets
as of October 31, 1997

Foreign Bonds & Asset-Backed
Net Other Assets and Mortgaged Corporate Notes U.S. Government
& Liabilities Backed Securities & Bonds & Agency Obligations
5% 16% 55% 24%

As bond yields fluctuated over the past year, there were many changes in
the spreads between yields of different income instruments. We helped the Galaxy
Short Term Bond Fund benefit from this environment by emphasizing investments
whose yields were particularly attractive, and adjusting maturities to optimize
movements in yields.
For the fiscal year ended October 31, 1997, the Fund's Trust Shares earned
a total return of 5.77%, and its Retail A Shares had a total return of 5.64%
before deducting the 3.75% maximum front-end sales charge. During this time, the
Fund's Retail B Shares had a total return of 4.99% before deducting the maximum
5.00% contingent deferred sales charge. (Please see the chart on page 2 for
total returns after the deduction of the front-end sales load and, on page 3,
for returns after the deduction of the contingent deferred sales charge.)
Over the same 12-month period, the average short-term bond fund tracked by
Lipper Analytical Services ("Lipper") earned a total return of 6.12%, and the
Lehman Brothers One-to-Three-Year Government Index had a return of 5.68%.

SEIZING YIELD OPPORTUNITIES
At the end of 1996, when interest rates were falling, the Fund benefited
from earlier purchases of issues that matured in two years. While maintaining an
emphasis on asset-backed securities and other short-term corporate debt, we
added certain longer-term corporate debt whose yields became attractive with
increased supplies.
As rates rose at the start of 1997, we traded one-year maturities for
two-year maturities to lock in higher yields for more time. To take advantage of
further yield increases, we purchased floating-rate corporate securities, whose
coupons reset frequently. We also added investments in mortgage-backed
securities, asset-backed securities, and other short-term corporate debt. Where
we found opportunities to improve the Fund's yield, we swapped issues within the
asset-backed sector.
As interest rates peaked, we added some longer-term issues to enjoy higher
yields for more time. We continued to balance these maturities with
floating-rate issues in case interest rates reversed course. When market
volatility caused corporate debt and mortgage-backed securities to underperform
in October, the Fund benefited from its emphasis on high-quality issues -- whose
prices were less vulnerable to volatility. We took advantage of attractive
yields in mortgage-backed securities to increase our weighting in that sector.
On October 31, 1997, the Fund's Trust Shares had a 30-day Securities and
Exchange Commission ("SEC") annualized yield of 5.26%. On the same date, Retail
A Shares had a 30-day SEC annualized yield of 4.82%, and Retail B Shares had a
30-day annualized 30-day SEC yield of 4.35%.

STAYING WITH QUALITY
We believe the Fund's emphasis on quality and liquidity will serve it well
in months to come. If the bond market remains volatile, however, we may give
added emphasis to Treasury issues and mortgage-backed securities with government
guarantees.
As long as it looks like interest rates will remain near or below current
levels, we do not plan to increase holdings of shorter-term issues. By balancing
floating-rate securities with two- and three-year maturities, we hope to enhance
the Fund's yield, while remaining prepared for any interest rate reversal.

Perry Vieth became manager of the Galaxy Short-Term Government Fund in March of
1996. He has managed fixed-income investments since 1986.

GALAXY SHORT-TERM BOND FUND
Growth of $10,000 Investment*
Galaxy Galaxy
Lehman Brothers Short-Term Galaxy Short-Term
One to Three Year Bond Fund - Short-Term Bond Fund -
Government Retail A Bond Fund - Retail B
Date Bond Index Shares Trust Shares Shares

12/30/91 10,000 9,625 10,000
12/30/92 10,542 10,521 10,521
12/30/93 11,150 11,256 11,256
12/30/94 11,280 11,179 11,181
12/30/95 12,276 12,216 12,249 10,000
12/30/96 13,010 12,302 12,850 9,717
10/31/97 14,055 12,995 13,592 10,325

*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 include the
effect of the maximum 3.75% front-end sales charge. Performance figures of
Retail B Shares reflect the deduction of the maximumm 5.00% contingent deferred
sales charge as if shares were redeemed on October 31, 1997. 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.

<PAGE>

GALAXY INTERMEDIATE
GOVERNMENT INCOME FUND

By Marie Schofield
Portfolio Manager

[PHOTO OF MARIE SCHOFIELD]

Interest rate volatility over the past 12 months has resulted in wide
swings in yield spreads among the various market sectors versus Treasury
securities. In this environment, we have adjusted sector weightings and traded
securities within each sector to maximize yield relative to total return
performance. This, plus strategic realignments in our maturity and duration
exposures, helped the Galaxy Intermediate Government Income Fund earn solid
returns for shareholders.

For the fiscal year ended October 31, 1997, the Fund's Trust Shares had a
total return of 7.63%. Over the same time, the Fund's Retail A Shares had a
total return of 7.33% before deducting the maximum 3.75% front-end sales charge.
(Please see the chart on page 2 for total returns after the deduction of the
front-end sales load.)

Those returns compare with a return of 7.49% for the average intermediate
bond fund tracked by Lipper, and a return of 7.49% for the Lehman Brothers
Intermediate Government /Corporate Bond Index. As of October 31, 1997, the
Fund's Trust Shares had a 30-day SEC annualized yield of 5.65%, and its Retail A
Shares had a 30-day SEC annualized yield of 5.15%.

Distribution of Total Net Assets
as of October 31, 1997

Corporate Asset-Backed and U.S. Government Net Other
Notes Mortgage-backed & Agency Assets &
& Bonds Securities Obligations Liabilities

20% 7% 72% 1%

PORTFOLIO STRATEGY
Interest rates began to rise in December in response to an increase in
economic growth and perceived inflationary pressures. Per our "Active Duration
Discipline," which focuses on inflation-adjusted yields, maturities were
shortened as Treasury yields moved below 6.5% and real yields fell toward 3.0%
after adjusting for the 3.3% rate of inflation. This helped buffer the Fund
against falling bond prices when interest rates subsequently rose. Additionally,
mortgage-backed securities were added to the portfolio in view of their
attractive yield spread and as a further defensive measure, increasing our
allocation in this sector up to 31%.

In the spring of 1997, as yield spreads on mortgages narrowed, our
mortgage weighting was reduced in favor of corporate and Treasury issues. With
Treasury yields at 7.0% and inflation slowing to 2.5%, real yields again offered
value. Intermediate and longer term maturities were added to the portfolio at
this time, extending the Fund's duration beyond that of its benchmark index. To
further enhance yield, short term asset-backed securities were swapped for
longer term issues maturing in three to five years.

GALAXY INTERMEDIATE GOVERNMENT INCOME FUND
Growth of $10,000 investment*

Lehman Brothers
Intermediate Galaxy Intermediate Government Income Fund
Government/ ------------------------------------------
Corporate Retail A Trust
Date Bond Index Shares Shares

9/01/88 10,000 10,000 10,000
9/01/88 10,312 10,390 10,390
9/01/89 11,399 11,451 11,451
9/01/90 12,240 11,687 11,687
9/01/91 13,933 13,482 13,482
9/01/92 15,326 14,958 14,958
9/01/93 16,850 16,014 16,014
9/01/94 16,524 15,307 15,310
9/01/95 18,596 17,274 17,329
9/01/96 19,866 17,221 18,022
10/31/97 21,582 18,483 19,376

*Since inception on 9/1/88. Performance figures for Retail A Shares include
the effect of the maximum 3.75% front-end sales charge. The Lehman Brothers
Intermediate Government/Corporate Bond Index is an unmanaged index in which
the investors cannot invest. Results for the index do not reflect the
expenses and investment management fees incurred by the Fund.

Yields continued to fall over the summer with inflation declining to 2.2%,
the lowest year-over-year rate since 1986. With the improved inflation
environment, real yields remained at attractive levels and our maturity
structure was kept long relative to its benchmark. This increased the Fund's
gains as bond prices rallied. Lower coupon mortgage-backed issues having less
prepayment risk were added late in the summer as spreads became more attractive.
Corporate exposure was also reduced at this time with yield spreads at
historically tight levels in this sector. Toward the end of the quarter,
Treasuries benefited from a "flight to quality" associated with the upheaval in
emerging and international markets. As a result, the yield curve continued to
flatten with longer yields approaching 6.0%.

LONG-TERM YIELDS STILL ATTRACTIVE
Although interest rates have dropped substantially, real yields continue
to offer value. We plan to continue to keep the average maturity of the Fund
long, as compared to its benchmark, until real yields become less attractive or
economic growth fails to moderate. If rates fall much further, we may look for
opportunities to take profits in mortgage-backed securities. Corporate exposure
will continue to be concentrated in shorter-term, high quality issues.

Marie Schofield became manager of the Galaxy Intermediate Government Income Fund
in December of 1996. She has managed fixed-income investments since 1975.

GALAXY CORPORATE BOND FUND

By David Lindsay
Portfolio Manager
The performance of corporate bonds is often tied to the outlook for
company earnings. As this outlook changed in the last year, the appeal of
corporate bonds changed, too. By focusing on high-quality corporate issues, and
making the most of buying opportunities that arose, we helped the Galaxy
Corporate Bond Fund perform well in the fiscal year ended October 31, 1997.
During this time, the Fund's Trust Shares earned a total return of 7.56%.
That compares to returns of 7.98% for the average intermediate investment grade
bond fund tracked by Lipper and 7.49% for the Lehman Brothers Intermediate
Government/Corporate Bond Index. At the end of the period the Fund's Trust
Shares had a 30-day SEC annualized yield of 5.73%.

ADDING CORPORATE BONDS
AT ATTRACTIVE PRICES
As interest rates fell and bond prices rose at the end of 1996,
expectations for slower economic growth combined with large supplies of new
issues to make corporate bonds more attractive compared to Treasuries. To make
the most of this opportunity, and lock in higher yields for more time, we traded
Treasury issues and corporate debt maturing in less than one year for corporate
debt maturing in two to three years. Many of the corporate bonds we bought were
issues of general finance companies.

GALAXY CORPORATE BOND FUND
Distribution of Total Net Assets
as of October 31, 1997

Automobile Finance 7%
Transportation 7%
Industrial 11%
Manufacturing 7%
U.S. Government & Agency Obligations 15%
Finance 16%
Utilities 6%
Asset-Backed Securities 9%
Foreign Bonds, Other Corporate Notes &
Bonds & Net Other Assets & Liabilities 22%

As interest rates rose and bond prices fell in the first months of 1997,
new economic concerns caused corporate bonds to underperform further. The Fund
benefited during this time from its focus on higher-quality issues -- where
strong demand and tight supplies kept upward pressure on prices. At this point
we replaced maturing corporate bonds and some Treasuries with bonds of paper,
transportation services and fast-food firms whose prices were especially
attractive. As economic concerns combined with shrinking Treasury supplies to
weaken corporate prices in the spring, we trimmed investments in Treasuries and
mortgage-backed securities to buy corporate "put bonds" and debt from
soft-drink, transportation, and banking firms. Put bonds tend to trade at longer
maturities when interest rates fall, adding upside price potential, and trade at
shorter maturities when rates rise, limiting price risk.
When currency problems surfaced overseas in the final months of the
period, we traded Yankee Bonds and issues of U.S. banks and retailers for
Treasury bonds and debt from soft drink, finance, and business-machinery firms.
We also swapped issues of transportation firms for issues of food companies.

ADDED PROTECTION
These trades should help protect the Fund from further currency troubles
abroad, as well as economic concerns at home. In both cases, investors should
favor Treasuries and corporate bonds of firms less dependent on a rapidly
growing economy. If economic growth slows in coming months, as we expect, prices
for corporate bonds may become increasingly attractive. As before, we will look
for opportunities to add high-quality corporate bonds with especially strong
yields.

David Lindsay has managed the Galaxy Intermediate Corporate Bond Fund since its
inception in December of 1994, the Galaxy Fund II Treasury Index Fund since
1994, and other fixed-income portfolios for Fleet Investment Advisors Inc. since
1986.

GALAXY CORPORATE BOND FUND
Growth of $10,000 investment*

Lehman Brothers
Intermediate Galaxy
Government/ Corporate
Corporate Bond Fund
Date Bond Index Trust Shares

12/12/94 10,000 10,000
95 10,967 11,385
96 11,658 11,954
10/31/97 12,665 12,858

*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.

