GALAXY FUND /DE/, 497, 1998-10-30

GALAXY FUND /DE/
497, 1998-10-30

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THE GALAXY FUND

STATEMENT OF ADDITIONAL INFORMATION

Shares of the

Connecticut Municipal Money Market Fund
Massachusetts Municipal Money Market Fund

Trust Shares of the

Growth and Income Fund
Small Cap Value Fund

February 28, 1998
(as revised October 30, 1998)

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This Statement of Additional Information is not a prospectus and should be
read in conjunction with the current Prospectuses (the "Prospectuses") for
the (i) Shares of the Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds and (ii) Trust Shares of the Growth and Income
and Small Cap Value Funds of The Galaxy Fund ("Galaxy"), each dated February
28, 1998, as they may from time to time be supplemented or revised. This
Statement of Additional Information is incorporated by reference in its
entirety into each such Prospectus. No investment in shares of the Funds
should be made without reading the Prospectuses. Copies of the Prospectuses
may be obtained by writing Galaxy c/o First Data Distributors, Inc., 4400
Computer Drive, Westboro, Massachusetts 01581-5108 or by calling Galaxy at
1-800-628-0414. Capitalized terms used herein but not otherwise defined have
the same meanings as in the Prospectuses.

SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS
SO THAT SHARES OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. THERE IS NO
ASSURANCE THAT THE CONNECTICUT MUNICIPAL MONEY MARKET AND MASSACHUSETTS
MUNICIPAL MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.

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TABLE OF CONTENTS
Page

THE GALAXY FUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . 1
Acceptable Investments - Money Market Funds . . . . . . . . . . . . . 1
Types of Acceptable Investments - Money Market Funds. . . . . . . . . 2
Types of Investments - Equity Funds . . . . . . . . . . . . . . . . . 2
U.S. Government Obligations . . . . . . . . . . . . . . . . . . . . . 3
When-Issued And Delayed Settlement Transactions . . . . . . . . . . . 3
Stand-By Commitments. . . . . . . . . . . . . . . . . . . . . . . . . 4
Munipreferred Securities. . . . . . . . . . . . . . . . . . . . . . . 4
Variable Rate Demand Notes. . . . . . . . . . . . . . . . . . . . . . 4
Temporary Investments . . . . . . . . . . . . . . . . . . . . . . . . 5
Restricted and Illiquid Securities. . . . . . . . . . . . . . . . . . 5
Repurchase Agreements, Reverse Repurchase Agreements and Lending of
Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . 6
Derivative Securities . . . . . . . . . . . . . . . . . . . . . . . . 7
Restrictions on the Use of Futures Contracts and Options. . . . . . . 8
Indexed Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Swap Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Foreign Currency Exchange Transactions. . . . . . . . . . . . . . . . 10
Portfolio Securities Generally. . . . . . . . . . . . . . . . . . . . 11
Portfolio Turnover. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Special Considerations Relating to Connecticut Municipal Securities . 11
Additional Investment Limitations . . . . . . . . . . . . . . . . . . 14
NET ASSET VALUE - CONNECTICUT MUNICIPAL MONEY MARKET AND
MASSACHUSETTS MUNICIPAL MONEY MARKET FUNDS. . . . . . . . . . . . . . 19
DIVIDENDS - MONEY MARKET FUNDS . . . . . . . . . . . . . . . . . . . . . . 20
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . 20
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ADDITIONAL INFORMATION CONCERNING TAXES. . . . . . . . . . . . . . . . . . 23
In General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Growth and Income and Small Cap Value Funds . . . . . . . . . . . . . 25
Taxation of Certain Financial Instruments . . . . . . . . . . . . . . 25
State Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Massachusetts State Income Tax. . . . . . . . . . . . . . . . . . . . 28
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . 32
ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER AGENCY
AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Custodian and Transfer Agent. . . . . . . . . . . . . . . . . . . . . 35
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 35

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SHAREHOLDER SERVICES PLAN. . . . . . . . . . . . . . . . . . . . . . . . . 37
DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
PERFORMANCE AND YIELD INFORMATION. . . . . . . . . . . . . . . . . . . . . 40
Yield Quotations -- Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds . . . . . . . . . . . . . . . . . . 40
Tax-Equivalency Tables - Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds. . . . . . . . . . . 41
Yield and Performance of the Growth and Income and Small Cap
Value Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-1

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THE GALAXY FUND

The Galaxy Fund ("Galaxy") is an open-end management company which is
currently authorized to offer shares of beneficial interest in thirty
investment portfolios. This Statement of Additional Information provides
additional investment information with respect to Shares of the Connecticut
Municipal Money Market Fund and Massachusetts Municipal Money Market Fund
(collectively, the "Money Market Funds"), and with respect to Trust Shares of
the Growth and Income Fund and Small Cap Value Fund (collectively, the
"Equity Funds") (the Money Market Funds and Equity Funds are referred to
herein collectively as the "Funds"), and should be read in conjunction with
the current Prospectuses for the Funds.

The Connecticut Municipal Money Market, Massachusetts Municipal Money
Market, Growth and Income, and Small Cap Value Funds commenced operations on
October 4, 1993, October 5, 1993, December 14, 1992 and December 14, 1992,
respectively, as separate investment portfolios (the "Predecessor Connecticut
Municipal Money Market Fund", "Predecessor Massachusetts Municipal Money
Market Fund", "Predecessor Growth and Income Fund" and "Predecessor Small Cap
Value Fund", respectively, and collectively, the "Predecessor Funds") of The
Shawmut Funds, which was organized as a Massachusetts business trust. On
December 4, 1995, the Predecessor Funds were reorganized as new portfolios of
Galaxy. Prior to the reorganization, the Predecessor Funds offered and sold
shares of beneficial interest that were similar to Galaxy's Trust Shares and
Retail A Shares.

INVESTMENT OBJECTIVES AND POLICIES

ACCEPTABLE INVESTMENTS - MONEY MARKET FUNDS

The Connecticut Municipal Money Market Fund invests primarily in debt
obligations issued by or on behalf of Connecticut and of other states,
territories, and possessions of the United States, including the District of
Columbia, and any political subdivision or financing authority of any of
these, the income from which is, in the opinion of qualified legal counsel,
exempt from both federal regular income tax and Connecticut state income tax
imposed upon non-corporate taxpayers ("Connecticut Municipal Securities").

The Massachusetts Municipal Money Market Fund invests primarily in debt
obligations issued by or on behalf of the Commonwealth of Massachusetts and
of other states, territories, and possessions of the United States, including
the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of
qualified legal counsel, exempt from both federal regular income tax and
income taxes imposed by the Commonwealth of Massachusetts imposed upon
non-corporate taxpayers ("Massachusetts Municipal Securities").

From time to time, such as when suitable Municipal Securities are not
available, the Money Market Funds may invest a portion of their respective
assets in cash. Any portion of a Money Market Fund's assets maintained in
cash will reduce the amount of assets in Municipal Securities and thereby
reduce the Money Market Fund's yield.

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TYPES OF ACCEPTABLE INVESTMENTS - MONEY MARKET FUNDS

Examples of Municipal Securities are:

- municipal notes and commercial paper;

- general obligation serial bonds sold with differing maturity dates;

- refunded municipal bonds; and

- all revenue bonds, including industrial development bonds.

TYPES OF INVESTMENTS - EQUITY FUNDS

The Growth and Income Fund invests principally in a
professionally-managed and diversified portfolio of common stocks of
companies with prospects for above average growth and dividends or of
companies where significant fundamental changes are taking place. The Growth
and Income Fund will seek to invest in equity securities of companies that
are projected to show earnings growth superior to the Standard & Poor's 500
Composite Stock Index. Although the Growth and Income Fund may invest in
other securities and in money market instruments, it is the Growth and Income
Fund's policy, under normal market conditions, to invest at least 65% of its
total assets in equity securities. The securities in which the Growth and
Income Fund may invest include foreign securities, as described in the
Prospectuses.

The Small Cap Value Fund invests primarily in a diversified portfolio of
equity securities of companies that have a market value capitalization of up
to $1 billion to achieve long-term capital appreciation and current income.
Under normal circumstances, the Small Cap Value Fund will invest at least 65%
of its total assets in equity securities of companies that have a market
value capitalization of up to $1 billion. In addition, the Small Cap Value
Fund may invest as described below, and as described in the Prospectuses.

MONEY MARKET INSTRUMENTS

The Equity Funds may invest in the following money market instruments:

- instruments of domestic banks and savings and loans if they have
capital, surplus, and undivided profits of over $100,000,000, or if
the principal amount of the instrument is insured in full by the
Federal Deposit Insurance Corporation; and

- prime commercial paper (rated A-1 by Standard & Poor's Ratings Group,
Prime-1 by Moody's Investors Service, Inc., or F-1 by Fitch IBCA,
Inc.)

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U.S. GOVERNMENT OBLIGATIONS

The types of U.S. Government obligations in which the Equity Funds may
invest generally include direct obligations of the U.S. Treasury (such as
U.S. Treasury bills, notes, and bonds) and obligations issued or guaranteed
by U.S. Government agencies or instrumentalities. These securities are
backed by:

- the full faith and credit of the U.S. Treasury;

- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;

- the discretionary authority of the U.S. Government to purchase
certain obligations of agencies or instrumentalities; or

- the credit of the agency or instrumentality issuing the obligations.

Examples of U.S. Government agencies and instrumentalities that are
permissible investments and may not always receive financial support from the
U.S Government are:

- Federal Farm Credit Banks;

- Federal Home Loan Banks;

- Federal National Mortgage Association; and

- Federal Home Loan Mortgage Corporation.

WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS

When a Fund agrees to purchase securities on a "when-issued" or "delayed
settlement" basis, the Fund's custodian will set aside cash or liquid
portfolio securities equal to the amount of the commitment in a separate
account. In the event of a decline in the value of the securities that the
custodian has set aside, the Fund may be required to place additional assets
in the separate account in order to ensure that the value of the account
remains equal to the amount of the Fund's commitment. A Fund's net assets
may fluctuate to a greater degree if it sets aside portfolio securities to
cover such purchase commitments than if it sets aside cash.

When a Fund engages in when-issued or delayed settlement transactions,
it relies on the seller to consummate the trade. Failure of the seller to do
so may result in the Fund's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous for a security. For purposes of
determining the average weighted maturity of a Fund's portfolio, the maturity
of when-issued securities is calculated from the date of settlement of the
purchase to the maturity date.

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STAND-BY COMMITMENTS

Under a "stand-by commitment," a dealer agrees to purchase from a Fund,
at the Fund's option, specified Municipal Securities at a specified price.
Stand-by commitments are exercisable by the Fund at any time before the
maturity of the underlying Municipal Security, and may be sold, transferred
or assigned by the Fund only with respect to the underlying instruments.

Although stand-by commitments are often available without the payment of
any direct or indirect consideration, if necessary or advisable, a Fund may
pay for a stand-by commitment either separately in cash or by paying a higher
price for Municipal Securities that are acquired subject to the commitment.
Where the Fund pays any consideration directly or indirectly for a stand-by
commitment, its cost will be reflected as unrealized depreciation for the
period during which the commitment is held by the Fund.

The Money Market Funds will enter into stand-by commitments only with
banks and broker/dealers that present minimal credit risks. In evaluating
the creditworthiness of the issuer of a stand-by commitment, Fleet Investment
Advisors Inc. ("Fleet"), the Fund's investment adviser, will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.

The Money Market Funds will acquire stand-by commitments solely to
facilitate liquidity and do not intend to exercise their rights thereunder
for trading purposes. Stand-by commitments will be valued at zero in
determining a Fund's net asset value.

MUNIPREFERRED SECURITIES

The Money Market Funds may purchase interests in Municipal Securities
that are offered in the form of a security representing a diversified
portfolio of investment grade bonds. These securities provide investors,
such as the Money Market Funds, with liquidity and income exempt from federal
regular income tax and some state income taxes.

VARIABLE RATE DEMAND NOTES

Variable interest rates generally reduce changes in the market value of
Municipal Securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital appreciation
or depreciation is less for variable rate Municipal Securities than for fixed
income obligations.

The terms of these variable rate demand instruments require payment of
principal and accrued interest from the issuer of the Municipal Securities,
the issuer of the participation interest or a guarantor of either issuer.