GALAXY HIGH QUALITY BOND FUND

By Marie Schofield
Portfolio Manager
The "Active Duration Discipline" employed in the Galaxy High Quality Bond
Fund emphasizes a relative value approach focusing on "real" or
inflation-adjusted yields available on U. S. Treasury securities. A 4% or
greater "real" interest rate on Treasury securities has, historically,
represented attractive value and warranted addition of longer term investments.
Real yields lower than 3.5% have less value and appeal and would cause us to
reduce exposure and possibly shorten our maturity structure.
By actively managing and adjusting the mix of maturities within this
relative value framework, and optimizing the spreads between yields of different
instruments, we helped the Fund produce returns comparable to its market
benchmark and other funds with similar objectives. For the fiscal ended October
31, 1997, the Fund's Trust Shares had a total return of 8.36%. During the same
time, its Retail A Shares had a total return of 8.22% before deducting the
maximum 3.75% front-end sales charge, and its Retail B Shares had a total return
of 7.59% before deducting the maximum 5.00% contingent deferred sales charge.
(Please see the chart on page 2 for total returns after the deduction of the
front-end sales load and, on page 3, for returns after the deduction of the
contingent deferred sales charge.)

GALAXY HIGH QUALITY BOND FUND
Growth of $10,000 investment*

Lehman Brothers
Long-Term Galaxy High Quality Bond Fund
Government/ ------------------------------------------
Corporate Retail A Trust Retail B
Date Bond Index Shares Shares Shares

12/14/90 10,000 9,625 10,000
91 11,155 11,003 11,003
92 12,329 12,139 12,139
93 14,009 14,037 14,037
94 13,359 12,856 12,859
95 16,856 15,230 15,259 10,000
96 17,355 15,280 15,939 9,626
10/31/97 18,786 16,535 17,271 10,483

*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 include the
effect of the maximum 3.75% front-end sales charge. 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, 1997. 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.

By comparison, the average A-rated corporate bond fund tracked by Lipper
had a total return of 8.52% for the 12-month period, and the Lehman Brothers
Government/Corporate Bond Index had a total return of 8.81%.
On October 31, 1997, the Fund's Trust Shares had a 30-day SEC annualized
yield of 5.65%, and the Fund's Retail A Shares had a 30-day SEC annualized yield
of 5.32%. On the same date, the Fund's Retail B Shares had a 30-day SEC
annualized yield of 4.95%.

TAKING ADVANTAGE OF SHIFTS IN YIELDS
Toward the end of 1996, and the beginning of our reporting period,
maturities were shortened as long term Treasury yields fell below 6.40% offering
an unattractive real yield of 3.1%, in light of the 3.3% inflation rate. Our
strategy called for us to reduce exposure in longer maturities and increase
investments in short to intermediate term issues, including corporate,
asset-backed and mortgage-backed securities. The Fund benefited from this
defensive posture as long term yields subsequently rose to over 7% by the end of
the first quarter and prices on longer term issues declined measurably in
response to a tightening of monetary policy initiated by the Fed. Strong
economic growth and expected inflationary pressures had prompted Fed action to
increase interest rates. Corporate spreads widened somewhat to more attractive
levels.
By April, real yields had risen to an attractive 4.50% as inflation
actually fell to 2.5%. At this time, our strategy shifted to increased exposure
in longer term issues and an extension in our average maturity and duration.
Short- to intermediate-term Treasury securities and mortgage-backed securities
were replaced with longer term corporate securities and zero coupon Treasury
bonds. Asset-backed issues were extended and corporate issues with put options
were also added. Put features can limit price risk when rates rise and add
upside potential when rates fall.

ADJUSTING TO LOWER INFLATION
Yield fell through the summer and early fall with only a minor
interruption in August. We reduced our exposure in long term corporate issues as
spreads narrowed back to earlier levels. These were replaced with "seasoned"
mortgage-backed securities having relatively low repayment risk. Further, the
improved inflation environment, at 2.1% by this time, had resulted in real
yields remaining at attractive levels despite much lower nominal Treasury
yields. Long term Treasury yields of 6.15% offer a real yield of close to 4%. As
a result, we have maintained our exposure to longer term maturities and an
extended duration posture.
At the present time we are monitoring mortgage-backed holdings for
prepayment sensitivity with an eye on reduction should rates decline further.
Going forward, we will be sensitive to any deterioration in the inflation
environment shifting to a more neutral or defensive strategy. Foreign exposure
is limited to small positions in Canadian provincials which have weathered the
turmoil in international markets well. The consequences of foreign economic
problems on U.S. economic growth is not expected to be significant with a
possible residual effect of offsetting domestic inflationary pressures. However,
we remain cautious in this regard and plan to avoid additions to corporate
exposure until the outlook clears.

Marie Schofield has managed the Galaxy High Quality Bond Fund since March of
1996. She has managed fixed-income investments since 1975.

- --------------------------------------------------------------------------------
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 Advisor is presently waiving fees and/or
reimbursing expenses and may revise or discontinue such practices at any time.
Without such waivers and/or reimbursements, performance would be lower. Past
performance is no guarantee of future results. Total return figures in this
report include changes in share price, and reinvestment of dividends and capital
gains distributions, if any.
<PAGE>
-----------------
SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS
THE GALAXY FUND OCTOBER 31, 1997
-----------------

VALUE
PAR VALUE (NOTE 2)
- --------- --------

CORPORATE NOTES AND BONDS - 55.06%

FINANCE - 23.04%

$ 1,000,000 CIT Group Holdings, Inc.
Senior Notes, MTN
5.88%, 12/09/99 ......................... $ 997,500
2,000,000 Caterpillar Financial Services Corp.
Series F, MTN
6.74%, 04/05/00 ......................... 2,032,500
2,000,000 Caterpillar Financial Services Corp.
Series F, MTN
6.40%, 04/16/01 ......................... 2,025,000
1,000,000 Commercial Credit Co.
6.70%, 08/01/99 ......................... 1,012,500
3,000,000 Deere (John) Capital Corp.
6.30%, 06/01/99 ......................... 3,018,750
2,500,000 General Electric Capital Corp., MTN
5.48%, 03/01/99 ......................... 2,493,750
4,000,000 Keycorp Institutional Capital Corp.
6.63%, 06/15/29, Putable 06/01/99 (B) ... 4,027,600
2,500,000 Pitney Bowes Credit Corp.
Series C, MTN
6.54%, 07/15/99 ......................... 2,528,125
-----------
18,135,725
-----------
BANKING - 13.35%

3,000,000 American Express Centurion Bank
5.80%, 07/12/99 (A) ..................... 3,002,397
2,000,000 Banc One Corp., MTN
5.94%, 03/23/01 (A) ..................... 2,002,198
1,000,000 Chase Manhattan Bank
5.88%, 08/04/99 ......................... 1,000,000
2,000,000 NationsBank Corp, Series C, Senior MTN
5.99%, 02/09/00 (A) ..................... 2,005,000
2,500,000 Suntrust Banks, Inc.
5.97%, 04/22/02 (A) ..................... 2,499,500
-----------
10,509,095
-----------
AUTOMOBILE FINANCE - 10.97%

1,500,000 Associates Corp. of North America
Senior Note
6.25%, 03/15/99 ......................... 1,509,375
2,000,000 Chrysler Financial Corp., Series Q, MTN
5.68%, 03/12/99 (A) ..................... 1,998,198
2,000,000 Ford Motor Credit Co.
6.38%, 10/06/00 ......................... 2,017,500
3,000,000 General Motors Acceptance Corp.
8.00%, 10/01/99 ......................... 3,105,000
-----------
8,630,073
-----------
CONSUMER STAPLES - 5.13%

1,000,000 Coca-Cola Enterprises, Inc.
7.00%, 11/15/99 ......................... 1,020,000
3,000,000 Sherwin-Williams Co.
6.25%, 02/01/00 ......................... 3,018,750
-----------
4,038,750
-----------
UTILITIES - 2.57%

2,000,000 Florida Power Corp., MTN
6.47%, 07/01/01 ......................... 2,025,000
-----------
TOTAL CORPORATE NOTES AND BONDS ......... 43,338,643
(Cost $43,081,935) -----------

U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 23.72%

U.S. TREASURY NOTES - 13.30%

$ 5,000,000 5.63%, 10/31/99 ......................... 5,002,295
1,545,000 5.88%, 02/15/00 ......................... 1,550,869
250,000 6.25%, 08/31/00 ......................... 253,388
3,600,000 6.25%, 10/31/01 ......................... 3,659,539
-----------
10,466,091
-----------
FEDERAL NATIONAL
MORTGAGE ASSOCIATION - 6.34%

2,500,000 5.32%, 02/10/99, MTN .................... 2,488,873
2,280,185 10.00%, 05/01/22, Pool #313544 .......... 2,502,504
-----------
4,991,377
-----------
FEDERAL HOME LOAN
MORTGAGE CORPORATION - 4.08%

800,000 5.65%, 11/03/97 (C) ..................... 799,749
2,164,508 5.50%, 08/01/00, Pool # M80285 .......... 2,151,655
258,565 7.00%, 05/01/19, Pool # D29158 .......... 259,939
-----------
3,211,343
-----------
TOTAL U.S. GOVERNMENT
AND AGENCY OBLIGATIONS .................. 18,668,811
(Cost $18,538,191) -----------

ASSET-BACKED AND MORTGAGE-BACKED SECURITIES - 16.21%

$ 4,000,000 Chemical Master Credit Card Trust I
Series 1995-2, Class A
6.23%, 06/15/03 ......................... 4,033,456
1,750,000 Discover Card Master Trust I
Series 1993-2, Class A
5.40%, 11/16/01 ......................... 1,744,976
737,578 Green Tree Financial Corp.
Series 1996-4, Class A2
6.30%, 06/15/27 ......................... 746,190
3,198,690 Ryland Mortgage Securities Corp., CMO
Series 1993-3, Class A
6.71%, 08/25/08 ......................... 3,202,689
3,000,000 Sears Credit Account Master Trust
Series 1996-2,Class A
6.50%, 10/15/03 ......................... 3,027,222
-----------
TOTAL ASSET-BACKED AND
MORTGAGE-BACKED SECURITIES .............. 12,754,533
(Cost $12,630,639) -----------

FOREIGN BONDS - 3.74%

2,000,000 Province of Ontario, Series E, Euro MTN
6.00%, 11/18/99 ......................... 1,998,000
900,000 Export-Import Bank of Japan
Yankee Debenture
8.35%, 12/01/99 ......................... 943,875
-----------
TOTAL FOREIGN BONDS ..................... 2,941,875
(Cost $2,935,630) -----------

TOTAL INVESTMENTS - 98.73% ................................ 77,703,862
(Cost $ 77,186,395) ------------

NET OTHER ASSETS AND LIABILITIES - 1.27% .................. 998,945
------------
NET ASSETS - 100.00% ...................................... $ 78,702,807
============

- ---------------------------------
(A) Variable rate demand notes are payable upon not more than one, seven or
thirty business days notice. Put bonds and notes have a demand features
which mature within one year. The interest rate shown reflects the rate
in effect at October 31, 1997.
(B) Securities exempt from registration under Rule 144A of the Securities Act
of 1993.These securities may be resold, in transactions exempt from
registration, to qualified institutional buyers. At October 31, 1997,
these securities amounted to $4,027,600 or 5.12% of net assets.
(C) Discount yield at time of purchase.
CMO Collateralized Mortgage Obligation
MTN Medium Term Note

See Notes to Financial Statements.
<PAGE>
-----------------
INTERMEDIATE GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS
THE GALAXY FUND OCTOBER 31, 1997
-----------------

VALUE
PAR VALUE (NOTE 2)
- --------- --------

U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 71.56%

U.S. TREASURY BONDS - 17.50%

$13,000,000 11.13%, 08/15/03 ........................ $ 16,328,650
3,000,000 11.88%, 11/15/03 ........................ 3,905,880
13,000,000 10.75%, 08/15/05 ........................ 16,877,887
7,500,000 12.00%, 08/15/13 ........................ 10,980,375
------------
48,092,792
------------
FEDERAL NATIONAL
MORTGAGE ASSOCIATION - 16.67%

10,000,000 8.00%, 04/13/05, Series 05-B ............ 10,091,490
2,753,441 5.00%, 05/01/09, Pool # 326584 .......... 2,593,397
6,236,175 6.00%, 10/01/09, Pool # 303344 .......... 6,127,042
4,165 8.00%, 10/01/09, Pool # 313180 .......... 4,310
2,598,542 9.50%, 03/01/10, Pool # 379046 .......... 2,786,936
164,459 6.00%, 01/01/11, Pool # 303728 .......... 161,581
4,346,906 6.00%, 04/01/11, Pool # 344764 .......... 4,270,835
2,470,173 6.00%, 04/01/11, Pool # 398072 .......... 2,426,945
282,296 6.00%, 04/01/11, Pool # 338365 .......... 277,356
2,363,420 6.00%, 05/01/11, Pool # 348318 .......... 2,322,060
7,296,593 10.00%, 05/01/22, Pool # 313544 ......... 8,008,011
6,840,283 6.50%, 09/01/23, Pool # 50911 ........... 6,750,470
------------
45,820,433
------------
U.S. TREASURY NOTES - 12.90%

2,000,000 8.00%, 08/15/99 ......................... 2,078,740
2,300,000 5.75%, 09/30/99 ......................... 2,304,782
10,050,000 5.63%, 10/31/99 ......................... 10,054,613
3,500,000 5.88%, 02/15/00 ......................... 3,513,297
9,000,000 8.88%, 05/15/00 ......................... 9,673,641
3,000,000 7.50%, 02/15/05 ......................... 3,282,330
4,250,000 7.00%, 07/15/06 ......................... 4,555,103
------------
35,462,506
------------
U.S. GOVERNMENT BACKED BONDS - 10.22%

5,000,000 State of Israel
Series 8-B
6.38%, 08/15/01 ......................... 5,075,000
6,450,000 State of Israel
Series 6-A
6.05%, 08/15/00 ......................... 6,466,125
6,200,000 Private Export Funding Corp.
6.49%, 07/15/07 ......................... 6,362,750
10,000,000 Small Business Administration
Participation Certificates
Series SBIC-PS 1955-10B
7.25%, 05/10/05 ......................... 10,175,000
------------
28,078,875
------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION - 5.01%

8,208,560 6.50%, 07/15/09, Pool # 780357 .......... 8,257,295
5,228,977 8.00%, 09/15/17, Pool # 780520 .......... 5,505,132
------------
13,762,427
------------
FEDERAL HOME LOAN
MORTGAGE CORPORATION - 4.84%

474,000 5.65%, 11/03/97 (A) ..................... 473,851
12,654,337 7.00%,12/01/10, Pool #E00407 ............ 12,840,191
------------
13,314,042
------------
U.S. TREASURY STRIP (A) - 4.42%

21,400,000 4.60%, 05/15/07 Interest, (B) ........... 12,157,531

TOTAL U.S. GOVERNMENT
AND AGENCY OBLIGATIONS .................. 196,688,606
(Cost $194,362,976) ------------

CORPORATE NOTES AND BONDS - 19.86%

AUTOMOBILE FINANCE - 7.74%

10,000,000 Associates Corp. of North America
Senior Note
6.50%, 07/15/02 ......................... 10,137,500
5,000,000 Ford Motor Credit Co.
6.25%, 11/08/00 ......................... 5,018,750
6,000,000 General Motors Acceptance Corp.
7.13%, 06/01/99 ......................... 6,105,000
------------
21,261,250
------------
FINANCE - 6.25%

7,000,000 CIT Group Holdings, Inc., Senior MTN
6.70%, 05/02/00 ......................... 7,113,750
5,000,000 Commercial Credit Co.
5.55%, 02/15/01 ......................... 4,931,250
5,000,000 Pitney Bowes Credit Corp.
Series C, MTN
6.78%, 07/16/01 ......................... 5,125,000
------------
17,170,000
------------
BANKING - 4.95%

7,500,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01 ......................... 7,556,250
6,000,000 NationsBank Texas
National Association, Senior Note,
6.35%, 03/15/01 ......................... 6,060,000
------------
13,616,250
------------
UTILITIES - 0.92%

2,500,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07 ......................... 2,515,625

TOTAL CORPORATE NOTES AND BONDS ......... 54,563,125
(Cost $53,416,725 ------------

ASSET-BACKED AND MORTGAGE-BACKED SECURITIES - 7.39%

3,000,000 Chase Credit Card Master Trust
Series 1997-2, Class A
6.30%, 04/15/03 ......................... 3,026,265
2,700,000 Ford Credit Auto Owner Trust
Series 1996-A, Class A-3
6.50%, 11/15/99 ......................... 2,749,210
5,000,000 Green Tree Financial Corp.
Series 1997-1, Class A-3
6.23%, 03/15/28 ......................... 5,004,688
250,000 Guaranteed Trade Trust
Series 1993-A, Class A
4.86%, 04/01/98 ......................... 249,315
4,313,422 Rural Housing Trust
Series 1987-1, Class 1-D, CMO
6.33%, 04/01/26 ......................... 4,313,422
5,000,000 Signet Credit Card Master Trust
Series 1993-1, Class A
5.20%, 02/15/02 ......................... 4,977,865
------------
TOTAL ASSET-BACKED AND
MORTGAGE-BACKED SECURITIES .............. 20,320,765
(Cost $19,842,994) ------------

TOTAL INVESTMENTS - 98.81% ................................ 271,572,496
(Cost $267,622,695) ------------

NET OTHER ASSETS AND LIABILITIES - 1.19% .................. 3,267,833
------------
NET ASSETS -100.00% ....................................... $274,840,329
============
- ---------------------------
(A) Discount yield at time of purchase.
(B) Stripped securities represent the splitting of cash flows into interest
and principal. Holders, as indicated, are entitled to that portion of
the payment representing interest only or principal only.
MTN Medium Term Note

See Notes to Financial Statements.
<PAGE>
-----------------
CORPORATE BOND FUND
PORTFOLIO OF INVESTMENTS
THE GALAXY FUND OCTOBER 31, 1997
-----------------

VALUE
PAR VALUE (NOTE 2)
- --------- --------

CORPORATE NOTES AND BONDS - 73.73%

FINANCE - 15.77%

$ 600,000 Ameritech Capital Funding Corp.
Debenture
7.50%, 04/01/05 ......................... $ 642,000
100,000 Aristar, Inc., Senior Note
6.30%, 07/15/00 ......................... 101,000
1,000,000 Caterpillar Financial Services Corp.
Series E, MTN
6.87%, 11/30/99 ......................... 1,016,250
1,000,000 Commercial Credit Co., Debenture
9.60%, 05/15/99 ......................... 1,053,750
300,000 Commercial Credit Co., Debenture
8.70%, 06/15/09 ......................... 352,500
750,000 Commercial Credit Co.
6.70%, 08/01/99 ......................... 759,375
500,000 Dean Witter Discover & Co.
6.75%, 08/15/00 ......................... 509,375
600,000 Dow Capital BV, Debenture
9.00%, 05/15/10 ......................... 722,250
600,000 Fletcher Challenge Financial USA Inc.
Debenture
9.80%, 06/15/98 ......................... 615,192
350,000 Great Western Financial Corp.
6.13%, 06/15/98 ......................... 350,581
525,000 Great Western Financial Corp.
6.38%, 07/01/00 ......................... 527,625
1,000,000 Household Finance Corp., Debenture
8.95%, 09/15/99 ......................... 1,051,250
1,000,000 International Lease Finance Corp.
6.13%, 11/01/99 ......................... 1,002,500
1,000,000 Keycorp Institutional Capital Corp.
Series A
6.63%, 06/15/29 (B) ..................... 1,006,900
1,000,000 Norwest Financial, Inc., Senior Note
6.88%, 06/15/00 ......................... 1,020,000
1,000,000 Pitney Bowes Credit Corp.
Series C, MTN
6.54%, 07/15/99 ......................... 1,011,250
250,000 Textron Financial Corp., MTN
9.45%, 04/10/01 ......................... 275,313
300,000 Travelers Group, Inc.
6.13%, 06/15/00 301,125
1,000,000 Travelers Group, Inc.
6.88%, 06/01/25 ......................... 1,030,000
250,000 Travelers Group, Inc.
6.63%, 09/15/05 ......................... 253,750
180,000 USL Capital Corp., Senior Note
8.13%, 02/15/00 ......................... 188,100
620,000 U.S. Leasing International, Inc.
Senior Note
8.75%, 12/01/01 ......................... 677,350
-----------
14,467,436
-----------

INDUSTRIAL - 10.70%

560,000 Alcan Aluminum, Ltd.,
Yankee Debenture
5.88%, 04/01/00 ......................... $ 558,600
600,000 Armstrong World Industries, Inc.
9.75%, 04/15/08 ......................... 748,500
650,000 Coca-Cola Enterprises, Inc.
6.70%, 10/15/36 ......................... 672,750
1,000,000 Coca-Cola Enterprises, Inc.
7.13%, 08/01/17 ......................... 1,023,750
1,080,000 Cox Communications, Inc.
6.38%, 06/15/00 ......................... 1,085,400
383,000 Cox Communications, Inc.
6.50%, 11/15/02 ......................... 386,351
500,000 Crown Cork & Seal Co., Inc.
8.38%, 01/15/05 ......................... 551,875
400,000 Cyprus Amax Minerals Co., Debenture
10.13%, 04/01/02 ........................ 456,000
1,375,000 Georgia-Pacific Corp., Debenture
9.95%, 06/15/02 ......................... 1,564,063
1,000,000 International Business Machines Corp.
Debenture
6.22%, 08/01/27 ......................... 1,010,000
1,000,000 Mead Corp., Debenture
6.84%, 03/01/37 ......................... 1,040,000
300,000 Seagram Co., Ltd, Yankee Note
6.50%, 04/01/03 ......................... 303,750
150,000 Times Mirror Co., Debenture
7.50%, 07/01/23 ......................... 159,000
150,000 Whitman Corp.
6.50%, 02/01/06 ......................... 148,313
100,000 Whitman Corp.
7.50%, 08/15/01 ......................... 103,625
-----------
9,811,977
-----------
MANUFACTURING - 6.78%

400,000 Champion International Corp.
7.10%, 09/01/05 ......................... 413,000
1,000,000 International Paper Co.
7.63%, 08/01/04 ......................... 1,065,000
500,000 Loral Corp., Senior Note
7.63%, 06/15/04 ......................... 533,125
1,500,000 Raytheon Co.
6.50%, 07/15/05 ......................... 1,507,500
360,000 Reynolds Metals Co., Debenture
9.38%, 06/15/99 ......................... 378,900
1,000,000 Snap-On, Inc.
6.63%, 10/01/05 ......................... 1,027,500
1,000,000 Weyerhaeuser Co., Debenture
8.38%, 02/15/07 ......................... 1,143,750
150,000 Weyerhaeuser Co., Debenture
7.13%, 07/15/23 ......................... 152,250
-----------
6,221,025
-----------
TRANSPORTATION - 6.62%

250,000 Atchison, Topeka & Santa Fe Railway Co
Equipment Trust
6.00%, 07/01/00 ......................... 249,375
800,000 Carnival Corp., Yankee Note
5.75%, 03/15/98 ......................... 799,951
500,000 Carnival Corp., Yankee Note
6.15%, 10/01/03 ......................... 495,625
200,000 Federal Express Corp., Senior Note
10.00%, 04/15/99 ........................ 211,000
1,000,000 Hertz Corp., Senior Note
9.75%, 02/01/98 ......................... 1,008,929
150,000 Hertz Corp., Senior Note
6.00%, 02/01/01 ......................... 149,063
1,000,000 Norfolk Southern Corp.
6.95%, 05/01/02 ......................... 1,032,500
500,000 Southwest Airlines Co., Debenture
9.40%, 07/01/01 ......................... 550,000
300,000 Southwest Airlines Co.
8.00%, 03/01/05 ......................... 325,875
250,000 Union Pacific Corp.
7.60%, 05/01/05 ......................... 266,250
1,000,000 Union Pacific Corp.
6.40%, 02/01/06 ......................... 986,250
-----------
6,074,818
-----------
AUTOMOBILE FINANCE - 6.54%

1,000,000 Associates Corp. of North America
Senior Note
5.25%, 03/30/00 ......................... 983,750
500,000 Ford Motor Credit Co.
6.85%, 08/15/00 ......................... 510,000
500,000 Ford Motor Credit Co.
Unsubordinated Debenture
6.25%, 11/08/00 ......................... 501,875
1,800,000 General Motors Acceptance Corp.
MTN
7.50%, 06/01/99 ......................... 1,840,500
160,000 General Motors Acceptance Corp.
Debenture
9.38%, 04/01/00 ......................... 171,600
200,000 General Motors Acceptance Corp.
Debenture
9.63%, 05/15/00 ......................... 216,250
1,300,000 General Motors Acceptance Corp.
Debenture
8.88%, 06/01/10 ......................... 1,547,000
200,000 General Motors Acceptance Corp.
9.63%, 12/15/01 ......................... 224,750
-----------
5,995,725
-----------
UTILITIES - 5.55%