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TEMPORARY INVESTMENTS

The Money Market Funds may also invest in high quality temporary
investments during times of unusual market conditions for defensive purposes.

RESTRICTED AND ILLIQUID SECURITIES

The Equity Funds may invest in commercial paper issued in reliance on
the exemption from registration afforded by Section 4(2) of the Securities
Act of 1933. Section 4(2) commercial paper is restricted as to disposition
under federal securities law and is generally sold to institutional
investors, such as the Equity Funds, who agree that they are purchasing the
paper for investment purposes and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like the
Equity Funds through or with the assistance of the issuer or investment
dealers who make a market in Section 4(2) commercial paper, thus providing
liquidity. The Equity Funds believe that Section 4(2) commercial paper and
possibly certain other restricted securities that meet the criteria for
liquidity established by Galaxy's Board of Trustees are quite liquid. The
Equity Funds intend, therefore, to treat the restricted securities that meet
the criteria for liquidity established by the Board of Trustees, including
Section 4(2) commercial paper (as determined by Fleet), as liquid and not
subject to the investment limitation applicable to illiquid securities. In
addition, because Section 4(2) commercial paper is liquid, the Equity Funds
do not intend to subject such paper to the limitation applicable to
restricted securities.

The ability of the Board of Trustees to determine the liquidity of
certain restricted securities is permitted under a Securities and Exchange
Commission (the "SEC") staff position set forth in the adopting release for
Rule 144A (the "Rule") under the Securities Act of 1933, as amended. The
Rule is a non-exclusive, safe-harbor for certain secondary market
transactions involving securities subject to restrictions on resale under
federal securities laws. The Rule provides an exemption from registration
for resales of otherwise restricted securities to qualified institutional
buyers. The Rule was expected to further enhance the liquidity of the
secondary market for securities eligible for resale under the Rule. Galaxy,
on behalf of the Equity Funds, believes that the staff of the SEC has left
the question of determining the liquidity of all restricted securities
(eligible for resale under Rule 144A) for determination to the Board of
Trustees. The Board of Trustees considers the following criteria in
determining the liquidity of certain restricted securities:

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- the frequency of trades and quotes for the security;

- the number of dealers willing to purchase or sell the security and
the number of other potential buyers;

- dealer undertakings to make a market in the security; and

- the nature of the security and the nature of the marketplace trades.

Investing in Rule 144A securities could have the effect of increasing the
level of a Fund's illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities. The
Funds expect that less than 5% of their respective net assets will be
invested in Rule 144A securities during the current fiscal year.

REPURCHASE AGREEMENTS, REVERSE REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO
SECURITIES

Each Fund may enter into repurchase agreements, which are arrangements
in which banks, broker/dealers and other recognized financial institutions
sell U.S. Government securities or other securities to the Funds and agree at
the time of sale to repurchase them at a mutually agreed upon time and price
within one year from the date of acquisition. A Fund requires its custodian
to take possession of the securities subject to a repurchase agreement and
these securities are marked to market daily. To the extent that the original
seller does not repurchase the securities from a Fund, the Fund could receive
less than the repurchase price on any sale of such securities. In the event
that such a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by a Fund might be delayed pending court
action. The Funds believe that, under the regular procedures normally in
effect for custody of a Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the Fund
and allow retention or disposition of such securities. The Funds will only
enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by Fleet to be
creditworthy pursuant to guidelines established by the Board of Trustees.

The Equity Funds may also enter into reverse repurchase agreements.
These transactions are similar to borrowing cash. In a reverse repurchase
agreement, a Fund transfers possession of a portfolio instrument to another
person, such as a financial institution, broker or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable a Fund to
avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.

When effecting reverse repurchase agreements, liquid assets of a Fund in
a dollar amount sufficient to make payment for the obligations to be
purchased are segregated at the trade date.

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These securities are marked to market daily and are maintained until the
transaction is settled.

The collateral received when the Equity Funds lend portfolio securities
must be valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Funds.
During the time portfolio securities are on loan, the borrower pays a Fund
any dividends or interest paid on such securities. Loans are subject to
termination at the option of the Funds or the borrower. The Funds may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker.

DERIVATIVE SECURITIES

PUT AND CALL OPTIONS

An Equity Fund may purchase and sell put options on its portfolio
securities as described in the Prospectuses.

STOCK INDEX FUTURES AND OPTIONS

The Equity Funds may utilize stock index futures contracts and options
on stocks, stock indices and stock index futures contracts for the purposes
of managing cash flows into and out of a Fund's portfolio and potentially
reducing transactional costs. The Funds may not use stock index futures
contracts and options for speculative purposes.

As a means of reducing fluctuations in the net asset value of shares of
the Equity Funds, the Funds may attempt to hedge all or a portion of their
respective portfolios through the purchase of listed put options on stocks,
stock indices and stock index futures contracts. These options will be used
as a form of forward pricing to protect portfolio securities against
decreases in value resulting from market factors, such as an anticipated
increase in interest rates. A purchased put option gives the Funds, in
return for a premium, the right to sell the underlying security to the writer
(seller) at a specified price during the term of the option. Put options on
stock indices are similar to put options on stocks except for the delivery
requirements. Instead of giving the Funds the right to make delivery of
stock at a specified price, a put option on a stock index gives the Funds, as
holders, the right to receive an amount of cash upon exercise of the option.

The Equity Funds may also write covered call options. As the writer of
a call option, the Funds have the obligation upon exercise of the option
during the option period to deliver the underlying security upon payment of
the exercise price.

An Equity Fund may only: (1) buy listed put options on stock indices
and stock index futures contracts; (2) buy listed put options on securities
held in its portfolio; and (3) sell listed call options either on securities
held in its portfolio or on securities which it has the right to obtain
without payment of further consideration (or has segregated cash in the
amount of any such additional consideration). A Fund will maintain its
positions in securities, option rights,

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and segregated cash subject to puts and calls until the options are
exercised, closed or expired. A Fund may also enter into stock index futures
contracts. A stock index futures contract is a bilateral agreement which
obligates the seller to deliver (and the purchaser to take delivery of) an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of trading of the contract
and the price at which the agreement is originally made. There is no
physical delivery of the stocks constituting the index, and no price is paid
upon entering into a futures contract.

In general, option contracts are closed out prior to their expiration.
An Equity Fund, when purchasing or selling a futures contract, will initially
be required to deposit in a segregated account in the broker's name with the
Fund's custodian an amount of cash or liquid portfolio securities
approximately equal to 5% - 10% of the contract value. This amount is known
as "initial margin", and it is subject to change by the exchange or board of
trade on which the contract is traded. Subsequent payments to and from the
broker are made on a daily basis as the price of the index or the securities
underlying the futures contract fluctuates. These payments are known as
"variation margins", and the fluctuation in value of the long and short
positions in the futures contract is a process referred to as "marking to
market". A Fund may decide to close its position on a contract at any time
prior to the contract's expiration. This is accomplished by the Fund taking
an opposite position at the then prevailing price, thereby terminating its
existing position in the contract. Because the initial margin resembles a
performance bond or good-faith deposit on the contract, it is returned to the
Fund upon the termination of the contract, assuming that all contractual
obligations have been satisfied. Therefore, the margin utilized in futures
contracts is readily distinguishable from the margin employed in security
transactions, since the margin employed in futures contracts does not involve
the borrowing of funds to finance the transaction.

RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS

An Equity Fund will not enter into futures contracts to the extent that,
immediately thereafter, the sum of its initial margin deposits on open
contracts exceeds 5% of the market value of its total assets. Further, an
Equity Fund will enter into stock index futures contracts only for bona fide
hedging purposes or such other purposes permitted under Part 4 of the
regulations promulgated by the Commodity Futures Trading Commission. Also,
an Equity Fund may not enter into stock index futures contracts and options
to the extent that the value of such contracts would exceed 20% of the Fund's
total net assets and may not purchase put options to the extent that more
than 5% of the value of the Fund's total assets would be invested in premiums
on open put option positions.

INDEXED SECURITIES

The Equity Funds may invest in indexed securities whose value is linked
to foreign currencies, interest rates, commodities, indices or other
financial indicators. Most indexed securities are short- to
intermediate-term fixed income securities whose values at maturity or
interest rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be positively or negatively
indexed (i.e., their value may increase or

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decrease if the underlying instrument appreciates), and may have return
characteristics similar to direct investments in the underlying instrument or
to one or more options on the underlying instrument. Indexed securities may
be more volatile than the underlying instrument itself.

SWAP AGREEMENTS

As one way of managing their exposure to different types of investments,
the Equity Funds may enter into interest rate swaps, currency swaps, and
other types of swap agreements such as caps, collars, and floors. In a
typical interest rate swap, one party agrees to make regular payments equal
to a floating interest rate times a "notional principal amount," in return
for payments equal to a fixed rate times the same amount, for a specified
period of time. If a swap agreement provides for payments in different
currencies, the parties might agree to exchange notional principal amount as
well. Swaps may also depend on other prices or rates, such as the value of
an index or mortgage prepayment rates.

In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate
exceeds an agreed upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate falls
below an agreed upon level. An interest rate collar combines elements of
buying a cap and selling a floor.

Swap agreements will tend to shift the Equity Funds' investment exposure
from one type of investment to another. For example, if an Equity Fund
agreed to exchange payments in dollars for payments in foreign currency, the
swap agreement would tend to decrease the Fund's exposure to U.S. interest
rates and increase its exposure to foreign currency and interest rates. Caps
and floors have an effect similar to buying or writing options. Depending on
how they are used, swap agreements may increase or decrease the overall
volatility of an Equity Fund's investments and its share price and yield.

Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on the Equity Funds' performance. Swap agreements are
subject to risks related to the counterparty's ability to perform, and may
decline in value if the counterparty's creditworthiness deteriorates. The
Equity Funds may also suffer losses if they are unable to terminate
outstanding swap agreements or reduce their exposure through offsetting
transactions.

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FOREIGN CURRENCY EXCHANGE TRANSACTIONS

Because the Equity Funds may buy and sell securities denominated in
currencies other than the U.S. dollar, and receive interest, dividends and
sale proceeds in currencies other than the U.S. dollar, the Funds may enter
into foreign currency exchange transactions to convert United States currency
to foreign currency and foreign currency to United States currency as well as
convert foreign currency to other foreign currencies. An Equity Fund either
enters into these transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts
to purchase or sell foreign currencies.

A forward foreign currency exchange contract is an obligation by an
Equity Fund to purchase or sell a specific currency at a specified price and
future date, which may be any fixed number of days from the date of the
contract. Forward foreign currency exchange contracts establish an exchange
rate at a future date. These contracts are transferable in the interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without
commission. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of a Fund's portfolio
securities or in foreign exchange rates, or prevent loss if the prices of
these securities should decline.

The Equity Funds may enter into foreign currency hedging transactions in
an attempt to protect against changes in foreign currency exchange rates
between the trade and settlement dates of specific securities transactions or
changes in foreign currency exchange rates that would adversely affect a
portfolio position or an anticipated portfolio position. Since consideration
of the prospect for currency parities will be incorporated into a Fund's
long-term investment decisions, neither Equity Fund will routinely enter into
foreign currency hedging transactions with respect to portfolio security
transactions; however, it is important to have the flexibility to enter into
foreign currency hedging transactions when it is determined that the
transactions would be in the Fund's best interest. Although these
transactions tend to minimize the risk of loss due to a decline in the value
of the hedged currency, at the same time they tend to limit any potential
gain that might be realized should the value of the hedged currency increase.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value
of these securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the date the
forward contract is entered into and the date it matures. The projection of
currency market movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.

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PORTFOLIO SECURITIES GENERALLY

Subsequent to its purchase by a Fund an issue of securities may cease to
be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or Fleet, pursuant to guidelines
established by the Board, will promptly consider such an event in determining
whether the Fund involved should continue to hold the obligation. The Board
of Trustees or Fleet may determine that it is appropriate for the Fund to
continue to hold the obligation if retention is in accordance with the
interests of the particular Fund and applicable regulations of the Securities
and Exchange Commission.

PORTFOLIO TURNOVER

A Fund may sell a portfolio investment soon after its acquisition if
Fleet believes that such a disposition is consistent with the Fund's
investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other
circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover involves correspondingly
greater brokerage commission expenses and other transaction costs, which must
be ultimately borne by the Fund's shareholders.

SPECIAL CONSIDERATIONS RELATING TO CONNECTICUT MUNICIPAL SECURITIES

The following information is a brief summary of factors affecting the
economies and financial strengths of the State of Connecticut, its
municipalities and its political subdivisions and does not purport to be a
complete description of such factors. Other factors will affect issuers.
The summary is based primarily upon one or more publicly available offering
statements relating to debt offerings of this State of Connecticut that were
available prior to the date of this Statement of Additional Information. The
accuracy and completeness of the information contained in such offering
statements have not been independently verified.

The ability of the issuers of Connecticut Municipal Securities to pay
the principal and interest on their obligations may be impacted by a variety
of factors relating to the economy of Connecticut and to the fiscal stability
of issuers of Connecticut Municipal Securities. The latter may include such
matters as the ability of issuers to raise sufficient tax and other revenues
to meet their needs, the availability of aid from other governmental bodies,
and the burdens that may be imposed on issuers by law or necessity. To the
extent that the Connecticut Municipal Money Market Fund invests in
obligations that are not general obligations of their issuers, payments of
principal and interest will depend on all factors affecting the revenue
sources from which payments thereon are to be derived. The value of the
obligations held by the Fund would be adversely affected not only by any
actual inability of their issuers to pay the principal and interest thereon,
but also by a public perception that such ability is in doubt.

Manufacturing has historically been of prime economic importance to
Connecticut. The State's manufacturing industry is diversified, with
transportation equipment (primarily aircraft engines, helicopters and
submarines) the dominant industry, followed by non-electrical

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machinery, fabricated metal products and electrical machinery. As a result
of a rise in employment in service-related industries and a decline in
manufacturing employment, manufacturing accounted for only 17.39% of total
non-agricultural employment in Connecticut in 1996. Defense-related business
represents a relatively high proportion of the manufacturing sector. On a
per capita basis, defense awards to Connecticut have traditionally been among
the highest in the nation, and reductions in defense spending have had a
substantial adverse impact on Connecticut's economy.

The average unemployment rate in Connecticut increased from a low of
3.0% in 1988 to a high of 7.6% in 1992 and, after a number of important
changes in the method of calculation, was reported to be 5.8% in 1996.
Average per capita personal income of Connecticut residents increased in
every year from 1987 to 1996, rising from $21,592 to $33,875. However,
pockets of significant unemployment and poverty exist in several Connecticut
cities and towns.

At the end of the 1990-1991 fiscal year, the General Fund had an
accumulated unappropriated deficit of $965,712,000. For the six fiscal years
ended June 30, 1997, the General Fund ran operating surpluses, based on the
State's budgetary method of accounting, of approximately $110,200,000,
$113,500,000, $19,700,000, $80,500,000, $250,000,000, and $262,600,000,
respectively. General Fund budgets for the biennium ending June 30, 1999,
were adopted in 1997. General Fund expenditures and revenues are budgeted to
be approximately $9,550,000,000 and $9,700,000,000 for the 1997-1998 and
1998-1999 fiscal years, respectively, an increase of more than 35% from the
budgeted expenditures of approximately $7,008,000,000 for the fiscal year
1991-1992.

During 1991 the State issued a total of $965,710,000 Economic Recovery
Notes, of which $157,055,000 were outstanding as of December 1, 1997. The
notes were to be payable no later than June 30, 1996, but as part of the
budget adopted for the biennium ending June 30, 1997, payment of the notes
scheduled to be paid during the 1995-96 fiscal year was rescheduled to be
made over the four fiscal years ending June 30, 1999.

The State's primary method for financing capital projects is through the
sale of general obligation bonds. These bonds are backed by the full faith
and credit of the State. As of August 1, 1997, the State had authorized
direct general obligation bond indebtedness totaling $11,469,239,000, of
which $10,159,950,000 had been approved for issuance by the State Bond
Commission and $9,181,272,000 had been issued. As of December 1, 1997, State
direct general obligation indebtedness outstanding was $6,475,986,251.

In 1995, the State established the University of Connecticut as a
separate corporate entity to issue bonds and construct certain infrastructure
improvements. The University is authorized to issue $962,000,000 bonds to
finance the improvements. The University's bonds will be secured by a State
debt service commitment, the aggregate amount of which is limited to
$382,000,000 for the four fiscal years ending June 30, 1999, and $580,000,000
for the six fiscal years ending June 30, 2005.

In addition, the State has limited or contingent liability on a
significant amount of other

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bonds. Such bonds have been issued by the following quasi-public agencies:
the Connecticut Housing Finance Authority, the Connecticut Development
Authority, the Connecticut Higher Education Supplemental Loan Authority, the
Connecticut Resources Recovery Authority and the Connecticut Health and
Educational Facilities Authority. Such bonds have also been issued by the
cities of Bridgeport and West Haven and the Southeastern Connecticut Water
Authority. As of December 1, 1997, the amount of bonds outstanding on which
the State has limited or contingent liability totaled $4,000,900,000.

In 1984, the State established a program to plan, construct and improve
the State's transportation system (other than Bradley International Airport).
The total cost of the program through June 30, 2000, is currently estimated
to be $12.3 billion, to be met from federal, state, and local funds. The
State expects to finance most of its $5.1 billion share of such cost by
issuing $4.6 billion of special tax obligation ("STO") bonds. The STO bonds
are payable solely from specified motor fuel taxes, motor vehicle receipts,
and license, permit and fee revenues pledged therefor and credited to the
Special Transportation Fund, which was established to budget and account for
such revenues.

As of July 1, 1998, the General Assembly had authorized $4,489,200,000
of such STO bonds, of which $3,894,700,000 new money borrowings had been
issued. It is anticipated that additional STO bonds will be authorized
annually in amounts necessary to finance and to complete the infrastructure
program. Such additional bonds may have equal rank with the outstanding
bonds provided certain pledged revenue coverage requirements are met. The
State expects to continue to offer bonds for this program.

The State's general obligation bonds are rated AA- by Standard & Poors
and Aa3 by Moody's. On March 17, 1995, Fitch reduced its ratings of the
State's general obligation bonds from AA+ to AA.

The State, its officers and its employees are defendants in numerous
lawsuits. Although it is not possible to determine the outcome of these
lawsuits, the Attorney General has opined that an adverse decision in any of
the following cases might have a significant impact on the State's financial
position: (i) a class action by the Connecticut Criminal Defense Lawyers
Association claiming a campaign of illegal surveillance activity and seeking
damages and injunctive relief; (ii) an action on behalf of all persons with
traumatic brain injury who have been placed in certain State hospitals,
claiming that their constitutional rights are violated by placement in State
hospitals alleged not to provide adequate treatment and training, and seeking
placement in community residential settings with appropriate support
services; (iii) litigation involving claims by Indian tribes to a portion of
the State's land area; and (iv) an action by certain students and
municipalities claiming that the State's formula for financing public
education violates the State's Constitution and seeking a declaratory
judgment and injunctive relief.

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<PAGE>

remedy the racial and ethnic segregation in the Hartford public schools. The
fiscal impact of this decision might be significant but is not determinable
at this time.

General obligation bonds issued by municipalities are payable primarily
from ad valorem taxes on property located in the municipality. A
municipality's property tax base is subject to many factors outside the
control of the municipality, including the decline in Connecticut's
manufacturing industry. In recent years, certain Connecticut municipalities
have experienced severe fiscal difficulties and have reported operating and
accumulated deficits. The most notable of these is the City of Bridgeport
which filed a bankruptcy petition on June 7, 1991. The State opposed the
petition. The United States Bankruptcy Court for the District of Connecticut
held that Bridgeport has authority to file such a petition but that its
petition should be dismissed on the grounds that Bridgeport was not insolvent
when the petition was filed. State legislation enacted in 1993 prohibits
municipal bankruptcy filings without the prior written consent of the
Governor.

In addition to general obligation bonds backed by the full faith and
credit of the municipality, certain municipal authorities finance projects by
issuing bonds that are not considered to be debts of the municipality. Such
bonds may be repaid only from revenues of the financed project, the revenues
from which may be insufficient to service the related debt obligations.

The U.S. Census Bureau reports that, at the time of the 1990 census,
Connecticut's capital city of Hartford was the eighth poorest city in the
nation based on the percentage of its residents living in poverty; the same
report indicates that four of Connecticut's largest cities ranked among the
130 poorest cities in the nation by the same measure.

Regional economic difficulties, reduction in revenues and increases in
expenses could lead to further fiscal problems for the State and its
political subdivisions, authorities and agencies. Difficulties in payment of
debt service on borrowings could result in declines, possibly severe, in the
value of their outstanding obligations, increases in their future borrowing
costs, and impairment of their ability to pay debt service on their
obligations.

ADDITIONAL INVESTMENT LIMITATIONS

In addition to the investment limitations disclosed in their
Prospectuses, the Funds are subject to the following investment limitations,
which may be changed with respect to a particular Fund only by a vote of the
holders of a majority of such Fund's outstanding shares (as defined under
"Miscellaneous" in the Prospectuses):

1. No Fund may sell any securities short or purchase any securities on
margin, but each Fund may obtain such short-term credits as may be
necessary for clearance of transactions, in the case of a Money
Market Fund, or the clearance of purchases and sales of portfolio
securities, in the cash of an Equity Fund. A deposit or payment by
an Equity Fund of initial or variation margin in connection with
futures contracts or related options transactions is not considered
the purchase of a security on margin.

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2. No Fund may issue senior securities except that each Fund may
borrow money or engage in reverse repurchase agreements in amounts
up to one-third of the value of its total assets, including the
amounts borrowed; and except to the extent that the Equity Funds
may enter into futures contracts. No Fund will borrow money or
engage in reverse repurchase agreements for investment leverage,
but rather as a temporary, extraordinary, or emergency measure to
facilitate management of the portfolio by enabling a Fund to meet
redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous. No Fund will
purchase any securities while borrowings in excess of 5% of its
total assets are outstanding.

3. No Fund may mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, a Fund may only
mortgage, pledge, or hypothecate assets having a market value not
exceeding 10% of the value of its total assets at the time of
purchase. For purposes of this limitation, the following will not
be deemed to be pledges of an Equity Fund's assets: (a) the deposit
of assets in escrow in connection with the writing of covered put
or call options and the purchase of securities on a when-issued
basis; and (b) collateral arrangements with respect to: (i) the
purchase and sale of stock options (and options on stock indices)
and (ii) initial or variation margin for futures contracts. Margin
deposits from the purchase and sale of futures contracts and
related options are not deemed to be a pledge.

4. No Fund may purchase or sell real estate or real estate limited
partnerships, although each Fund may invest in securities of issuers
whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real
estate.

5. No Fund may purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that an Equity Fund
may engage in transactions involving financial futures contracts or
options on financial futures contracts.

6. No Fund may underwrite any issue of securities, except as a Fund may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies and limitations.

7. No Fund may lend any of its assets except that a Money Market Fund
may acquire publicly or non-publicly issued Connecticut or
Massachusetts Municipal Securities (as defined in their
Prospectuses) or temporary investments or enter into repurchase
agreements, in accordance with their respective investment
objectives, policies, limitations and Galaxy's Declaration of
Trust; and except that an Equity Fund may lend portfolio securities
up to one-third the value of its total assets. This limitation
shall not prevent an Equity Fund from purchasing or holding money
market instruments, repurchase agreements, obligations of the U.S.
Government, its agencies or instrumentalities, variable rate demand
notes,

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<PAGE>

bonds, debentures, notes, certificates of indebtedness, or certain
debt instruments as permitted by its investment objective, policies
and limitations or Galaxy's Declaration of Trust.

8. With respect to at least 50% of its total assets, a Money Market
Fund will invest no more than 5% of its total assets in the
securities of a single issuer and no more than 25% of its total
assets in the securities of a single issuer at the close of each
quarter of each fiscal year. Under this limitation, each
governmental subdivision, including states, territories and
possessions of the United States, or their political subdivisions,
agencies, authorities, instrumentalities, or similar entities will
be considered a separate issuer if its assets and revenues are
separate from those of the governmental body creating it and the
security is backed only by its own assets and revenues. Industrial
development bonds backed only by the assets and revenue of a
non-governmental user are considered to be issued solely by that
user. If, in the case of an industrial development bond or
government-issued security, a governmental or other entity
guarantees the security, such guarantee would be considered a
separate security issued by the guarantor, as well as the other
issuer, subject to limited exclusions allowed by the 1940 Act.