500,000 Alabama Power Co., First Mortgage
6.38%, 08/01/99 ......................... 503,750
300,000 Baltimore Gas & Electric Co.
First Mortgage
8.40%, 10/15/99 ......................... 313,125
1,000,000 Baltimore Gas & Electric Co., Mortgage
8.38%, 08/15/01 ......................... 1,075,000
300,000 Consumers Energy Co., Mortgage
8.75%, 02/15/98 ......................... 302,625
600,000 Hydro-Quebec
Yankee Debenture, Series FU
11.75%, 02/01/12 ........................ 861,750
100,000 Orange & Rockland Utilities, Inc.
Debenture
9.38%, 03/15/00 ......................... 107,125
180,000 PECO Energy Corp., First Mortgage
9.25%, 10/01/99 ......................... 190,125
1,000,000 Potomac Electric Power Co.
First Mortgage
6.25%, 10/15/07 ......................... 1,006,250
200,000 Public Service Electric & Gas Co.
First Refunding Mortgage
7.63%, 02/01/00 ......................... 206,500
250,000 Commonwealth Edison, Mortgage
9.38%, 02/15/00 ......................... 265,938
250,000 Virginia Electric & Power Co., MTN
9.40%, 05/27/99 ......................... 261,563
-----------
5,093,751
-----------
BANKING - 4.15%

305,000 The Bank of New York Co., Inc.
Subordinated Note
7.88%, 11/15/02 ......................... 325,588
1,000,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01 ......................... 1,007,500
1,000,000 Branch Banking & Trust Co., Senior Note
5.70%, 02/01/01 ......................... 988,750
1,000,000 National City Bank of Kentucky
Subordinated Note
6.30%, 02/15/11 ......................... 971,250
500,000 Wachovia Corp.
Subordinated Note
7.00%, 12/15/99 ......................... 510,625
-----------
3,803,713
-----------
OIL, GAS, AND PETROLEUM - 3.41%

300,000 Anadarko Petroleum Corp.
6.75%, 03/15/03 ......................... 304,500
500,000 Atlantic Richfield Co., Debenture
10.88%, 07/15/05 ........................ 635,625
1,000,000 Burlington Resources, Inc., Debenture
6.88%, 02/15/26 ......................... 971,250
300,000 Enron Corp., Senior Note
10.00%, 06/01/98 ........................ 306,750
100,000 Occidental Petroleum Corp., Senior Note
10.13%, 11/15/01 ........................ 113,750
300,000 Phillips Petroleum Co., Debenture
9.00%, 06/01/01 ......................... 327,000
300,000 Sun Co., Inc.
7.13%, 03/15/04 ......................... 310,125
150,000 Unocal Corp., MTN, Debenture
9.25%, 08/02/99 ......................... 158,063
-----------
3,127,063
-----------
INSURANCE - 3.04%

210,000 American General Corp., Debenture
9.63%, 07/15/00 ......................... 228,375
256,000 Chubb Corp., Debenture
8.75%, 11/15/99 ......................... 269,760
1,000,000 Hartford Financial Services Group, Inc.
6.38%, 11/01/02 ......................... 1,005,000
750,000 Progressive Corp. of Ohio, Debenture
10.00%, 12/15/00 ........................ 827,813
150,000 Progressive Corp. of Ohio
6.60%, 01/15/04 ......................... 151,313
300,000 Torchmark Corp., Debenture
9.63%, 05/01/98 ......................... 305,577
-----------
2,787,838
-----------
CONSUMER PRODUCTS - 2.88%

1,600,000 Hershey Foods Corp., Debenture
7.20%, 08/15/27 ......................... 1,666,000
1,000,000 Wendy's International, Inc., Debenture
7.00%, 12/15/25 ......................... 978,750
-----------
2,644,750
-----------
MERCHANDISING AND RETAIL - 2.85%

1,000,000 Dillard Department Stores, Inc.
7.38%, 06/15/99 ......................... 1,021,250
1,000,000 Penney (J.C.) Co., Inc., MTN
6.38%, 09/15/00 ......................... 1,010,000
250,000 Penney (J.C.) Co., Inc., Debenture
9.05%, 03/01/01 ......................... 271,563
300,000 Sears Roebuck & Co., Series V, MTN
9.31%, 07/24/98 ......................... 306,840
-----------
2,609,653
-----------
TELEPHONE AND TELECOMMUNICATIONS - 2.78%

455,000 GTE California, Inc., Debenture
6.75%, 03/15/04 ......................... 461,256
350,000 GTE Corp., Debenture
9.38%, 12/01/00 ......................... 379,750
400,000 GTE South, Inc., Debenture
7.25%, 08/01/02 ......................... 419,000
1,000,000 GTE Southwest, Inc., Debenture
6.00%, 01/15/06 ......................... 966,250
300,000 United Telecom, Debenture
9.75%, 04/01/00 ......................... 324,375
-----------
2,550,631
-----------
AEROSPACE - 1.20%

1,100,000 Lockheed Martin Corp.
5.88%, 03/15/98 ......................... 1,100,066

BOOK PUBLISHING - 1.17 %

1,000,000 New York Times Co.
7.63%, 03/15/05 ......................... 1,077,500

HEALTH CARE - 0.18%

150,000 Becton Dickinson & Co., Debenture
8.80%, 03/01/01 ......................... 161,813

EQUIPMENT - 0.11%

100,000 Comdisco, Inc.
6.50%, 06/15/00 ......................... 100,875
-----------
TOTAL CORPORATE NOTES AND BONDS ......... 67,628,634
(Cost $66,829,351) -----------

U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 15.13%

FEDERAL NATIONAL
MORTGAGE ASSOCIATION - 4.97%

25,442 8.00%, 01/01/99, Pool # 145891 .......... 26,245
123,189 7.50%, 11/01/07, Pool # 188629 .......... 126,384
137,569 5.00%, 08/01/10, Pool # 0068
Series A-1, CMO ......................... 128,584
1,531 12.50%, 12/01/13, Pool # 2443 ........... 1,756
3,593,573 6.00%, 11/01/23, Pool # 50940 ........... 3,454,322
836,773 6.50%, 12/01/23, Pool # 50946 ........... 822,653
-----------
4,559,944
-----------
FEDERAL HOME LOAN
MORTGAGE CORPORATION - 4.88%

3,035,000 5.65%, 11/03/97(A) ...................... 3,034,047
39,715 8.75%, 08/01/01, Pool # 220011 .......... 40,857
100,993 7.00%, 06/01/04, Pool # 189683 .......... 101,466
87,116 7.50%, 08/01/08, Pool # 181313 .......... 89,048
24,612 7.00%, 05/01/16, Pool # 272046 .......... 24,728
187,810 7.00%, 02/01/17, Pool # 289284 .......... 188,690
140,199 8.00%, 07/01/21, Pool # C00068 .......... 145,369
87,452 8.00%, 10/01/21, Pool # D11045 .......... 90,676
243,712 7.00%, 10/01/22, Pool # C00184 .......... 245,006
247,225 7.00%, 02/01/23, Pool # C00213 .......... 248,538
278,768 6.00%, 09/01/23, Pool # D41208 .......... 268,053
-----------
4,476,478
-----------
U.S. TREASURY BONDS - 3.69%

1,000,000 11.63%, 11/15/02 ........................ 1,251,089
2,015,000 6.63%, 02/15/27 ......................... 2,135,412
-----------
3,386,501
-----------
U.S. TREASURY NOTE - 1.17%
1,000,000 7.00%, 07/15/06 ......................... 1,071,789

GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION - 0.42%

107,001 9.00%, 09/15/04, Pool # 003669 .......... 114,190
61,963 9.00%, 12/15/08, Pool # 27562 ........... 66,126
197,024 8.00%, 05/15/22, Pool # 319062 .......... 204,535
-----------
384,851
-----------
TOTAL U.S. GOVERNMENT
AND AGENCY OBLIGATIONS 13,879,563
(Cost $13,734,263) -----------

ASSET-BACKED SECURITIES - 9.12%

1,000,000 Chemical Master Credit Card Trust I
Series 1993-1, Class A
5.55%, 09/15/03 ......................... 989,212
1,000,000 Ford Credit Auto Loan Master Trust
Series 1995-1, Class A
6.50%, 08/15/02 ......................... 1,012,100
1,000,000 Ford Credit Auto Owner Trust
Series 1996-A, Class A-3
6.50%, 11/15/99 ......................... 1,018,226
1,319,148 Guaranteed Export Trust Certificates
Series 1993-D, Class A-3
5.23%, 05/15/05 ......................... 1,283,453
250,000 Guaranteed Trade Trust
Series 1993-A, Class A
4.86%, 04/01/98 ......................... 249,315
1,000,000 Nationsbank Auto Owner Trust
Series 1996-A, Class A-3
6.375%, 07/15/00 ........................ 1,004,910
1,000,000 Premier Auto Trust
Series 1996-3, Class A-3
6.50%, 03/06/00 ......................... 1,009,015
1,800,000 Standard Credit Card Master Trust I
Series 1995-10, Class A
5.90%, 02/07/01 ......................... 1,803,280
-----------
TOTAL ASSET-BACKED SECURITIES ........... 8,369,511
(Cost $8,282,402) -----------
FOREIGN BONDS - 0.82%

300,000 Manitoba Province of Canada
Yankee Bond
9.13%, 01/15/18 ......................... 378,750
300,000 Manitoba Province of Canada
Yankee Bond
8.80%, 01/15/20 ......................... 372,750

TOTAL FOREIGN BONDS ..................... 751,500
(Cost $623,304) -----------

TOTAL INVESTMENTS - 98.80% 90,629,208
(Cost $89,469,320) -----------

NET OTHER ASSETS AND LIABILITIES - 1.20% 1,099,175
-----------
NET ASSETS - 100.00% $91,728,383
===========
- ---------------------------
(A) Discount yield at time of purchase.
(B) Securities exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold, in transactions exempt
from registration, to qualified institutional buyers. At October 31,
1997, these securities amounted to $1,006,900 or 1.10% of net assets.
CMO Collateralized Mortgage Obligation
MTN Medium Term Note

See Notes to Financial Statements.

-----------------
HIGH QUALITY BOND FUND
PORTFOLIO OF INVESTMENTS
THE GALAXY FUND OCTOBER 31, 1997
-----------------

VALUE
PAR VALUE (NOTE 2)
- --------- --------

U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 49.35%

U.S. TREASURY BONDS - 22.34%

$ 3,000,000 12.00%, 08/15/13 ........................ $ 997,500
5,500,000 13.25%, 05/15/14 ........................ 8,728,765
2,000,000 9.00%, 11/15/18 ......................... 2,647,320
3,000,000 7.88%, 02/15/21 ......................... 3,593,427
1,700,000 8.13%, 05/15/21 ......................... 2,090,097
6,800,000 8.13%, 08/15/21 ......................... 8,366,924
3,500,000 8.00%, 11/15/21 ......................... 4,256,560
2,000,000 7.25%, 08/15/22 ......................... 2,251,600
2,000,000 7.13%, 02/15/23 ......................... 2,223,378
5,950,000 6.63%, 02/15/27 ......................... 6,305,572
2,500,000 6.38%, 08/15/27 ......................... 2,576,563
-----------
47,432,356
-----------
FEDERAL NATIONAL
MORTGAGE ASSOCIATION - 10.04%

2,000,000 7.85%, 09/10/04 ......................... 2,081,098
3,000,000 8.50%, 02/01/05, Debenture .............. 3,155,490
1,639,428 6.50%, 05/01/06, Pool # 348137 .......... 1,649,691
2,000,000 6.64%, 07/02/07, MTN .................... 2,080,720
6,732,179 8.00%, 12/01/17, Pool # 313568 .......... 7,054,045
5,377,606 6.50%, 09/01/23, Pool # 50911 ........... 5,306,998
-----------
21,328,042
-----------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION - 8.63%

95,931 8.00%, 02/15/08, Pool # 780424 .......... 101,627
6,000,000 7.50%, 05/01/12, Pool # 422123 .......... 6,174,372
7,103,516 8.00%, 09/15/17, Pool # 7480520 ......... 7,478,673
4,441,906 7.50%, 04/15/27, Pool # 780551 .......... 4,561,283
-----------
18,315,955
-----------
U.S. GOVERNMENT BACKED BONDS - 3.02%