9. With respect to securities comprising 75% of the value of its total
assets, no Equity Fund will purchase securities issued by any one
issuer (other than cash, cash items, or securities issued or
guaranteed by the government of the United States or its agencies
or instrumentalities and repurchase agreements collateralized by
such securities) if, as a result, more than 5% of the value of its
total assets would be invested in the securities of that issuer.
An Equity Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer.

10. No Money Market Fund may purchase securities, if, as a result of
such purchase, 25% or more of the value of the Fund's total assets
would be invested in any one industry or in industrial development
bonds or other securities, the interest upon which is paid from
revenues of similar types of projects. However, a Money Market
Fund may invest as temporary investments more than 25% of the value
of its assets in cash or cash items, securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities, or instruments secured by these money market
instruments and repurchase agreements.

11. No Equity Fund will invest 25% of more of the value of its total
assets in any one industry (other than securities issued by the
U.S. Government, its agencies or instrumentalities). However, an
Equity Fund may invest as temporary investments more than 25% of
the value of its assets in cash or cash items, securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities, or instruments secured by these money market
instruments, such as repurchase agreements.

12. No Money Market Fund will invest more than 10% of its net assets in
securities subject to restrictions on resale under the Securities Act
of 1933.

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<PAGE>

The following limitations may be changed by Galaxy's Board of Trustees
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.

13. Each Fund will limit its investments in other investment companies
to not more than 3% of the total outstanding voting stock of any
investment company; will invest no more than 5% of its total assets
in any one investment company; and will invest no more than 10% of
its total assets in investment companies in general. However,
these limitations are not applicable if the securities are acquired
in a merger, consolidation, reorganization or acquisition of
assets.

The Money Market Funds will limit their respective investments in
the securities of other investment companies to those of money
market funds which are of comparable or better portfolio quality
and have investment objectives and policies similar to their own.
Rule 2a-7 under the 1940 Act requires that the Money Market Funds
limit their investments to instruments that, in the opinion of the
Board of Trustees, present minimal credit risk and that, if rated,
meet minimum rating standards set forth in Rule 2a-7 under the 1940
Act. If the instruments are not rated, the Trustees must determine
that they are of comparable quality. Shares of investment
companies purchased by the Money Market Funds will meet these same
criteria and will have investment policies consistent with
Rule 2a-7 of the 1940 Act.

The Equity Funds will purchase the securities of other investment
companies only in open market transactions involving only customary
broker's commissions. It should be noted that investment companies
incur certain expenses such as management fees, and therefore any
investment by an Equity Fund in shares of another investment
company would be subject to such duplicate expenses.

14. No Fund may purchase or retain the securities of any issuer if the
officers and Trustees of Galaxy or Fleet, owning individually more
than 1/2 of 1% of the issuer's securities, together own more than 5%
of the issuer's securities.

15. No Fund may purchase or sell interests in oil, gas, or other mineral
exploration or development programs or leases; except that the Equity
Funds may purchase the securities of issuers which invest in or
sponsor such programs.

16. No Money Market Fund may purchase or sell puts, calls, straddles,
spreads, or any combination thereof, except that each such Fund may
purchase Municipal Securities accompanied by agreements of sellers to
repurchase them at the Fund's option.

17. No Equity Fund may purchase put options on securities, unless the
securities are held in the Fund's portfolio and not more than 5% of
the value of the Fund's total assets would be invested in premiums on
open put option positions.

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<PAGE>

18. No Equity Fund may write call options on securities, unless the
securities are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or
after segregating cash in the amount of any further payment. No
Equity Fund may write call options in excess of 5% of the value of
its total assets.

19. No Equity Fund may invest more than 5% of the value of its total
assets in securities of issuers which have records of less than three
years of continuous operations, including the operation of any
predecessor.

20. No Money Market Fund may invest more than 5% of the value of its
total assets in industrial development bonds where the payment of
principal and interest are the responsibility of companies (or
guarantors, where applicable) with less than three years of
continuous operations, including the operation of any predecessor.

21. No Money Market Fund may invest more than 10%, and no Equity Fund
will invest more than 15%, of the value of its respective net
assets in illiquid securities, including repurchase agreements
providing for settlement in more than seven days after notice,
non-negotiable fixed time deposits with maturities over seven days,
and certain securities not determined by the Board of Trustees to
be liquid.

22. No Equity Fund may invest more than 15% of its total assets in
securities subject to restrictions on resale under the Securities Act
of 1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which
meet the criteria for liquidity as established by the Board of
Trustees.

23. No Equity Fund may invest in companies for the purpose of exercising
management or control.

24. No Equity Fund may invest more than 5% of its net assets in warrants.
No more than 2% of this 5% may be warrants which are not listed on
the New York Stock Exchange.

Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in violation of such restriction.

For purposes of their respective policies and limitations, the Funds
consider certificates of deposit and demand and time deposits issued by a
U.S. branch of a domestic bank or savings and loan having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment to
be "cash items".

The Funds do not intend to borrow money in excess of 5% of the value of
their respective net assets or, with respect to the Money Market Funds only,
to invest more than 5% of their

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<PAGE>

respective total assets in securities of foreign issuers during the next
twelve months.

NET ASSET VALUE - CONNECTICUT MUNICIPAL MONEY MARKET AND
MASSACHUSETTS MUNICIPAL MONEY MARKET FUNDS

Galaxy uses the amortized cost method of valuation to value shares of
the Money Market Funds. In order to use the amortized cost method, the Funds
comply with the various quality and maturity restrictions specified in Rule
2a-7 promulgated under the 1940 Act. Pursuant to this method, a security is
valued at its initial acquisition cost, as adjusted for amortization of
premium or accretion of discount, regardless of the impact of fluctuating
interest rates on the market value of the security. Where it is not
appropriate to value a security by the amortized cost method, the security
will be valued either by market quotations or by fair value as determined by
or under the direction of Galaxy's Board of Trustees. This method may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price a Fund would receive if it sold the security. The value
of securities in each of these Funds can be expected to vary inversely with
changes in prevailing interest rates. Thus, if interest rates have increased
from the time a security was purchased, such security, if sold, might be sold
at a price less than its cost. Similarly, if interest rates have declined
from the time a security was purchased, such security, if sold, might be sold
at a price greater than its purchase cost. In either instance, if the
security is held to maturity, no gain or loss will be realized.

The Money Market Funds invest only in instruments that meet the
applicable quality requirements of Rule 2a-7 and maintain a dollar-weighted
average portfolio maturity appropriate to their objective of maintaining a
stable net asset value per share, provided that neither of these Funds will
purchase any security deemed to have a remaining maturity (as defined in the
1940 Act) of more than 397 days nor maintain a dollar-weighted average
portfolio maturity which exceeds 90 days. Galaxy's Board of Trustees has
established procedures reasonably designed, taking into account current
market conditions and each Fund's investment objective, to stabilize the net
asset value per share of each Money Market Fund for purposes of sales and
redemptions at $1.00. These procedures include review by the Board of
Trustees, at such intervals as it deems appropriate, to determine the extent,
if any, to which the net asset value per share of each Money Market Fund,
calculated by using available market quotations, deviates from $1.00 per
share. In the event such deviation exceeds one-half of one percent, the
Board of Trustees will promptly consider what action, if any, should be
initiated. If the Board of Trustees believes that the extent of any
deviation from a Money Market Fund's $1.00 amortized cost price per share may
result in material dilution or other unfair results to new or existing
investors, it has agreed to take such steps as it considers appropriate to
eliminate or reduce, to the extent reasonably practicable, any such dilution
or unfair results. These steps may include selling portfolio instruments
prior to maturity; shortening the average portfolio maturity; withholding or
reducing dividends; redeeming shares in kind; reducing the number of a Money
Market Fund's outstanding shares without monetary consideration; or utilizing
a net asset value per share determined by using available market quotations.

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<PAGE>

DIVIDENDS - MONEY MARKET FUNDS

As stated, Galaxy uses its best efforts to maintain the net asset value
per share of each Money Market Fund at $1.00. As a result of a significant
expense or realized or unrealized loss incurred by any of the Funds, it is
possible that a Fund's net asset value per share may fall below $1.00.
Should Galaxy incur or anticipate any unusual or unexpected significant
expense or loss which would affect disproportionately the income of a Fund
for a particular period, the Board of Trustees would at that time consider
whether to adhere to the present dividend policy with respect to these Funds
or to revise it in order to ameliorate to the extent possible the
disproportionate effect of such expense or loss on the income of the Fund
experiencing such effect. Such expense or loss may result in a shareholder's
receiving no dividends for the period in which it holds shares of a Fund and
in its receiving upon redemption a price per share lower than that which it
paid.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares of the Funds are sold on a continuous basis by First Data
Distributors, Inc. ("FD Distributors"), and FD Distributors has agreed to use
appropriate efforts to solicit all purchase orders. As described in the
applicable Prospectuses, shares of the Money Market Funds are sold to
customers ("Customers") of FIS Securities, Inc., Fleet Brokerage Securities,
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks, and other qualified banks,
savings and loan associations and broker/dealers ("Institutions"). As
described in the applicable Prospectuses, shares of the Money Market Funds
may also be sold to individuals, corporations or other entities, who submit a
purchase application to Galaxy, purchasing either for their own accounts or
for the accounts of others ("Direct Investors"). As described in the
applicable Prospectuses, Trust Shares of the Equity Funds are offered to
investors maintaining qualified accounts at bank and trust institutions,
including institutions affiliated with Fleet Financial Group, Inc., and to
participants in employer-sponsored defined contribution plans.

If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy
may make payment wholly or partly in securities or other property. Such
redemptions will only be made in "readily marketable" securities. In such an
event, a shareholder would incur transaction costs in selling the securities
or other property.

Galaxy may suspend the right of redemption or postpone the date of
payment for shares for more than seven days during any period when (a)
trading in the markets the Funds normally utilize is restricted, or an
emergency, as defined by the rules and regulations of the Securities and
Exchange Commission (the "SEC") exists making disposal of a Fund's
investments or determination of its net asset value not reasonably
practicable; (b) the New York Stock Exchange is closed (other than customary
weekend and holiday closings); or (c) the SEC by order has permitted such
suspension.

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Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized.

DESCRIPTION OF SHARES

Galaxy is a Massachusetts business trust. Galaxy's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares and
to classify or reclassify any unissued shares into one or more additional
classes by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized
the issuance of thirty classes of shares, each representing interests in one
of thirty separate investment portfolios: Money Market Fund, Government Fund,
Tax-Exempt Fund, U.S. Treasury Fund, Institutional Government Money Market
Fund, Connecticut Municipal Money Market Fund, Massachusetts Municipal Money
Market Fund, Prime Reserves, Government Reserves, Tax-Exempt Reserves, Equity
Value Fund, Equity Growth Fund, Equity Income Fund, International Equity
Fund, Small Company Equity Fund, MidCap Equity Fund, Asset Allocation Fund,
Small Cap Value Fund, Growth and Income Fund, Strategic Equity Fund,
Short-Term Bond Fund, Intermediate Government Income Fund, High Quality Bond
Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New Jersey Municipal Bond
Fund, New York Municipal Bond Fund, Connecticut Municipal Bond Fund,
Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond Fund.

As stated in the applicable Prospectuses, two separate series of shares
(Retail A Shares and Trust Shares) of the Equity Funds (plus a third series
of shares, i.e. Retail B Shares, of the Growth and Income Fund) are offered
under separate Prospectuses to different categories of investors. Each Money
Market Fund offers only one series of shares.

Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Except as noted below with respect to the Shareholder
Services Plan (which is currently applicable only to Retail A Shares of the
Equity Funds and to shares of the Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds), the Distribution and Services
Plan for Retail B Shares of the Growth and Income Fund, and differing
transfer agency fees, Trust Shares, Retail A Shares and Retail B Shares bear
pro rata the same expenses and are entitled equally to a Fund's dividends and
distributions. In the event of a liquidation or dissolution of Galaxy or an
individual Fund, shareholders of a particular Fund would be entitled to
receive the assets available for distribution belonging to such Fund, and a
proportionate distribution, based upon the relative asset values of Galaxy's
respective Funds, of any general assets of Galaxy not belonging to any
particular Fund, which are available for distribution. Shareholders of a
Fund are entitled to participate in the net distributable assets of the
particular Fund involved in liquidation, based on the number of shares of the
Fund that are held by each shareholder, except that currently each Equity
Fund's Retail A Shares and shares of each Money Market Fund would be solely
responsible for the Fund's

21
<PAGE>

payments to Service Organizations under the Shareholder Services Plan and the
Growth and Income Fund's Retail B Shares would be solely responsible for the
Fund's payments to FD Distributors and to Service Organizations under the
Distribution and Services Plan.

Holders of all outstanding shares of a particular Fund will vote
together in the aggregate and not by series on all matters, except that only
Retail A Shares and Trust Shares of a Fund (shares of the Money Market Funds)
will be entitled to vote on matters submitted to a vote of shareholders
pertaining to Galaxy's Shareholder Services Plan for Retail A Shares and
Trust Shares and only Retail B Shares of the Growth and Income Fund will be
entitled to vote on matters submitted to a vote of shareholders pertaining to
Galaxy's Distribution and Services Plan for Retail B Shares. Further,
shareholders of all of the Funds, as well as those of any other investment
portfolio now or hereafter offered by Galaxy, will vote together in the
aggregate and not separately on a Fund-by-Fund basis, except as otherwise
required by law or when permitted by the Board of Trustees. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted to the holders
of the outstanding voting securities of an investment company such as Galaxy
shall not be deemed to have been effectively acted upon unless approved by
the holders of a majority of the outstanding shares of each Fund affected by
the matter. A particular Fund is deemed to be affected by a matter unless it
is clear that the interests of each Fund in the matter are substantially
identical or that the matter does not affect any interest of the Fund. Under
the Rule, the approval of an investment advisory agreement or any change in
fundamental investment policy would be effectively acted upon with respect to
a Fund only if approved by a majority of the outstanding shares of such Fund
(irrespective of series designation). However, the Rule also provides that
the ratification of the appointment of independent public accountants, the
approval of principal underwriting contracts, and the election of trustees
may be effectively acted upon by shareholders of Galaxy voting without regard
to class or series.

Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not
cumulative and, accordingly, the holders of more than 50% in the aggregate of
Galaxy's outstanding shares may elect all of the trustees, irrespective of
the votes of other shareholders.

Galaxy does not intend to hold annual shareholder meetings except as may
be required by the 1940 Act. Galaxy's Declaration of Trust provides that a
meeting of shareholders shall be called by the Board of Trustees upon a
written request of shareholders owning at least 10% of the outstanding shares
of Galaxy entitled to vote.

22
<PAGE>

in connection therewith, to cause all outstanding shares of any Fund to be
redeemed at their net asset value or converted into shares of another class
of Galaxy's shares at the net asset value. In the event that shares are
redeemed in cash at their net asset value, a shareholder may receive in
payment for such shares, due to changes in the market prices of the Fund's
portfolio securities, an amount that is more or less than the original
investment. The exercise of such authority by the Board of Trustees will be
subject to the provisions of the 1940 Act, and the Board of Trustees will not
take any action described in this paragraph unless the proposed action has
been disclosed in writing to the Fund's shareholders at least 30 days prior
thereto.

ADDITIONAL INFORMATION CONCERNING TAXES

IN GENERAL

The following summarizes certain additional tax considerations generally
affecting the Funds and their shareholders that are not described in the
Funds' Prospectuses. No attempt is made to present a detailed explanation of
the tax treatment of the Funds or their shareholders, and the discussion here
and in the Prospectuses is not intended as a substitute for careful tax
planning. Potential investors should consult their tax advisers with specific
reference to their own tax situation.

Each Fund of Galaxy is treated as a separate corporate entity under the
Internal Revenue Code of 1986, as amended, (the "Code"), and each Fund
intends to qualify as a "regulated investment company" under the Code. By
following this policy, each Fund expects to eliminate or reduce to a nominal
amount the federal income taxes to which it may be subject. If for any
taxable year a Fund does not qualify for the special federal tax treatment
afforded regulated investment companies, all of the Fund's taxable income
would be subject to tax at regular corporate rates without any deduction for
distributions to shareholders. In such event, a Fund's distributions to
shareholders (including amounts derived from interest on Municipal
Securities) would be taxable as ordinary income, to the extent of the current
and accumulated earnings and profits of the particular Fund, and would be
eligible for the dividends received deduction in the case of corporate
shareholders.

Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its exempt-interest income, if any, net of
certain deductions for such year (the "Distribution Requirement"). In
addition, each Fund must satisfy certain requirements with respect to the
source of its income for a taxable year. At least 90% of the gross income of
each Fund must be derived from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies, and other income (including, but not
limited to, gains from options, futures, or forward contracts) derived with
respect to the Fund's business of investing in such stock, securities or
currencies (the "Income Requirement"). The Treasury Department may by
regulation exclude from qualifying income foreign currency gains which are
not directly related to a Fund's principal business of investing in stock or
securities, or options and futures

23
<PAGE>

with respect to stock or securities. Any income derived by a Fund from a
partnership or trust is treated for this purpose as derived with respect to
the Fund's business of investing in stock, securities or currencies, only to
the extent that such income is attributable to items of income which would
have been qualifying income if realized by the Fund in the same manner as by
the partnership or trust.

Substantially all of each Fund's net realized long-term capital gain
(excess of net long-term capital gain over net short-term capital loss), if
any, will be distributed at least annually to Fund shareholders. A Fund will
generally have no tax liability with respect to such gains and the
distributions will be taxable to Fund shareholders who are not currently
exempt from federal income taxes as long-term capital gains, regardless of
how long the shareholders have held Fund shares and whether such gains are
received in cash or reinvested in additional shares.

Each Fund will designate the tax status of any distributions in a
written notice mailed to shareholders within 60 days after the close of its
taxable year. Shareholders should note that, upon the sale or exchange of
Fund shares, if the shareholder has not held such shares for more than six
months, any loss on the sale or exchange of those shares will be treated as
long-term capital loss to the extent of the capital gain dividends received
with respect to the shares.

Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable
and the phase-out of personal exemptions, the maximum effective marginal rate
of tax for some taxpayers may be higher. An individual's long-term capital
gains on stocks and securities are taxable at a maximum nominal rate of 20%
for gains on capital assets held more than 12 months. For corporations,
long-term capital gains and ordinary income are both taxable at a maximum
average rate of 35% (a maximum effective marginal rate of 39% applies in the
case of corporations having taxable income between $100,000 and $335,000).

A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to distribute with respect to each calendar year at least
98% of their ordinary taxable income and capital gain net income (excess of
capital gains over capital losses) for the 1-year period ending on October 31
of such calendar year. The balance of such income must be distributed during
the next calendar year. Each Fund intends to make sufficient distributions
or deemed distributions of its ordinary taxable income and any capital gain
net income prior to the end of each calendar year to avoid liability for this
excise tax.

The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid
to any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to withholding by the Internal Revenue Service for
failure to properly include on his or her return payments of taxable interest
or dividends, or (iii) has failed to certify to the Funds that he or she is
not subject to back up withholding when required to do so or that he or she
is an "exempt recipient."

24
<PAGE>

CONNECTICUT MUNICIPAL MONEY MARKET AND MASSACHUSETTS MUNICIPAL MONEY MARKET
FUNDS

Shareholders are not required to pay the federal income tax on any
dividends received from the funds that represent net interest on tax-exempt
Municipal Securities.

In the case of a corporate shareholder, dividends of the Funds that
represent interest on Municipal Securities may be subject to the 20%
corporate alternative minimum tax. The corporate alternative minimum tax
treats 75% of the excess of a taxpayer's pre-tax "adjusted current earnings"
over the taxpayer's alternative minimum taxable income as a tax preference
item. Since "earnings and profits" generally includes the full amount of any
Fund's dividend, and alternative minimum taxable income does not include the
portion of a Fund's dividend attributable to Municipal Securities that are
not private activity bonds, 75% of the difference will be included in the
calculation of the corporation's alternative minimum tax.

Dividends of any of the Funds representing net interest income on some
temporary investments, and any realized net short-term gains are taxed at
ordinary income rates. Long-term capital gains distributions are taxed as
long-term capital gains (generally taxed at a 20% tax rate for noncorporate
shareholders), regardless of the length of time the Fund shares have been
held by the shareholder. Some 1998 distributions of gain realized in 1997
may be subject to a federal tax rate of 28%. These tax consequences apply
whether dividends are received in cash or as additional shares. Information
on the tax status of dividends and distributions is provided annually.

GROWTH AND INCOME AND SMALL CAP VALUE FUNDS

Shareholders are subject to federal income tax on dividends received as
cash or additional shares.

Capital gains experienced by the Funds could result in an increase in
dividends. Capital losses could result in a decrease in dividends.

TAXATION OF CERTAIN FINANCIAL INSTRUMENTS

Special rules govern the federal income tax treatment of financial
instruments that may be held by the Funds. These rules may have a particular
impact on the amount of income or gain that the Funds must distribute to
their respective shareholders to comply with the Distribution Requirement and
on the income or gain qualifying under the Income Requirement described above.

Generally, futures contracts and options on futures contracts held by
the Equity Funds and certain foreign currency contracts entered into by the
Equity Funds (as described above) (collectively, the "Instruments") at the
close of their taxable year are treated for federal income tax purposes as
sold for their fair market value on the last business day of such year, a
process known as "mark-to-market." Forty percent of any gain or loss
resulting from such constructive sales will be treated as short-term capital
gain or loss, and 60% of such gain or loss will be

25
<PAGE>

treated as long-term capital gain or loss without regard to the period a Fund
has held the Instruments ("the 40-60 rule"). The amount of any capital gain
or loss actually realized by a Fund in a subsequent sale or other disposition
of those Instruments is adjusted to reflect any capital gain or loss taken
into account by the Fund in a prior year as a result of the constructive sale
of the Instruments. Losses with respect to futures contracts to sell,
related options and certain foreign currency contracts, which are regarded as
parts of a "mixed straddle" because their values fluctuate inversely to the
values of specific securities held by the Funds, are subject to certain loss
deferral rules, which limit the amount of loss currently deductible on either
part of the straddle to the amount thereof that exceeds the unrecognized
gain, if any, with respect to the other part of the straddle, and to certain
wash sales regulations. With respect to certain Instruments, deductions for
interest and carrying charges may not be allowed. Notwithstanding the rules
described above, with respect to futures contracts that are part of a "mixed
straddle" to sell related options, and certain foreign currency contracts
that are properly identified as such, a Fund may make an election which will
exempt (in whole or in part) those identified futures contracts, options and
foreign currency contracts from the Rules of Section 1256 of the Code
including "the 40-60 rule" and "mark-to-market," but gains and losses will be
subject to such short sales, wash sales and loss deferral rules and the
requirement to capitalize interest and carrying charges. Under Temporary
Regulations, a Fund would be allowed (in lieu of the foregoing) to elect
either (1) to offset gains or losses from portions which are part of a mixed
straddle by separately identifying each mixed straddle to which such
treatment applies, or (2) to establish a mixed straddle account for which
gains and losses would be recognized and offset on a periodic basis during
the taxable year. Under either election, "the 40-60 rule" will apply to the
net gain or loss attributable to the Instruments, but in the case of a mixed
straddle account election, not more than 50% of any net gain may be treated
as long-term, and no more than 40% of any net loss may be treated as
short-term.

A foreign currency contract must meet the following conditions in order
to be subject to the mark-to-market rules described above: (1) the contract
must require delivery of, or the settlement of the contract must depend on
the value of, a foreign currency of a type in which regulated futures
contracts are traded; (2) the contract must be entered into at arm's length
at a price determined by reference to the price in the interbank market; and
(3) the contract must be traded in the interbank market. The Treasury
Department has broad authority to issue regulations under the provisions
respecting foreign currency contracts. As of the date of this Statement of
Additional Information, the Treasury Department has not issued any such
regulations. Other foreign currency contracts entered into by an Equity Fund
may result in the creation of one or more straddles for federal income tax
purposes, in which case certain loss deferral, short sales, and wash sales
rules and the requirement to capitalize interest and carrying charges may
apply.