500,000 Farm Credit System
Financial Assistance Corp.
9.45%, 11/21/03 ......................... 518,750
1,800,000 State of Israel, Series 7-A
5.45%, 02/15/01 ......................... 1,775,250
4,000,000 Private Export Funding Corp.
6.49%, 07/15/07 ......................... 4,105,000
-----------
6,399,000
-----------
U.S. TREASURY NOTES - 2.41%

1,600,000 7.25%, 02/15/98 ......................... 1,607,376
2,500,000 5.63%, 10/31/99 ......................... 2,501,148
1,000,000 6.25%, 08/31/00 ......................... 1,013,550
-----------
5,122,074
-----------
FEDERAL HOME LOAN
MORTGAGE CORPORATION - 1.60%

3,407,000 5.65%, 11/03/97 (A) 3,405,931
-----------
U.S. TREASURY STRIP (A) - 1.31%

7,000,000 6.50%, 11/15/12 Interest, (B) 2,783,193
-----------
TOTAL U.S. GOVERNMENT
AND AGENCY OBLIGATIONS 104,786,551
(Cost $100,645,422) -----------

CORPORATE NOTES AND BONDS - 36.42%

FINANCE - 21.23%

2,000,000 Associates Corp. of North America
6.63%, 05/15/01 ......................... 2,035,000
2,000,000 Associates Corp. of North America
MTN
7.40%, 05/03/02 ......................... 2,095,000
4,000,000 Bank One Milwaukee
National Association, MTN
6.35%, 03/19/01 ......................... 4,030,000
8,300,000 CIT Group Holdings, Inc., MTN
6.20%, 06/17/99 ......................... 8,331,125
1,500,000 Caterpillar Financial Services Corp.
Series F, MTN
6.74%, 04/05/00 ......................... 1,524,375
1,500,000 Caterpillar Financial Services Corp.
Series F, MTN
6.40%, 04/16/01 ......................... 1,518,750
150,000 Chubb Corp., Debenture
8.75%, 11/15/99 ......................... 158,063
3,700,000 Comerica Bank, Subordinated Note
7.25%, 06/15/07 ......................... 3,861,875
7,500,000 Ford Motor Credit Co., Senior Note
6.50%, 02/28/02 ......................... 7,584,375
1,000,000 General Electric Capital Corp., MTN
8.13%, 02/01/99 ......................... 1,028,750
250,000 General Electric Capital Corp.
8.30%, 09/20/09 ......................... 288,125
3,600,000 Keycorp Institutional Capital Corp.
6.63%, 06/15/29, Putable 06/01/99 (C) ... 3,624,840
4,500,000 National Rural Utilities
Cooperative Finance Corp.
6.38%, 10/15/04 ......................... 4,511,250
1,300,000 Suntrust Bank of Central Florida, MTN
6.90%, 07/01/07 ......................... 1,335,750
3,000,000 Suntrust Bank, Atlanta
Subordinated Note
7.25%, 09/15/06 ......................... 3,150,000
-----------
45,077,278
-----------
CONSUMER STAPLES - 10.79%

3,600,000 Coca-Cola Enterprises, Inc.
7.00%, 11/15/99 ......................... 3,672,000
1,650,000 Coca-Cola Enterprises, Inc.
7.13%, 08/01/17 ......................... 1,689,188
3,500,000 Coca-Cola Enterprises, Inc.
6.70%, 10/15/36 ......................... 3,622,500
4,050,000 Hershey Foods Corp.
7.20%, 08/15/27 ......................... 4,217,062
2,500,000 International Business Machines Corp.
7.25%, 11/01/02 ......................... 2,621,875
250,000 Procter & Gamble Co.
8.50%, 08/10/09 ......................... 295,938
3,000,000 Sara Lee Corp., MTN
7.40%, 03/22/02 ......................... 3,135,000
3,500,000 Sysco Corp., Senior Note
7.00%, 05/01/06 ......................... 3,666,250
-----------
22,919,813
-----------
UTILITIES - 4.40%

6,500,000 GTE Florida, Inc., Series A, Debenture
6.31%, 12/15/02 ......................... 6,565,000
2,750,000 Potomac Electric Power Co
First Mortgage
6.25%, 10/15/07 ......................... 2,767,187
-----------
9,332,187
-----------
TOTAL CORPORATE NOTES AND BONDS 77,329,278
(Cost $75,564,078) -----------

ASSET-BACKED AND MORTGAGE-BACKED SECURITIES - 12.73%

10,000,000 Chase Credit Card Master Trust
Series 1997-2 , Class A
6.30%, 04/15/03 ......................... 10,087,550
6,600,000 Green Tree Financial Corp.
Series 1997-1, Class A3
6.23%, 03/15/28 ......................... 6,606,188
3,000,000 NationsBank Auto Owner Trust
Series 1996-A , Class A3
6.38%, 07/15/00 ......................... 3,014,730
4,313,422 Rural Housing Trust
Series 1987-1, Class 1-D,CMO
6.33%, 04/01/26 ......................... 4,313,422
3,000,000 Sears Credit Account Master Trust II
Series 1996-1, Class A
6.20%, 02/16/06 ......................... 3,019,518
-----------
TOTAL ASSET-BACKED AND
MORTGAGE-BACKED SECURITIES .............. 27,041,408
(Cost $26,809,288) -----------

FOREIGN BONDS - 1.49%

3,000,000 Ontario Province of Canada
Senior Note
7.38%, 01/27/03 ......................... 3,165,000
------------
TOTAL FOREIGN BONDS ..................... 3,165,000
(Cost $2,994,750) ------------

TOTAL INVESTMENTS - 99.99% ................................ 212,322,237
(Cost $206,013,524) ------------

NET OTHER ASSETS AND LIABILITIES - 0.01% .................. 24,338
------------
NET ASSETS - 100.00% ...................................... $212,346,575
============
- ------------------------------
(A) Discount yield at time of purchase.
(B) Stripped securities represent the splitting of cash flows into interest
and principal. Holders, as indicated, are entitled to that portion of
the payment representing interest only or principal only.
(C) Securities exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold, in transactions exempt
from registration, to qualified institutional buyers. At October 31,
1997, these securities amounted to $3,624,840 or 1.71% of net assets.
CMO Collateralized Mortgage Obligation
MTN Medium Term Note

See Notes to Financial Statements.
<PAGE>
<TABLE>
---------------
THE GALAXY FUND STATEMENTS OF ASSETS AND LIABILITIES
--------------- OCTOBER 31, 1997

<CAPTION>
INTERMEDIATE
SHORT-TERM GOVERNMENT CORPORATE HIGH QUALITY
BOND FUND INCOME FUND BOND FUND BOND FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost ......................................... $ 77,186,395 $ 267,622,695 $ 89,469,320 $ 206,013,524
Net unrealized appreciation (depreciation) .................. 517,467 3,949,801 1,159,888 6,308,713
------------- ------------- ------------- -------------
Total investments at value ................................ 77,703,862 271,572,496 90,629,208 212,322,237
Cash ...................................................... 481 775 750 485
Receivable for investments sold ............................... -- 3,062,813 1,012,935 6,140,596
Receivable for shares sold .................................... 363,873 698,508 1,156 237,487
Interest and dividend receivables ............................. 847,751 3,556,091 1,519,642 3,037,348
Receivable from Investment Advisor (Note 4) ................... 606 -- -- --
Deferred organizational expense (Note 2) ...................... -- -- 8,325 --
------------- ------------- ------------- -------------
Total Assets .............................................. 78,916,573 278,890,683 93,172,016 221,738,153
------------- ------------- ------------- -------------
LIABILITIES:
Dividends payable .......................................... 156,647 860,846 226,668 116,936
Payable for investments purchased .......................... -- 2,929,375 1,073,281 8,732,188
Payable for shares redeemed ................................ 3,337 63,361 75,861 357,143
Advisory fee payable (Note 3) .............................. 36,816 127,026 42,291 101,031
Payable to Fleet affiliates (Note 3) ....................... 8,475 10,176 3,650 18,906
Payable to Administrator (Note 3) .......................... 7,149 40,661 11,908 16,587
Trustees' fees and expenses payable (Note 3) ............... 1,342 4,254 8,720 2,840
Accrued expenses and other payables ........................ -- 14,655 1,254 45,947
------------- ------------- ------------- -------------
Total Liabilities ...................................... 213,766 4,050,354 1,443,633 9,391,578
------------- ------------- ------------- -------------
NET ASSETS .................................................... $ 78,702,807 $ 274,840,329 $ 91,728,383 $ 212,346,575
============= ============= ============= =============
NET ASSETS CONSIST OF:
Par value (Note 5) ......................................... $ 7,863 $ 26,987 $ 8,627 $ 19,837
Paid-in capital in excess of par value ..................... 84,023,589 297,450,956 93,280,826 208,724,970
Undistributed net investment income ........................ 190,129 678,013 265,994 204,729
Accumulated net realized gain (loss) on investments sold ... (6,036,241) (27,265,428) (2,986,952) (2,911,674)
Net unrealized appreciation (depreciation) of investments .. 517,467 3,949,801 1,159,888 6,308,713
------------- ------------- ------------- -------------
TOTAL NET ASSETS .............................................. $ 78,702,807 $ 274,840,329 $ 91,728,383 $ 212,346,575
============= ============= ============= =============
Retail A Shares:
Net Assets ................................................. $ 27,961,156 $ 65,625,765 $ -- $ 27,950,038
Shares of beneficial interest outstanding .................. 2,793,617 6,443,770 -- 2,611,095
NET ASSET VALUE and redemption price per share ............. $ 10.01 $ 10.18 $ -- $ 10.70
Sales charge-- 3.75% of offering price ..................... 0.39 0.40 -- 0.42
------------- ------------- ------------- -------------
Maximum offering price per share ........................... $ 10.40 $ 10.58 $ -- $ 11.12
============= ============= ============= =============
Retail B Shares:
Net Assets ................................................. $ 904,888 $ N/A $ N/A $ 1,998,224
Shares of beneficial interest outstanding .................. 90,407 N/A N/A 186,672
------------- ------------- ------------- -------------
NET ASSET VALUE and offering price per share* .............. $ 10.01 $ N/A $ N/A $ 10.70
============= ============= ============= =============
Trust Shares:
Net Assets ................................................. $ 49,836,763 $ 209,214,564 $ 91,728,383 $ 182,398,313
Shares of beneficial interest outstanding .................. 4,979,085 20,542,780 8,627,190 17,038,805
------------- ------------- ------------- -------------
NET ASSET VALUE, offering and redemption price per share ... $ 10.01 $ 10.18 $ 10.63 $ 10.70
============= ============= ============= =============
- --------------------------------------------------------------------
*Redemption price per share is equal to the Net Asset Value per share less any applicable contingent deferred sales charge.
</TABLE>

See Notes to Financial Statements.
<PAGE>
<TABLE>
---------------
THE GALAXY FUND STATEMENTS OF OPERATIONS
--------------- FOR THE YEAR ENDED OCTOBER 31, 1997

<CAPTION>
INTERMEDIATE
SHORT-TERM GOVERNMENT CORPORATE HIGH QUALITY
BOND FUND INCOME FUND BOND FUND BOND FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest (Note 2) .......................................... $ 5,380,866 $ 19,315,032 $ 6,519,383 $ 13,373,902
------------- ------------- ------------- -------------
Total Investment income ................................ 5,380,866 19,315,032 6,519,383 13,373,902
------------- ------------- ------------- -------------
EXPENSES:
Investment advisory fee (Note 3) ........................... 641,382 2,093,407 692,447 1,485,689
Administration fee (Note 3) ................................ 69,851 227,963 75,411 161,732
Custodian fee .............................................. 11,570 16,355 20,740 17,087
Fund accounting fee (Note 3) ............................... 36,162 48,957 48,413 52,134
Legal fee (Note 3) ......................................... 4,637 12,005 4,820 8,795
Audit fee .................................................. 17,683 17,438 13,804 18,778
Transfer agent fee (Note 3) ................................ 76,376 194,031 43,529 341,786
12b-1 fee (Note 3) ......................................... 4,231 -- -- 9,374
Shareholder services fee (Note 3) .......................... 43,131 102,805 -- 35,749
Trustees' fees and expenses (Note 3) ....................... 1,838 4,160 2,205 3,839
Amortization of organization costs (Note 2) ................ 600 -- 3,938 880
Reports to shareholders .................................... 26,139 59,633 6,205 27,562
Registration fees .......................................... 10,050 11,383 4,059 22,693
Insurance .................................................. 771 2,485 1,129 2,086
Miscellaneous .............................................. 14,497 21,628 2,636 20,333
------------- ------------- ------------- -------------
Total expenses before reimbursement/waiver ............. 958,918 2,812,250 919,336 2,208,517
------------- ------------- ------------- -------------
Less: reimbursement/waiver (Note 4) .................... (173,335) (558,241) (184,653) (424,672)
------------- ------------- ------------- -------------
Total expenses net of reimbursement/waiver ............. 785,583 2,254,009 734,683 1,783,845
------------- ------------- ------------- -------------
NET INVESTMENT INCOME ......................................... 4,595,283 17,061,023 5,784,700 11,590,057
------------- ------------- ------------- -------------
NET REALIZED AND UNREALIZED
GAIN(LOSS) ON INVESTMENTS (Note 2):
Net realized gain (loss) on investments sold ............... 52,173 1,223,187 (409,194) 1,790,921
Net change in unrealized appreciation
of investments ........................................... 11,015 1,852,671 1,291,642 2,914,586
------------- ------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS ............................................. 63,188 3,075,858 882,448 4,705,507
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .................................. $ 4,658,471 $ 20,136,881 $ 6,667,148 $ 16,295,564
============= ============= ============= =============
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>