Some of the non-U.S. dollar denominated investments that an Equity Fund
may make, such as foreign securities, European Depository Receipts, Global
Depository Receipts and foreign currency contracts, may be subject to the
provisions of Subpart J of the Code, which govern the federal income tax
treatment of certain transactions denominated in terms of a currency other
than the U.S. dollar or determined by reference to the value of one or more
currencies other than the U.S dollar. The types of transactions covered by
these provisions

26
<PAGE>

include the following: (1) the acquisition of, or becoming the obligor under,
a bond or other debt instrument (including, to the extent provided in
Treasury regulations, preferred stock); (2) the accruing of certain trade
receivables and payables; and (3) the entering into or acquisition of any
forward contract, futures contract, option and similar financial instrument.
The disposition of a currency other than the U.S. dollar by a U.S. taxpayer
also is treated as a transaction subject to the special currency rules.
However, foreign currency-related regulated futures contracts and non-equity
options are generally not subject to the special currency rules if they are
or would be treated as sold for their fair market value at year-end under the
mark-to-market rules, unless an election is made to have such currency rules
apply. With respect to transactions covered by the special rules, foreign
currency gain or loss is calculated separately from any gain or loss on the
underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the taxpayer and which are
not part of a straddle. In accordance with Treasury regulations, certain
transactions that are part of a "Section 988 hedging transaction" (as defined
in the Code and Treasury regulations) may be integrated and treated as a
single transaction or otherwise treated consistently for purposes of the
Code. "Section 988 hedging transactions" are not subject to the
mark-to-market or loss deferral rules under the Code. Gain or loss
attributable to the foreign currency component of transactions engaged in by
the Equity Funds, which is not subject to the special currency rules (such as
foreign equity investments other than certain preferred stocks), is treated
as capital gain or loss and is not segregated from the gain or loss on the
underlying transaction.

An Equity Fund may be subject to U.S. federal income tax on a portion of
any "excess distribution" or a gain from the disposition of stock in a
passive foreign investment company even if the Fund distributes the income to
its shareholders. To avoid such tax, a Fund may instead elect to treat such
a company as a "qualified electing fund" or to mark such stock to market as
of the end of the year; under either of these alternative approaches the Fund
may recognize taxable income in a year without receiving any corresponding
amount of cash.

STATE TAXATION

Depending upon the extent of Galaxy's activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, each Fund may be subject to the tax laws of such states
or localities. In addition, in those states and localities that have income
tax laws, the treatment of a Fund and its shareholders under such laws may
differ from their treatment under federal income tax laws. Under state or
local law, distributions of net investment income may be taxable to
shareholders as dividend income even though a substantial portion of such
distributions may be derived from interest on U.S. Government obligations
which, if realized directly, would be exempt from such income taxes.
Shareholders are advised to consult their tax advisers concerning the
application of state and local taxes.

27
<PAGE>

MASSACHUSETTS STATE INCOME TAX

Shareholders of the Massachusetts Municipal Money Market Fund subject to
Massachusetts personal income taxation will not be required to pay
Massachusetts personal income tax on that portion of their dividends which is
attributable to (and is properly designated as attributable to) interest
earned on Massachusetts tax-free municipal obligations, gain from the sale of
certain of such obligations, interest earned on obligations of the United
States and interest earned on obligations of United States territories or
possessions to the extent interest on such obligations is exempt from
taxation by the state pursuant to Federal law. Shareholders subject to
Massachusetts income taxation will be subject to Massachusetts personal
income tax and corporate shareholders subject to the Massachusetts corporate
excise tax will be subject to that tax on all dividends from the
Massachusetts Municipal Money Market Fund.

TRUSTEES AND OFFICERS

The trustees and executive officers of Galaxy, their addresses,
principal occupations during the past five years, and other affiliations are
as follows:

<TABLE>
<CAPTION>
Positions
with The Principal Occupation
Galaxy During Past 5 Years
Name and Address Fund and Other Affiliations
---------------- ---- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & President & Director, Vicks
Vicks Lithograph & Trustee Lithograph & Printing Corporation
Printing Corporation (book manufacturing and commercial
Commercial Drive printing); Director, Utica Fire
P.O. Box 270 Insurance Company; Trustee,
Yorkville, NY 13495 Savings Bank of Utica; Director,
Age 64 Monitor Life Insurance Company;
Director, Commercial Travelers
Mutual Insurance Company; Trustee,
The Galaxy VIP Fund; Trustee,
Galaxy Fund II.

John T. O'Neill(1) President, Executive Vice President and CFO,
Treasurer Hasbro, Inc. (toy and game
Hasbro, Inc. & Trustee manufacturer); Trustee, The Galaxy
1027 Newport Avenue VIP Fund; Trustee, Galaxy Fund II.
Pawtucket, RI 02862
Age 53
</TABLE>

28
<PAGE>

<TABLE>
<CAPTION>
Positions
with The Principal Occupation
Galaxy During Past 5 Years
Name and Address Fund and Other Affiliations
---------------- ---- ----------------------
<S> <C> <C>
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day
of Minnesota Travel, Inc.; Trustee, Religious
Winona, MN 55987 Communities Trust; Trustee, The
Age 57 Galaxy VIP Fund; Trustee, Galaxy
Fund II.

Donald B. Miller Trustee Chairman, Horizon Media, Inc.
10725 Quail Covey Road (broadcast services); Director/Trustee,
Boynton Beach, FL 33436 Lexington Funds; Chairman, Executive
Age 72 Committee, Compton International, Inc.
(advertising agency); Trustee,
Keuka College; Trustee, The Galaxy
VIP Fund; Trustee, Galaxy Fund II.

James M. Seed Trustee Chairman and President, The Astra
The Astra Ventures, Inc. Projects, Incorporated (land
One Citizens Plaza development); President, The Astra
Providence, RI 02903 Ventures, Incorporated (previously,
Age 56 Buffinton Box Company - manufacturer
of cardboard boxes); Commissioner,
Rhode Island Investment Commission;
Trustee, The Galaxy VIP Fund; Trustee,
Galaxy Fund II.

Bradford S. Wellman(1) Trustee Private Investor; Vice President and
2468 Ohio Street Director, Acadia Management Company;
Bangor, ME 04401 Director, Essex County Gas Company,
Age 66 until January 1994; Director, Maine
Mutual FireInsurance Co.; Member,
Maine Finance Authority; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy
Fund II.

W. Bruce McConnel, III Secretary Partner of the law firm Drinker
Philadelphia National Biddle & Reath LLP, Philadelphia,
Bank Building Pennsylvania.
1345 Chestnut Street.
Philadelphia, PA 19107
Age 54
</TABLE>

29
<PAGE>

<TABLE>
<CAPTION>
Positions
with The Principal Occupation
Galaxy During Past 5 Years
Name and Address Fund and Other Affiliations
---------------- ---- ----------------------
<S> <C> <C>
Jylanne Dunne Vice Vice President, First Data
First Data Investor Services President Investor Services Group, Inc.,
Group, Inc. and 1990 to present.
4400 Computer Drive Assistant
Westboro, MA 01581-5108 Treasurer
Age 38
</TABLE>

- ----------------------------------
(1) An interested person within the definition set forth in Section 2(a)(19)
of the 1940 Act.

Effective March 5, 1998, each trustee receives an annual aggregate fee
of $40,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund
("Galaxy VIP") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"),
plus an additional $2,500 for each in-person Galaxy Board meeting attended
and $1,500 for each in-person Galaxy VIP or Galaxy II Board meeting attended
not held concurrently with an in-person Galaxy meeting, and is reimbursed for
expenses incurred in attending all meetings. Each trustee also receives $750
for each telephone Board meeting in which the trustee participates, $1,000
for each in-person Board committee meeting attended and $500 for each
telephone Board committee meeting in which the trustee participates. The
Chairman of the Boards of the Trusts is entitled to an additional annual
aggregate fee in the amount of $4,000, and the President and Treasurer of the
Trusts is entitled to an additional annual aggregate fee of $2,500 for their
services in these respective capacities. The foregoing trustees' and
officers' fees are allocated among the portfolios of the Trusts based on
their relative net assets. Prior to March 5, 1998, (i) each trustee received
an annual aggregate fee of $29,000 for his services as a trustee of the
Trusts, plus an additional $2,250 for each in-person Galaxy Board meeting
attended and $1,500 for each in-person Galaxy VIP or Galaxy II Board meeting
attended not held concurrently with an in-person Galaxy Board meeting, and
(ii) the President and Treasurer of the Trusts received the same fees as they
are currently paid for their services in these capacities.

Effective March 1, 1996, each trustee became entitled to participate in
The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation
Plans (the "Original Plans"). Effective January 1, 1997, the Original Plans
were merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had
been invested by the Trusts in the shares of one or more portfolios in the
Trusts, or other types of investment options, and the amount paid to the
trustees under the Plan will be determined based upon the performance of such
investments. Deferral of trustees' fees will have no effect on a portfolio's
assets, liabilities, and net income per share, and will not obligate the
Trusts to retain the services of any trustee or obligate a portfolio to any
level of compensation to the trustee. The Trusts may invest in underlying
securities without shareholder approval.

30
<PAGE>

No employee of First Data Investor Services Group, Inc. ("Investor
Services Group"), receives any compensation from Galaxy for acting as an
officer. No person who is an officer, director or employee of Fleet, or any
of its affiliates, serves as a trustee, officer or employee of Galaxy. The
trustees and officers of Galaxy own less than 1% of its outstanding shares.

The following chart provides certain information about the fees received
by Galaxy's trustees for the fiscal year ended October 31, 1997:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Pension or Total
Retirement Compensation
Benefits from Galaxy and
Aggregate Accrued as Fund
Name Compensation from Part of Fund Complex* Paid to
of Person/Position Galaxy Expenses Trustees
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $34,591 None $38,500
Trustee

Dwight E. Vicks, Jr. $38,184 None $42,500
Chairman and Trustee

Donald B. Miller** $34,574 None $38,500
Trustee

Rev. Louis DeThomasis $34,591 None $38,500
Trustee

John T. O'Neill $36,837 None $41,000
President, Treasurer
and Trustee

James M. Seed** $34,574 None $38,500
Trustee
- -------------------------------------------------------------------------------
</TABLE>

- ----------------------------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy
Fund II.

** Deferred compensation (including interest) in the amounts of $35,777 and
$40,992 accrued during Galaxy's fiscal year ended October 31, 1997 for
Messrs. Miller and Seed, respectively.

31
<PAGE>

SHAREHOLDER AND TRUSTEE LIABILITY

Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the
obligations of the trust. However, Galaxy's Declaration of Trust provides
that shareholders shall not be subject to any personal liability for the acts
or obligations of Galaxy, and that every note, bond, contract, order or other
undertaking made by Galaxy shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of any shareholder
held personally liable solely by reason of his or her being or having been a
shareholder and not because of his or her acts or omissions outside such
capacity or some other reason. The Declaration of Trust also provides that
Galaxy shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of Galaxy, and shall satisfy any
judgment thereon. Thus, the risk of shareholder liability is limited to
circumstances in which Galaxy itself would be unable to meet its obligations.

The Declaration of Trust states further that no trustee, officer or
agent of Galaxy shall be personally liable for or on account of any contract,
debt, claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person
for any action or failure to act except by reason of his own bad faith,
willful misfeasance, gross negligence or reckless disregard of his duties as
trustee. The Declaration of Trust also provides that all persons having any
claim against the trustees or Galaxy shall look solely to the trust property
for payment.

With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of
any proceeding in which he may be involved or with which he may be threatened
by reason of his being or having been a trustee, and that the Board of
Trustees shall indemnify representatives and employees of Galaxy to the same
extent to which they themselves are entitled to indemnification.

ADVISORY, ADMINISTRATION, CUSTODIAN AND
TRANSFER AGENCY AGREEMENTS

Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the
Funds as described in the Prospectuses. Fleet has also agreed to pay all
expenses incurred by it in connection with its activities under the advisory
agreement other than the cost of securities (including brokerage commissions)
purchased for the Funds. See "Expenses" in the Prospectuses.

For the fiscal year ended October 31, 1997, Fleet received advisory fees
of $497,713, $251,050, $1,473,550 and $2,668,193 with respect to the
Connecticut Municipal Money Market Fund, Massachusetts Municipal Money Market
Fund, Small Cap Value Fund and Growth and Income Fund, respectively, and
reimbursed expenses of $62,664, $54,862, $103,101 and

32
<PAGE>

$306,295 with respect to the Connecticut Municipal Money Market Fund,
Massachusetts Municipal Money Market Fund, Small Cap Value Fund and Growth
and Income Fund, respectively.

For the period from December 4, 1995 to October 31, 1996, Fleet received
advisory fees of $386,073, $154,616, $1,143,059 and $1,790,255 with respect
to the Connecticut Municipal Money Market Fund, Massachusetts Municipal Money
Market Fund, Small Cap Value Fund and Growth and Income Fund, respectively,
and reimbursed expenses of $93,862, $90,548, $63,394 and $99,656 with respect
to the Connecticut Municipal Money Market Fund, Massachusetts Municipal Money
Market Fund, Small Cap Value Fund and Growth and Income Fund, respectively.

For the period from November 1, 1995 to December 3, 1995, Shawmut Bank,
N.A. ("Shawmut"), the investment adviser for the Predecessor Funds, earned
the following advisory fees: $43,242, $17,003, $128,152 and $207,833 with
respect to the Predecessor Connecticut Municipal Money Market Fund,
Predecessor Massachusetts Municipal Money Market Fund, Predecessor Small Cap
Value Fund and Predecessor Growth and Income Fund, respectively.

For the fiscal year ended October 31, 1995, Shawmut earned the following
advisory fees: Predecessor Connecticut Municipal Money Market Fund,
$544,556, of which $177,977 was voluntarily waived and $35,932 was reimbursed
in expenses; Predecessor Massachusetts Municipal Money Market Fund, $168,602,
of which $108,318 was voluntarily waived and $46,320 was reimbursed in
expenses; Predecessor Growth and Income Fund, $2,067,505, of which $365,382
was voluntarily waived; and Predecessor Small Cap Value Fund, $1,304,952, of
which $304,915 was voluntarily waived.

The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its duties under the advisory agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Fleet in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. Unless sooner terminated, the advisory agreement
will continue in effect with respect to a particular Fund until August 10,
1998, and thereafter from year to year as long as such continuance is
approved at least annually (i) by the vote of a majority of trustees who are
not parties to such advisory agreement or interested persons (as defined in
the 1940 Act) of any such party, cast in person at a meeting called for the
purpose of voting on such approval; and (ii) by Galaxy's Board of Trustees,
or by a vote of a majority of the outstanding shares of such Fund. The term
"majority of the outstanding shares of such Fund" means, with respect to
approval of an advisory agreement, the vote of the lesser of (i) 67% or more
of the shares of the Fund present at a meeting, if the holders of more than
50% of the outstanding shares of the Fund are present or represented by
proxy, or (ii) more than 50% of the outstanding shares of the Fund. The
advisory agreement may be terminated by Galaxy or by Fleet on sixty days'
written notice, and will terminate immediately in the event of its assignment.

Fleet Bank, an affiliate of Fleet, is paid a fee for sub-account and
administrative services

33
<PAGE>

performed with respect to Trust Shares of the Equity Funds held by defined
contribution plans. Pursuant to an agreement between Fleet Bank and Investor
Services Group, Fleet will be paid $21.00 per year for each defined
contribution plan participant sub-account. As of October 31, 1997, there
were approximately 15,893 defined contribution plan participant sub-accounts
invested in Trust Shares of the Equity Funds; thus it is expected that Fleet
Bank will receive annually $333,753 for sub-account services. Investor
Services Group bears this expense directly, and shareholders of Trust Shares
of the Equity Funds bear this expense indirectly through fees paid to
Investor Services Group for transfer agency services.

Investor Services Group serves as Galaxy's administrator. Under the
administration agreement, Investor Services Group has agreed to maintain
office facilities for Galaxy, furnish Galaxy with statistical and research
data, clerical, accounting, and bookkeeping services, certain other services
such as internal auditing services required by Galaxy, and compute the net
asset value and net income of the Funds. Investor Services Group prepares
the Funds' annual and semi-annual reports to the SEC, federal and state tax
returns, and filings with state securities commissions, arranges for and
bears the cost of processing share purchase and redemption orders, maintains
the Funds' financial accounts and records and generally assists in all
aspects of Galaxy's operations.

Prior to March 31, 1995, Galaxy's administrator and transfer agent was
440 Financial Group of Worcester, Inc., a wholly-owned subsidiary of State
Mutual Life Assurance Company of America. On March 31, 1995, Investor
Services Group, a wholly-owned subsidiary of First Data Corporation, acquired
all of the assets of 440 Financial Group of Worcester, Inc.

For the fiscal year ended October 31, 1997, Investor Services Group
received administration fees of $101,578, $51,212, $160,350 and $290,324 with
respect to the Connecticut Municipal Money Market Fund, Massachusetts
Municipal Money Market Fund, Small Cap Value Fund and Growth and Income Fund,
respectively.

For the period December 4, 1995 through October 31, 1996, Investor
Services Group received administration fees of $81,178, $32,643, $129,102 and
$203,187 with respect to the Connecticut Municipal Money Market Fund,
Massachusetts Municipal Money Market Fund, Small Cap Value Fund and Growth
and Income Fund, respectively.

For the period from November 1, 1995 to December 3, 1995, Federated
Administrative Services ("Federated"), a subsidiary of Federated Investors,
served as administrator of the Predecessor Funds and earned the following
administrative fees: Predecessor Connecticut Municipal Money Market Fund,
$12,973, none of which was voluntarily waived; Predecessor Massachusetts
Municipal Money Market Fund, $5,101, none of which was voluntarily waived;
Predecessor Small Cap Value Fund, $19,223, none of which was voluntarily
waived; and Predecessor Growth and Income Fund, $31,175, none of which was
voluntarily waived.

For the fiscal year ended October 31, 1995, Federated earned the
following administrative fees: Predecessor Connecticut Municipal Money
Market Fund, $109,347, none of which was voluntarily waived; Predecessor
Massachusetts Municipal Money Market Fund, $50,000, none of

34
<PAGE>

which was voluntarily waived; Predecessor Small Cap Value Fund, $131,149,
none of which was voluntarily waived; and Predecessor Growth and Income Fund,
$207,280, none of which was voluntarily waived.

CUSTODIAN AND TRANSFER AGENT

The Chase Manhattan Bank ("Chase Manhattan") serves as custodian to the
Funds pursuant to a Global Custody Agreement. Under its custody agreement,
Chase Manhattan has agreed to: (i) maintain a separate account or accounts
in the name of each Fund; (ii) hold and disburse portfolio securities on
account of each Fund; (iii) collect and make disbursements of money on behalf
of each Fund; (iv) collect and receive all income and other payments and
distributions on account of each Fund's portfolio securities; (v) respond to
correspondence from security brokers and others relating to its duties; and
(vi) make periodic reports to the Board of Trustees concerning the Funds'
operations. Chase Manhattan is authorized to select one or more banks or
trust companies to serve as sub-custodian for the Funds, provided that Chase
Manhattan shall remain responsible for the performance of all of its duties
under the custodian agreement and shall be liable to the Funds for any loss
which shall occur as a result of the failure of a sub-custodian to exercise
reasonable care with respect to the safekeeping of the Funds' assets. In
addition, Chase Manhattan may employ sub-custodians for the Equity Funds upon
prior approval by the Board of Trustees in accordance with the regulations of
the SEC, for the purpose of providing custodial services for the foreign
assets of those Funds held outside the United States. The assets of the
Funds are held under bank custodianship in compliance with the 1940 Act.

Investor Services Group also serves as Galaxy's transfer agent and
dividend disbursing agent pursuant to a Transfer Agency and Services
Agreement ("Transfer Agency Agreement"). Under the Transfer Agency
Agreement, Investor Services Group has agreed to: (i) issue and redeem shares
of each Fund; (ii) transmit all communications by each Fund to its
shareholders of record, including reports to shareholders, dividend and
distribution notices and proxy materials for meetings of shareholders; (iii)
respond to correspondence by security brokers and others relating to its
duties; (iv) maintain shareholder accounts; and (v) make periodic reports to
the Board of Trustees concerning Galaxy's operations.

PORTFOLIO TRANSACTIONS

Debt securities purchased or sold by the Money Market Funds are
generally traded in the over-the-counter market on a net basis (i.e., without
commission) through dealers, or otherwise involve transactions directly with
the issuer of an instrument. The cost of securities purchased from
underwriters includes an underwriting commission or concession, and the
prices at which securities are purchased from and sold to dealers include a
dealer's mark-up or mark-down.

Transactions in equity securities on U.S. stock exchanges for the Equity
Funds involve the payment of negotiated brokerage commissions. On U.S. stock
exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. Transactions in the over-the-counter market
are generally principal transactions with dealers and

35
<PAGE>

the costs of such transactions involve dealer spreads rather than brokerage
commissions. With respect to over-the-counter transactions, Fleet will
normally deal directly with the dealers who make a market in the securities
involved except in those circumstances where better prices and execution are
available elsewhere or as described below.

For the fiscal year ended October 31, 1997, the Growth and Income and
Small Cap Value Funds paid $851,919 and $173,335, respectively, in brokerage
commissions on brokerage transactions.

For the period December 4, 1995 through October 31, 1996, the Growth and
Income and Small Cap Value Funds paid $398,181 and $118,396, respectively, in
brokerage commissions on brokerage transactions. For the fiscal year ended
October 31, 1995, the Predecessor Growth and Income and Predecessor Small Cap
Value Funds paid $250,125 and $58,543, respectively, in brokerage commissions
on brokerage transactions.

The Equity Funds may engage in short-term trading to achieve their
investment objectives. Portfolio turnover may vary greatly from year to year
as well as within a particular year. The Money Market Funds do not intend to
seek profits from short-term trading. Their annual portfolio turnover will
be relatively high, but since brokerage commissions are normally not paid on
money market instruments, it should not have a material effect on the net
income of either of these Funds.

In purchasing or selling securities for the Funds, Fleet will seek to
obtain the best net price and the most favorable execution of orders. To the
extent that the execution and price offered by more than one broker/dealer
are comparable, Fleet may effect transactions in portfolio securities with
broker/dealers who provide research, advice or other services such as market
investment literature.

Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to,
Fleet, Investor Services Group, or their affiliates, and will not give
preference to affiliates and correspondent banks of Fleet with respect to
such transactions.

Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal
year. At October 31, 1997, the Growth and Income Fund held 42,000 shares of
common stock of Chase Manhattan Corp. (value $4,845,750) and 39,000 shares of
common stock of J.P. Morgan & Co. Inc. (value $4,280,250), Chase Manhattan &
J.P. Morgan are considered "regular broker dealers" of Galaxy. Chase
Manhattan Corp. and J.P. Morgan & Co., Inc. are the parents of Chase
Securities, Inc. and J.P. Morgan respectively.

36
<PAGE>

or account, the transaction will be averaged as to price, and available
investments allocated as to amount, in a manner which Fleet believes to be
equitable to the Fund and such other portfolio, investment company or
account. In some instances, this investment procedure may adversely affect
the price paid or received by a Fund or the size of the position obtained or
sold by such Fund. To the extent permitted by law, Fleet may aggregate the
securities to be sold or purchased for a Fund with those to be sold or
purchased for Galaxy's other Funds and portfolios, or other investment
companies or accounts in order to obtain best execution.

SHAREHOLDER SERVICES PLAN

As stated in the Prospectuses for the Funds, Galaxy may enter into
agreements ("Servicing Agreements") pursuant to its Shareholder Services Plan
("Services Plan") with Institutions and other organizations (including Fleet
Bank and its affiliates) (collectively, "Service Organizations") pursuant to
which Service Organizations will be compensated by Galaxy for offering to
provide certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares and Trust Shares of the Equity Funds and
shares of the Money Market Funds. As of October 31, 1997, Galaxy had entered
into Servicing Agreements only with Fleet Bank and affiliates. As of the
date of this Statement of Additional Information, the Servcies Plan has not
been implemented with respect to Trust Shares of the Equity Funds.