---------------
THE GALAXY FUND STATEMENTS OF CHANGES IN NET ASSETS
---------------

See Notes to Financial Statements.
<PAGE>

---------------
THE GALAXY FUND STATEMENTS OF CHANGES IN NET ASSETS
---------------

<TABLE>
<CAPTION>
CORPORATE BOND FUND HIGH QUALITY BOND FUND
------------------------------ ------------------------------
YEARS ENDED OCTOBER 31,
----------------------------------------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET ASSETS AT BEGINNING OF PERIOD ............................. $ 107,727,788 $ 37,390,970 $ 180,704,892 $ 164,723,305
------------- ------------- ------------- -------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income ...................................... 5,784,700 6,739,925 11,590,057 9,922,239
Net realized gain (loss) on investments sold ............... (409,194) 1,258,135 1,790,921 1,020,018
Net change in unrealized appreciation (depreciation)
of investments ........................................... 1,291,642 (2,341,149) 2,914,586 (3,640,756)
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations ..... 6,667,148 5,656,911 16,295,564 7,301,501
------------- ------------- ------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM:
RETAIL A SHARES:
Net investment income .................................... -- -- (1,654,569) (1,722,962)
Dividends in excess of net investment income ............. -- -- -- --
------------- ------------- ------------- -------------
Total Dividends ........................................ -- -- (1,654,569) (1,722,962)
============= ============= ============= =============
RETAIL B SHARES:
Net investment income .................................... N/A N/A (59,668) (12,988)
------------- ------------- ------------- -------------
Total Dividends ........................................ N/A N/A (59,668) (12,988)
============= ============= ============= =============
TRUST SHARES:
Net investment income .................................... (5,784,700) (6,740,091) (9,875,820) (8,186,289)
Net realized gain on investments ......................... (94,588) (269,505) -- --
------------- ------------- ------------- -------------
Total Dividends ........................................ (5,879,288) (7,009,596) (9,875,820) (8,186,289)
------------- ------------- ------------- -------------
Total Dividends to shareholders ............................ (5,879,288) (7,009,596) (11,590,057) (9,922,239)
------------- ------------- ------------- -------------
NET INCREASE FROM SHARE TRANSACTIONS(1) ....................... (16,787,265) 71,689,503 26,936,176 18,602,325
------------- ------------- ------------- -------------
Net increase in net assets ............................... (15,999,405) 70,336,818 31,641,683 15,981,587
------------- ------------- ------------- -------------
NET ASSETS AT END OF PERIOD (INCLUDING LINE A) ................ $ 91,728,383 $ 107,727,788 $ 212,346,575 $ 180,704,892
============= ============= ============= =============
(A) Undistributed net investment income ....................... $ 265,994 $ 224,825 $ 204,729 $ 121,385
============= ============= ============= =============
- -----------------------
(1) For detail on share transactions by series, see Statements of Changes in Net Assets - Capital Stock Activity on pages 24
and 25.
</TABLE>

See Notes to Financial Statements.
<PAGE>
<TABLE>

---------------
THE GALAXY FUND STATEMENTS OF CHANGES IN NET ASSETS -
--------------- CAPITAL STOCK ACTIVITY

<CAPTION>
INTERMEDIATE GOVERNMENT
SHORT-TERM BOND FUND INCOME FUND
------------------------------ ------------------------------
YEARS ENDED OCTOBER 31,
----------------------------------------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
DOLLAR AMOUNTS
RETAIL A SHARES:
Sold ....................................................... $ 3,995,870 $ 9,555,879 $ 3,669,282 $ 10,050,205
Issued in connection with acquisition (Note 7) ............. -- 7,787,792 -- 10,486,443
Issued to shareholders in reinvestment of dividends ........ 1,346,681 1,599,869 3,067,104 3,514,752
Repurchased ................................................ (10,793,787) (16,939,526) (21,570,468) (22,121,133)
------------- ------------- ------------- -------------
Net increase (decrease) in shares outstanding ............ $ (5,451,236) $ 2,004,014 $ (14,834,082) $ 1,930,267
============= ============= ============= =============
RETAIL B SHARES:
Sold ....................................................... $ 999,153 $ 301,660 N/A N/A
Issued to shareholders in reinvestment of dividends ........ 21,269 5,137 N/A N/A
Repurchased ................................................ (379,826) (47,553) N/A N/A
------------- ------------- ------------- -------------
Net increase in shares outstanding ....................... $ 640,596 $ 259,244 N/A N/A
============= ============= ============= =============
TRUST SHARES:
Sold ....................................................... $ 24,394,847 $ 42,871,945 $ 36,370,300 $ 34,811,806
Issued in connection with acquisition (Note 7) ............. -- 30,804,627 -- 46,190,350
Issued to shareholders in reinvestment of dividends ........ 1,265,211 1,175,479 3,566,591 3,100,671
Repurchased ................................................ (34,085,253) (51,413,583) (46,829,147) (52,076,826)
------------- ------------- ------------- -------------
Net increase (decrease) in shares outstanding ............ $ (8,425,195) $ 23,438,468 $ (6,892,256) $ 32,026,001
============= ============= ============= =============
SHARE ACTIVITY
RETAIL A SHARES:
Sold ....................................................... 400,607 972,793 365,080 1,020,915
Issued in connection with acquisition (Note 7) ............. -- 769,928 -- 1,010,018
Issued to shareholders in reinvestment of dividends ........ 135,211 160,014 305,443 347,896
Repurchased ................................................ (1,083,470) (1,697,523) (2,150,492) (2,195,110)
------------- ------------- ------------- -------------
Net increase (decrease) in shares outstanding ............ (547,652) 205,212 (1,479,969) 183,719
============= ============= ============= =============
RETAIL B SHARES:
Sold ....................................................... 100,387 30,291 N/A N/A
Issued to shareholders in reinvestment of dividends ........ 2,134 517 N/A N/A
Repurchased ................................................ (38,137) (4,785) N/A N/A
------------- ------------- ------------- -------------
Net increase in shares outstanding ....................... 64,384 26,023 N/A N/A
============= ============= ============= =============
TRUST SHARES:
Sold ....................................................... 2,446,322 4,305,171 3,618,274 3,525,379
Issued in connection with acquisition (Note 7) ............. -- 3,042,900 -- 4,449,125
Issued to shareholders in reinvestment of dividends ........ 127,027 117,626 355,211 306,699
Repurchased ................................................ (3,421,147) (5,127,353) (4,670,476) (5,140,526)
------------- ------------- ------------- -------------
Net increase (decrease) in shares outstanding .............. (847,798) 2,338,344 (696,991) 3,140,677
============= ============= ============= =============
</TABLE>

See Notes to Financial Statements.
<PAGE>
<TABLE>

---------------
THE GALAXY FUND STATEMENTSOFCHANGESINNET ASSETS -
--------------- CAPITAL STOCK ACTIVITY (CONTINUED)

<CAPTION>
CORPORATE BOND FUND HIGH QUALITY BOND FUND
------------------------------ ------------------------------
YEARS ENDED OCTOBER 31,
----------------------------------------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
DOLLAR AMOUNTS
RETAIL A SHARES:
Sold ....................................................... $ -- $ -- $ 4,361,984 $ 11,663,127
Issued to shareholders in reinvestment of dividends ........ -- -- 1,329,363 1,325,701
Repurchased ................................................ -- -- (9,321,623) (11,581,369)
------------- ------------- ------------- -------------
Net increase in shares outstanding ......................... $ -- $ -- $ (3,630,276) $ 1,407,459
============= ============= ============= =============
RETAIL B SHARES:
Sold ....................................................... N/A N/A $ 1,462,738 $ 650,504
Issued to shareholders in reinvestment of dividends ........ N/A N/A 51,636 11,298
Repurchased ................................................ N/A N/A (210,602) (25,139)
------------- ------------- ------------- -------------
Net increase in shares outstanding ......................... N/A N/A $ 1,303,772 $ 636,663
============= ============= ============= =============
TRUST SHARES:
Sold ....................................................... $ 18,295,070 $ 20,658,393 $ 79,880,780 $ 49,925,801
Issued in connection with acquisition (Note 7) ............. -- 88,144,360 -- --
Issued to shareholders in reinvestment of dividends ........ 3,007,004 3,047,222 6,532,304 5,272,956
Repurchased ................................................ (38,089,339) (40,160,472) (57,150,404) (38,640,554)
------------- ------------- ------------- -------------
Net increase in shares outstanding ......................... $ (16,787,265) $ 71,689,503 $ 29,262,680 $ 16,558,203
============= ============= ============= =============
SHARE ACTIVITY
RETAIL A SHARES:
Sold ....................................................... -- -- 416,980 1,104,626
Issued to shareholders in reinvestment of dividends ........ -- -- 127,282 126,818
Repurchased ................................................ -- -- (893,411) (1,101,738)
------------- ------------- ------------- -------------
Net increase in shares outstanding ......................... -- -- (349,149) 129,706
============= ============= ============= =============
RETAIL B SHARES:
Sold ....................................................... N/A N/A 140,116 63,032
Issued to shareholders in reinvestment of dividends ........ N/A N/A 4,930 1,098
Repurchased ................................................ N/A N/A (20,125) (2,379)
------------- ------------- ------------- -------------
Net increase in shares outstanding ......................... N/A N/A 124,921 61,751
============= ============= ============= =============
TRUST SHARES:
Sold ....................................................... 1,749,086 2,097,643 7,652,225 4,770,415
Issued in connection with acquisition (Note 7) ............. -- 8,188,057 -- --
Issued to shareholders in reinvestment of dividends ........ 287,115 289,501 624,915 504,257
Repurchased ................................................ (3,637,846) (3,827,076) (5,480,793) (3,695,189)
------------- ------------- ------------- -------------
Net increase in shares outstanding ......................... (1,601,645) 6,748,125 2,796,347 1,579,483
============= ============= ============= =============
</TABLE>

See Notes to Financial Statements.
<PAGE>
<TABLE>
--------------- SHORT-TERM BOND FUND
THE GALAXY FUND FINANCIAL HIGHLIGHTS
--------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.

Income from Investment Operations:
Net investment income (A) .................................. 0.53 0.52 0.55 0.44 0.47
Net realized and unrealized gain (loss) on investments ..... 0.02 (0.07) 0.33 (0.51) 0.22
------- ------- ------- ------- -------
Total from Investment Operations: ........................ 0.55 0.45 0.88 (0.07) 0.69
------- ------- ------- ------- -------
Less Dividends:
Dividends from net investment income ....................... (0.53) (0.52) (0.55) (0.44) (0.47)
Dividends from net realized capital gains .................. -- -- -- -- (0.01)
Dividends in excess of net realized capital gains .......... -- -- -- (0.06) --
------- ------- ------- ------- -------
Total Dividends: ......................................... (0.53) (0.52) (0.55) (0.50) (0.48)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value ................... 0.02 (0.07) 0.33 (0.57) 0.21
------- ------- ------- ------- -------
Net Asset Value, End of Period ............................... $ 10.01 $ 9.99 $ 10.06 $ 9.73 $ 10.30
======= ======= ======= ======= =======
Total Return(3) .............................................. 5.64% 4.63% 9.28% (0.68)% 6.98%

Ratios/Supplemental Data:
Net Assets, End of Period (000's) ............................ $27,961 $33,388 $31,542 $34,061 $85,211
Ratios to average net assets:
Net investment income including
reimbursement/waiver ..................................... 5.29% 5.22% 5.54% 4.43% 4.51%
Operating expenses including reimbursement/waiver ........ 1.00% 1.11% 0.99% 0.93% 0.86%
Operating expenses excluding reimbursement/waiver ........ 1.21% 1.35% 1.32% 1.14% 1.06%
Portfolio Turnover Rate ...................................... 173% 214% 289% 233% 100%
- -----------------------------------------------------------------------
* 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 the effect of any sales charge for Retail A Shares and Retail B Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the Investment Advisor and/or Administrator for
Retail A Shares for the years ended October 31, 1997, 1996, 1995, 1994, and 1993 were $0.51, $0.50, $0.52, $0.42, and
$0.45, respectively. Net investment income per share before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Trust Shares for the years ended October 31, 1997, 1996, 1995, 1994 and 1993 were $0.52, $0.53, $0.54,
$0.42 and $0.45, respectively. Net investment income per share before reimbursement/waiver of fees by the Investment
Advisor and/or Administrator for Retail B Shares for the years ended October 31, 1997 and 1996, were $0.44 and $0.29,
respectively.
</TABLE>

See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
TRUST SHARES
YEARS ENDED OCTOBER 31, RETAIL B SHARES
----------------------------------------------------------- YEAR ENDED PERIOD ENDED
1997 1996 1995 1994 1993(1) OCTOBER 31, 1997 OCTOBER 31, 1996(2)
----- ------ ------ ------ ------ ---------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ................ $ 9.99 $10.06 $ 9.73 $10.30 $10.09 $ 9.99 $10.09
------ ------ ------ ------ ------ ------ ------

Income from Investment
Operations:
Net investment income (A) 0.54 0.55 0.57 0.44 0.47 0.46 0.31
Net realized and
unrealized gain (loss)
on investments ........ 0.02 (0.07) 0.33 (0.51) 0.22 0.03 (0.10)
------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations: ......... 0.56 0.48 0.90 (0.07) 0.69 0.49 0.21
------ ------ ------ ------ ------ ------ ------
Less Dividends:
Dividends from net
investment income ..... (0.54) (0.55) (0.57) (0.44) (0.47) (0.47) (0.31)
Dividends from net realized
capital gains ......... -- -- -- -- (0.01) -- --
Dividends in excess of
net realized capital
gains ................. -- -- -- (0.06) -- -- --
------ ------ ------ ------ ------ ------ ------
Total Dividends: ...... (0.54) (0.55) (0.57) (0.50) (0.48) (0.47) (0.31)
------ ------ ------ ------ ------ ------ ------
Net increase (decrease)
in net asset value ...... 0.02 (0.07) 0.33 (0.57) 0.21 0.02 (0.10)
------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period .................. $10.01 $ 9.99 $10.06 $ 9.73 $10.30 $10.01 $ 9.99
====== ====== ====== ====== ====== ====== ======
Total Return(3) ........... 5.77% 4.91% 9.55% (0.66)% 6.98% 4.99% 2.12%**

Ratios/Supplemental Data:
Net Assets, End of Period
(000's) ................. $49,837 $58,227 $35,088 $39,843 $85,211 $ 905 $ 260
Ratios to average net assets:
Net investment income
including reimbursement/
waiver ................ 5.43% 5.49% 5.79% 4.45% 4.51% 4.56% 4.73%*
Operating expenses
including reimbursement/
waiver .............. 0.86% 0.84% 0.74% 0.91% 0.86% 1.75% 1.77%*
Operating expenses
excluding reimbursement/
waiver .............. 1.07% 1.08% 1.02% 1.11% 1.06% 2.01% 1.98%*
Portfolio Turnover Rate ... 173% 214% 289% 233% 100% 173% 214%
</TABLE>
<PAGE>
<TABLE>

--------------- INTERMEDIATE GOVERNMENT INCOME FUND
THE GALAXY FUND FINANCIAL HIGHLIGHTS
--------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.

RETAIL A SHARES
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993(1)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .......................... $ 10.06 $ 10.28 $ 9.68 $ 10.72 $ 10.83
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income (A) .................................. 0.59 0.57 0.61 0.57 0.65
Net realized and unrealized gain (loss) on investments ..... 0.12 (0.22) 0.60 (1.03) 0.10
------- ------- ------- ------- -------
Total from Investment Operations: ........................ 0.71 0.35 1.21 (0.46) 0.75
------- ------- ------- ------- -------
Less Dividends:
Dividends from net investment income ....................... (0.59) (0.57) (0.61) (0.56) (0.64)
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: ......................................... (0.59) (0.57) (0.61) (0.58) (0.86)
------- ------- ------- ------- -------
Net increase (decrease) in net asset value .................... 0.12 (0.22) 0.60 (1.04) (0.11)
------- ------- ------- ------- -------
Net Asset Value, End of Period ................................ $ 10.18 $ 10.06 $ 10.28 $ 9.68 $ 10.72
======= ======= ======= ======= =======
Total Return(2) ............................................... 7.33% 3.58% 12.85% (4.42)% 7.06%

Ratios/Supplemental Data:
Net Assets, End of Period (000's) ............................. $65,626 $79,741 $79,558 $94,669 $447,359
Ratios to average net assets:
Net investment income including reimbursement/
waiver .................................................... 5.90% 5.69% 6.10% 5.58% 6.03%
Operating expenses including reimbursement/waiver .......... 1.02% 1.04% 1.02% 0.78% 0.80%
Operating expenses excluding reimbursement/waiver .......... 1.22% 1.24% 1.26% 0.99% 1.00%
Portfolio Turnover Rate ....................................... 128% 235% 145% 124% 153%
- ------------------------------------------------------------------------
(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 the effect of any sales charge for Retail A Shares.
(A) Net investment income per share before reimbursement/waiver of fees by the Investment Advisor and/or Administrator for
Retail A Shares for the years ended October 31, 1997, 1996, 1995, 1994, and 1993 were $0.57, $0.55, $0.58, $0.54, and
$0.63, respectively. Net investment income per share before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for Trust Shares for the years ended October 31, 1997, 1996, 1995,1994 and 1993 were $0.60, $0.58, $0.62
$0.54 and $0.63, respectively.
</TABLE>

See Notes to Financial Statements.
<PAGE>

TRUST SHARES
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993(1)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $ 10.06 $ 10.28 $ 9.68 $ 10.72 $ 10.83
---------- ---------- ---------- ---------- ----------
Income from Investment Operations:
Net investment income (A) .......... 0.62 0.60 0.64 0.57 0.65
Net realized and unrealized gain
(loss) on investments ............ 0.12 (0.22) 0.60 (1.03) 0.10
---------- ---------- ---------- ---------- ----------
Total from Investment Operations: 0.74 0.38 1.24 (0.46) 0.75
---------- ---------- ---------- ---------- ----------
Less Dividends:
Dividends from net investment
income ........................... (0.62) (0.60) (0.64) (0.56) (0.64)
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: ................. (0.62) (0.60) (0.64) (0.58) (0.86)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
asset value ......................... 0.12 (0.22) 0.60 (1.04) (0.11)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ........ $ 10.18 $ 10.06 $ 10.28 $ 9.68 $ 10.72
========== ========== ========== ========== ==========
Total Return(2) ....................... 7.63% 3.88% 13.18% (4.39)% 7.06%

Ratios/Supplemental Data:
Net Assets, End of Period (000's) ..... $ 209,215 $ 213,750 $ 186,037 $ 212,144 $ 447,359
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............. 6.19% 5.98% 6.39% 5.61% 6.03%
Operating expenses including
reimbursement/waiver ............. 0.74% 0.75% 0.73% 0.75% 0.80%
Operating expenses excluding
reimbursement/waiver ............. 0.94% 0.95% 0.94% 0.95% 1.00%
Portfolio Turnover Rate ............... 128% 235% 145% 124% 153%
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>

--------------- CORPORATE BOND FUND
THE GALAXY FUND FINANCIAL HIGHLIGHTS
--------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.

TRUST SHARES

<CAPTION>
YEARS ENDED OCTOBER 31,
-------------------------- PERIOD ENDED
1997 1996 OCTOBER 31, 1995(1)
----------- ----------- ------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period .................... $ 10.53 $ 10.74 $ 10.00
----------- ----------- -----------
Income from Investment Operations:
Net investment income (A) ............................ 0.66 0.64 0.61
Net realized and unrealized gain (loss) on investments 0.11 (0.13) 0.74
----------- ----------- -----------
Total from Investment Operations: .................. 0.77 0.51 1.35
----------- ----------- -----------
Less Dividends:
Dividends from net investment income ................. (0.66) (0.64) (0.61)
Dividends from net realized capital gains ............ (0.01) (0.08) --
----------- ----------- -----------
Total Dividends: ................................... (0.67) (0.72) (0.61)
----------- ----------- -----------
Net increase (decrease) in net asset value .............. 0.10 (0.21) 0.74
----------- ----------- -----------
Net Asset Value, End of Period .......................... $ 10.63 $ 10.53 $ 10.74
=========== =========== ===========
Total Return ............................................ 7.56% 5.00% 13.85%**

Ratios/Supplemental Data:
Net Assets, End of Period (000's) ....................... $ 91,728 $ 107,728 $ 37,391
Ratios to average net assets:
Net investment income including
reimbursement/waiver ............................... 6.27% 6.13% 6.61%*
Operating expenses including
reimbursement/waiver ............................... 0.80% 0.85% 1.06%*
Operating expenses excluding
reimbursement/waiver ............................... 1.00% 1.05% 1.26%*
Portfolio Turnover Rate ................................. 37% 84% 41%**
- ---------------------------------------------------------------------
* 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 Advisor and/or
Administrator for the years ended October 31, 1997 and 1996 and for the period ended October 31, 1995 were $0.64, $ 0.62
and $ 0.57, respectively.
</TABLE>

See Notes to Financial Statements.
<PAGE>
<TABLE>

--------------- HIGH QUALITY BOND FUND
THE GALAXY FUND FINANCIALHIGHLIGHTS
--------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.

RETAIL A SHARES
<CAPTION>
YEARS ENDED OCTOBER 31,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993(1)
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .............. $ 10.47 $ 10.63 $ 9.54 $ 11.37 $ 10.60
------------- ------------- ------------- ------------- --------------
Income from Investment Operations:
Net investment income (A) ...................... 0.60 0.59 0.62 0.64 0.66
Net realized and unrealized gain (loss
on investments .............................. 0.23 (0.16) 1.09 (1.56) 0.93
------------- ------------- ------------- ------------- --------------
Total from Investment Operations: .......... 0.83 0.43 1.71 (0.92) 1.59
------------- ------------- ------------- ------------- --------------
Less Dividends:
Dividends from net investment income ........... (0.60) (0.59) (0.62) (0.64) (0.66)
Dividends from net realized capital gains ...... -- -- -- -- (0.16)
Dividends in excess of net realized capital
gains ......................................... -- -- -- (0.27) --
------------- ------------- ------------- ------------- --------------
Total Dividends: ........................... (0.60) (0.59) (0.62) (0.91) (0.82)
------------- ------------- ------------- ------------- --------------
Net increase (decrease) in net asset value ........ 0.23 (0.16) 1.09 (1.83) 0.77
------------- ------------- ------------- ------------- --------------
Net Asset Value, End of Period .................... $ 10.70 $ 10.47 $ 10.63 $ 9.54 $ 11.37
============= ============= ============= ============= ==============
Total Return(2) ................................... 8.22% 4.24% 18.46% (8.41)% 15.63%

Ratios/Supplemental Data:
Net Assets, End of Period (000's) ................ $ 27,950 $ 30,984 $ 30,093 $ 26,654 $ 162,594
Ratios to average net assets:
Net investment income including
reimbursement/waiver ......................... 5.73% 5.66% 6.16% 6.25% 5.98%
Operating expenses including
reimbursement/waiver ......................... 1.01% 1.07% 1.02% 0.81% 0.76%
Operating expenses excluding
reimbursement/waiver ......................... 1.21% 1.28% 1.26% 1.02% 0.96%
Portfolio Turnover Rate ........................... 182% 163% 110% 108% 128%

- -----------------------------------------------------------------
(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 Share and Trust Shares.
(2) Calculation does not include the effect of any sales charge for Retail A Shares.
(A) Net investment income per share for Retail A Shares before reimbursement/waiver of fees by the Investment Advisor and/o
Administrator for the years ended October 31, 1997, 1996, 1995, 1994, and 1993 were $0.58, $ 0.57, $ 0.59, $ 0.62, and
$ 0.63, respectively.
</TABLE>

See Notes to Financial Statements.
<PAGE>
<TABLE>
--------------- HIGH QUALITY BOND FUND
THE GALAXY FUND FINANCIAL HIGHLIGHTS
--------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
TRUST SHARES
YEARS ENDED OCTOBER 31, RETAIL B SHARES PERIOD ENDED
----------------------------------------------------- YEAR ENDED OCTOBER 31,
1997 1996 1995 1994 1993(1) OCTOBER 31, 1997 1996(2)
------ ------ ------ ------ -------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ............. $ 10.47 $ 10.63 $ 9.54 $ 11.37 $ 10.60 $ 10.47 $ 10.72
-------- -------- -------- -------- -------- ------- -------
Income from
Investment Operations:
Net investment
income (A) .................... 0.61 0.62 0.64 0.65 0.66 0.53 0.36
Net realized and unrealized
gain (loss) on investments .... 0.23 (0.16) 1.09 (1.56) 0.93 0.24 (0.25)
-------- -------- -------- -------- -------- ------- -------
Total from Investment
Operations: ............... 0.84 0.46 1.73 (0.91) 1.59 0.77 0.11
-------- -------- -------- -------- -------- ------- -------
Less Dividends:
Dividends from
net investment income ......... (0.61) (0.62) (0.64) (0.65) (0.66) (0.54) (0.36)
Dividends from net
realized capital gains ........ -- -- -- -- (0.16) -- --
Dividends in excess of
net realized capital gains .... -- -- -- (0.27) -- -- --
-------- -------- -------- -------- -------- ------- -------
Total Dividends: ............ (0.61) (0.62) (0.64) (0.92) (0.82) (0.54) (0.36)
-------- -------- -------- -------- -------- ------- -------
Net increase (decrease)
in net asset value .............. 0.23 (0.16) 1.09 (1.83) 0.77 0.23 (0.25)
-------- -------- -------- -------- -------- ------- -------
Net Asset Value,
End of Period ................... $ 10.70 $ 10.47 $ 10.63 $ 9.54 $ 11.37 $ 10.70 $ 10.47
======== ======== ======== ======== ======== ======= =======
Total Return(3) .................... 8.36% 4.46% 18.66% (8.39)% 15.63% 7.59% 1.14%**

Ratios/Supplemental Data:
Net Assets, End of Period (000's) $182,398 $149,075 $134,631 $118,776 $162,594 $ 1,998 $ 646
Ratios to average net assets:
Net investment income
including reimbursement/
waiver ........................ 5.88% 5.88% 6.33% 6.28% 5.98% 5.07% 5.34%*
Operating expenses
including reimbursement/
waiver ........................ 0.87% 0.85% 0.85% 0.78% 0.76% 1.69% 1.60%*
Operating expenses excluding
reimbursement/waiver .......... 1.09% 1.06% 1.07% 0.98% 0.96% 1.95% 1.81%*
Portfolio Turnover Rate ............ 182% 163% 110% 108% 128% 182% 163%

- ------------------------------------------------------------------------
* 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 the effect of any sales charge for Retail B Shares.
(A) Net investment income per share for Trust Shares before reimbursement/waiver of fees by the Investment Advisor and/or
Administrator for the years ended October 31, 1997, 1996, 1995, 1994, and 1993 were $0.59, $0.60, $0.62, $0.63, and $0.63,
respectively. Net investment income per share for Retail B Shares before reimbursement/waiver of fees by the Investment
Advisor and/or Administrator for the years ended October 31, 1997 and 1996 were $0.51 and $0.34, respectively.
</TABLE>
See Notes to Financial Statements.
<PAGE>

---------------
THE GALAXY FUND NOTES TO FINANCIAL STATEMENTS
---------------

1. ORGANIZATION

The Galaxy Fund, a Massachusetts business trust (the "Trust"), is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end 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/or 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 approximates
fair value. 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 continue 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.

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 deferred and 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 Advisor" or
"Fleet"), an indirect wholly-owned subsidiary of Fleet Financial Group, Inc.,
are parties to an investment advisory agreement under which the Investment
Advisor 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. ("Investor Services
Group"), a wholly-owned subsidiary of First Data Corporation, are parties to an
administration agreement under which Investor Services Group (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 statements are provided in separate reports), 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, Investor Services Group 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, 0.085% of the next $2.5 billion
of combined average daily net assets and 0.08% of combined average daily net
assets over $5 billion.

In addition, Investor Services Group also provides certain fund accounting,
custody administration and transfer agency services pursuant to certain fee
arrangements. Pursuant to these fee arrangements, Investor Services Group
compensates the Trust's custodian bank, Chase Manhattan Bank, N.A. for its
services.

First Data Distributors, Inc. (the "Distributor"), a wholly-owned
subsidiary of Investor Services Group and an indirect wholly-owned subsidiary of
First Data Corporation, serves as the distributor of the Trust's shares.

The Trust has adopted a shareholder services plan ("Services Plan") with
respect to Retail A Shares and Trust Shares of the Funds. Currently, the
Services Plan has not been implemented with respect to the 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 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 primarily 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 under the
12b-1 Plan for distribution services are being made solely to broker-dealer
affiliates of Fleet Bank and payments under the 12b-1 Plan for shareholder
liason and administrative support services 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 net assets attributable to each of the Funds'
outstanding Retail B Shares. The fees paid for shareholder liaison services and
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, 1997, the Funds paid shareholder servicing and related fees and/or
distribution fees under the Services Plan and 12b-1 Plan as follows:

SERVICES 12B-1 PLAN
FUND PLAN SERVICES DISTRIBUTION
---- ---- -----------------------------

Short-Term Bond .............. $ 43,131 $ 788 $ 3,443
Intermediate
Government Income ........... 102,805 N/A N/A
High Quality Bond ............ 35,749 1,729 7,645

Retail A Shares, Trust Shares and, effective March 1, 1996, Retail B Shares
of the Funds each bear series specific transfer agent charges based upon the
number of shareholder accounts for each series. In addition, Trust Shares also
bear additional transfer agency fees in order to compensate Investor Services
Group for payments made to Fleet Bank, an affiliate of the Investment Advisor,
for performing certain sub-accounting and administrative functions on a per
account basis with respect to Trust Shares held by defined contribution plans.
These additional fees are based on the number of shareholder accounts. For the
year ended October 31, 1997, transfer agent charges for each series were as
follows:

FUND RETAIL A RETAIL B TRUST
---- -------- -------- ------

Short-Term Bond $ 26,063 $1,260 $ 49,053
Intermediate
Government Income 123,098 -- 70,933
Corporate Bond -- -- 43,529
High Quality Bond 48,904 2,702 290,180

Certain officers of the Trust may be officers of the Administrator. Such
officers receive no compensation from the Trust for serving in their respective
roles. No officer, director or employee of the Investment Advisor serves as an
officer, Trustee or employee of the Trust. Each Trustee is entitled to receive
for services as a trustee of the Trust, The Galaxy VIP Fund ("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. Prior to November 1, 1996, each Trustee was entitled to
receive for services as a trustee of the Trust and 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.

Each Trustee is 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. On January 1,
1997, the Plan was merged into a combined Deferred Compensation Plan for the
Trust, VIP and Galaxy II.

Expenses for the year ended October 31, 1997 include legal fees paid to
Drinker Biddle & Reath LLP. A partner of that firm is Secretary to the Trust.

4. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES

The Investment Advisor voluntarily agreed to waive a portion of its fees
and to reimburse the Funds for certain expenses so that total expenses would not
exceed certain expense limitations established for each series. The Investment
Advisor may revise or discontinue the voluntary fee waivers and expense
reimbursements at any time. For the year ended October 31, 1997, the Investment
Advisor waived fees and/or reimbursed expenses with respect to the Funds in the
following amounts:

FEES WAIVED REIMBURSEMENT
BY INVESTMENT BY INVESTMENT
FUND ADVISOR ADVISOR
- ---- ---------- ----------

Short-Term Bond ......... $ 171,035 $ 2,300
Intermediate
Government Income ...... 558,241 --
Corporate Bond .......... 184,653 --
High Quality Bond ....... 396,183 28,489

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, Retail B Shares bear the expense of
payments under the 12b-1 Plan and Retail A Shares, Retail B Shares and Trust
Shares each bear 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, 1997 were as follows:

FUND
PURCHASES GOVERNMENT OTHER
- --------- ---------- -----

Short-Term Bond .................. $ 74,331,136 $ 64,894,675
Intermediate Government Income ... 309,243,640 43,216,957
Corporate Bond ................... 18,346,425 14,730,696
High Quality Bond ................ 232,138,526 144,391,531

SALES
- -----
Short-Term Bond .................. 77,322,080 59,996,925
Intermediate
Government Income ............... 311,118,122 63,309,652
Corporate Bond ................... 21,121,489 29,263,778
High Quality Bond ................ 222,392,655 127,337,786

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, 1997 for each Fund is as follows:

FUND APPRECIATION (DEPRECIATION)
- ---- ------------ --------------
Short-Term Bond .................. $ 598,680 $ (82,058)
Intermediate Government
Income .......................... 4,203,216 (280,894)
Corporate Bond ................... 1,992,938 (833,050)
High Quality Bond ................ 6,332,422 (36,209)

FUND NET COST
- ---- ----- ------
Short-Term Bond .................. $ 516,622 $ 77,187,240
Intermediate Government
Income .......................... 3,922,322 267,650,174
Corporate Bond ................... 1,159,888 89,469,320
High Quality Bond ................ 6,296,213 206,026,024

At October 31, 1997 the following Funds had capital loss carryforwards:

FUND AMOUNT EXPIRATION
- ---- ------ ----------
Short-Term Bond .................. $ 166,802 2000
1,797,977 2001
2,843,359 2002
1,206,932 2003
10,917 2004
9,409 2005
Intermediate
Government Income ............... 480,329 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
450,363 2005
High Quality Bond ................ 2,899,174 2003

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 Government 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 Shawmut 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

<CAPTION>
Before Acquisition After Acquisition
---------------------------- -------------------
Galaxy Shawmut Galaxy
Intermediate Intermediate Intermediate
Government Government Government
Income Income Income
---------- ---------- ----------
<S> <C> <C> <C>
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

<CAPTION>
Before Acquisition After Acquisition
---------------------------- -------------------
Galaxy Shawmut Galaxy
Corporate Fixed Corporate
Bond Income Bond
---- ------ -------
<S> <C> <C> <C>
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>

- ---------------
THE GALAXY FUND
- ---------------

TAX INFORMATION (UNAUDITED)

During the fiscal year ended October 31, 1997, the Corporate Bond Fund made
distributions from long-term capital gains of $94,588.

During the fiscal year ended October 31, 1997, the following Funds earned
income from direct obligations of the U.S. Government:

U.S. GOVERNMENT
FUND INCOME
- ----- ----------------
Short - Term Bond 10.58%
Intermediate Government Income 34.90%
Corporate Bond 4.11%
High Quality Bond 34.72%

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.
<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, Intermediate Government Income Fund, Corporate Bond
Fund and High Quality Bond Fund (four series of The Galaxy Fund), including the
portfolios of investments, as of October 31, 1997, 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, 1997, 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
each of the aforementioned series of The Galaxy Fund as of October 31, 1997, 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 19, 1997
<PAGE>
- ---------------

SHAREHOLDER
SERVICES
- ----------------

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.

"A well-balanced asset allocation plan may help to control your risk while
pursuing your goals."

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 First Data Distributors, Inc.,
member NASD and SIPC. Investment Specialists are registered representatives of
FISSecurities, Inc., member NASD or Fleet Enterprises, 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

Jylanne Dunne
Vice President &
Assistant Treasurer

INVESTMENT ADVISOR

Fleet Investment
Advisors Inc.
75 State Street
Boston, MA
02109

DISTRIBUTOR

First Data
Distributors, Inc.
4400 Computer Drive
Westborough,
Massachusetts 01581

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 SYMBOL]

This report was printed on recycled paper.
<PAGE>
------------------
BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 105
N. READING, MA
------------------
- ---------------

4400 Computer Drive
GALAXY Box 5108
FUNDS Westborough, MA 01581-5108
- ---------------

FN-080 (12/97) Date of first use 1/1/98