Each Servicing Agreement between Galaxy and a Service Organization
relating to the Services Plan described above requires that, with respect to
those Funds which declare dividends on a daily basis, the Service
Organization agrees to waive a portion of the servicing fee payable to it
under the Services Plan to the extent necessary to ensure that the fees
required to be accrued with respect to the Retail A Shares of such Funds
(shares of the Money Market Funds) on any day do not exceed the income to be
accrued to such shares on that day.

For the fiscal year ended October 31, 1997, payments to Service
Organizations totaled $111,361 with respect to shares of the Connecticut
Municipal Money Market Fund and $58,905 with respect to shares of the
Massachusetts Municipal Money Market Fund.

For the period December 4, 1995 through October 31, 1996, payments to
Service Organizations totaled $104,877 with respect to shares of the
Connecticut Municipal Money Market Fund and $38,441 with respect to shares of
the Massachusetts Municipal Money Market Fund.

Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of the Equity Funds and shares of the Money Market Funds.
Pursuant to the Plan, the Board of Trustees reviews, at least quarterly, a
written report of the amounts paid under the Servicing Agreements and the
purposes for which the expenditures were made. In addition, the arrangements
with Service Organizations must be approved annually by a majority of
Galaxy's trustees, including a majority of the trustees who are not
"interested persons" of Galaxy as defined in the 1940 Act

37
<PAGE>

and who have no direct or indirect financial interest in such arrangements
(the "Disinterested Trustees").

The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors
that there is a reasonable likelihood that the arrangements will benefit the
Funds and their shareholders by affording Galaxy greater flexibility in
connection with the efficient servicing of the accounts of the beneficial
owners of Retail A Shares of the Equity Funds and shares of the Money Market
Funds. Any material amendment to Galaxy's arrangements with Service
Organizations must be approved by a majority of Galaxy's Board of Trustees
(including a majority of the Disinterested Trustees). So long as Galaxy's
arrangements with Service Organizations are in effect, the selection and
nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed
to the discretion of such Disinterested Trustees.

DISTRIBUTOR

First Data Distributors, Inc., a wholly-owned subsidiary of Investor
Services Group, serves as Galaxy's Distributor. On March 31, 1995, Investor
Services Group acquired all of the issued and outstanding stock of FD
Distributors. Prior to that time, FD Distributors was a wholly-owned
subsidiary of 440 Financial Group of Worcester, Inc. and an indirect
subsidiary of State Mutual Life Assurance Company of America.

Unless otherwise terminated, the Distribution Agreement between Galaxy
and FD Distributors, remains in effect until May 31, 1999, and will continue
from year to year upon annual approval by Galaxy's Board of Trustees, or by
the vote of a majority of the outstanding shares of Galaxy and by the vote of
a majority of the Board of Trustees of Galaxy who are not parties to the
Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval. The Agreement
will terminate in the event of its assignment, as defined in the 1940 Act.

38
<PAGE>

<TABLE>
<CAPTION>
Brokerage
Net Compensation Commissions in
Underwriting on Redemption Connection
Discounts and and with Fund Other
Fund Commissions(1) Repurchase(2) Transactions Compensation(3)
---- -------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Connecticut N/A N/A $0 $121,294
Municipal Money
Market

Massachusetts N/A N/A $0 $ 59,621
Municipal Money
Market
- -------------------------------------------------------------------------------
</TABLE>

(1) Represents amounts received from front-end sales charges on Retail A
Shares and commissions received in connection with sales of Retail B
Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such
amounts were paid to affiliates of Fleet.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1997, which includes fees accrued in the fiscal year ended October 31,
1996 which were paid in 1997 (see "Shareholder Services Plan" and
"Distribution and Services Plan" above).

AUDITORS

PricewaterhouseCoopers LLP, independent certified public accountants,
with offices at One Post Office Square, Boston, Massachusetts 02109, serve
as auditors to Galaxy. The financial highlights for the Funds for the fiscal
year ended October 31, 1997 including in their Prospectuses and the financial
statements for the fiscal year ended October 31, 1997 contained in Galaxy's
Annual Report to Shareholders and incorporated by reference into the
Statement of Additional Information have been audited by
PricewaterhouseCoopers LLP or the period included in their report which
appears therein.

39
<PAGE>

COUNSEL

Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary
of Galaxy, is a partner), 1345 Chestnut Street, Suite 1100, Philadelphia,
Pennsylvania 19107, are counsel to Galaxy and will pass upon certain legal
matters on its behalf. The law firm of Day, Berry & Howard, Cityplace,
Hartford, Connecticut 06103-3499, serves as special Connecticut counsel to
Galaxy and has reviewed the portion of this Statement of Additional
Information and the Prospectuses with respect to the Connecticut Municipal
Money Market Fund concerning Connecticut taxes and the description of special
considerations relating to Connecticut Municipal Securities. The law firm of
Ropes & Gray, One International Place, Boston, Massachusetts 02110-2624,
serves as special Massachusetts counsel to Galaxy and has reviewed the
portion of the Prospectuses with respect to the Massachusetts Municipal Money
Market Fund concerning Massachusetts taxes and the description of special
considerations relating to Massachusetts Municipal Securities.

PERFORMANCE AND YIELD INFORMATION

YIELD QUOTATIONS -- CONNECTICUT MUNICIPAL MONEY MARKET AND MASSACHUSETTS
MUNICIPAL MONEY MARKET FUNDS

The standardized, annualized seven-day yields for the Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds are
computed by: (1) determining the net change, exclusive of capital changes, in
the value of a hypothetical pre-existing account in a Fund having a balance
of one share at the beginning of a seven-day period, for which the yield is
to be quoted, (2) dividing the net change in account value by the value of
the account at the beginning of the base period to obtain the base period
return, and (3) analyzing the results (I.E., multiplying the base period
return by (365/7)). The net change in the value of the account in each Fund
includes the value of additional shares purchased with dividends from the
original share and dividends declared on both the original share and any such
additional shares, and all fees that are charged by a Fund to all shareholder
accounts in proportion to the length of the base period, other than
non-recurring account and sales charges. For any account fees that vary with
the size of the account, the amount of fees charged is computed with respect
to the Fund's mean (or median) account size. The capital changes to be
excluded from the calculation of the net change in account value are realized
gains and losses from the sale of securities and unrealized appreciation and
depreciation. The effective compound yield quotation for each Fund is
computed by adding 1 to the unannualized base period return (calculated as
described above), raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.

The current yield for the Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds may be obtained by calling FD
Distributors at the telephone numbers provided on the cover page of the
applicable Prospectus. For the seven-day period ended October 31, 1997, the
annualized and effective yields of the Connecticut Municipal Money Market
Fund were 3.00% and 3.05%, respectively. For the seven-day period ended

40
<PAGE>

October 31, 1997, the annualized and effective yields of the Massachusetts
Municipal Money Market Fund were 2.96% and 3.00%, respectively.

In addition, the Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds may calculate a "tax equivalent yield." The tax
equivalent yield for a Fund is computed by dividing that portion of the
Fund's yield which is tax-exempt by one minus a stated income tax rate and
adding the product to that portion, if any, of the Fund's computed yield that
is not tax-exempt. Tax equivalent yields of the Connecticut Municipal Money
Market and Massachusetts Municipal Money Market Funds assume a 32.50% and
40.00% respective combined federal and state tax rate and indicate what each
Fund would have had to earn to equal its actual yield, assuming that income
earned by the Fund is 100% tax-exempt. The tax-equivalent yields for the
Connecticut Municipal Money Market Fund and Massachusetts Municipal Money
Market Fund, for the seven-day period, as so computed, ended October 31,
1997 were 4.44% and 4.93%, respectively.

TAX-EQUIVALENCY TABLES - CONNECTICUT MUNICIPAL MONEY MARKET AND MASSACHUSETTS
MUNICIPAL MONEY MARKET FUNDS

The Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds may use tax-equivalency tables in advertising and sales
literature. The interest earned by the Municipal Securities in the Funds'
respective portfolios generally remains free from federal regular income tax,
and from the regular personal income tax imposed by Connecticut and
Massachusetts.(1) As the tables below indicate, "tax-free" investments may
be attractive choices for investors, particularly in time of narrow spreads
between "tax-free" and taxable yields.

The charts below are for illustrative purposes only and use tax brackets
that were in effect beginning January 1, 1998. These are not indicators of
past or future performance of the Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds.

Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent for each chart. Furthermore,
additional state and local taxes paid on comparable taxable investments were
not used to increase federal deductions. Moreover, the charts do not reflect
the possible effect of all items relating to the effective marginal tax rate,
such as alternative minimum tax, personal exemptions, tax credits, the phase
out of exemptions or credits, itemized deductions (including the federal
deduction for state taxes paid) or the possible partial disallowance of
deductions.

Connecticut Note: The charts below do not address taxable equivalent
yields applicable to married taxpayers filing separate returns or heads of
households.

- -------------------------------
(1) Some portion of either Fund's income may be subject to the federal
alternative minimum tax and state and local regular or alternative
minimum taxes.

41
<PAGE>

Investors are urged to consult their own tax advisors as to these
matters.

TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF CONNECTICUT
<TABLE>
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Federal Tax Bracket:
15.00% 28.00% 31.00% 36.00% 39.60%

Combined Federal and State:
19.50% 32.50% 35.50% 40.50% 44.10%
- -----------------------------------------------------------------------------------------------------------------------------
Joint
Return: $1-41,200 $41,201-99,600 $99,601- 151,750 $151,751-271,050 Over $271,050

Single
Return: $1-24,650 $24,651-59,750 $59,751-124,650 $124,651-271,050 Over $271,050
- -----------------------------------------------------------------------------------------------------------------------------
Tax-Exempt
Yield:
Taxable Yield Equivalent
- -----------------------------------------------------------------------------------------------------------------------------

1.50% 1.86% 2.22% 2.33% 2.52% 2.68%

2.00% 2.48% 2.96% 3.10% 3.36% 3.58%

2.50% 3.11% 3.70% 3.88% 4.20% 4.47%

3.00% 3.73% 4.44% 4.65% 5.04% 5.37%

3.50% 4.35% 5.19% 5.43% 5.88% 6.26%

4.00% 4.97% 5.93% 6.20% 6.72% 7.16%

4.50% 5.59% 6.67% 6.98% 7.56% 8.05%

5.00% 6.21% 7.41% 7.75% 8.40% 8.94%

5.50% 6.83% 8.15% 8.53% 9.24% 9.84%

6.00% 7.45% 8.89% 9.30% 10.08% 10.73%
</TABLE>

42
<PAGE>

TAXABLE YIELD EQUIVALENT FOR 1998
STATE OF MASSACHUSETTS

<TABLE>
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Federal Tax Bracket:
15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State:
27.00% 40.00% 43.00% 48.00% 51.60%
- -----------------------------------------------------------------------------------------------------------------------------
Joint
Return: $1-42,350 $42,350-102,300 $102,300-155,950 $155,950-278,450 Over $278,450

Single
Return: $1-25,350 $25,350-61,400 $61,400-128,100 $128,100-278,450 Over $278,450
- -----------------------------------------------------------------------------------------------------------------------------
Tax-Exempt
Yield:
Taxable Yield Equivalent
- -----------------------------------------------------------------------------------------------------------------------------

1.50% 2.05% 2.50% 2.63% 2.88% 3.10%

2.00% 2.74% 3.33% 3.51% 3.85% 4.13%

2.50% 3.42% 4.17% 4.39% 4.81% 5.17%

3.00% 4.11% 5.00% 5.26% 5.77% 6.20%

3.50% 4.79% 5.83% 6.14% 6.73% 7.23%

4.00% 5.48% 6.67% 7.02% 7.69% 8.26%

4.50% 6.16% 7.50% 7.89% 8.65% 9.30%

5.00% 6.85% 8.33% 8.77% 9.62% 10.33%

5.50% 7.53% 9.17% 9.65% 10.58% 11.36%

6.00% 8.22% 10.00% 10.53% 11.54% 12.40%
</TABLE>

YIELD AND PERFORMANCE OF THE GROWTH AND INCOME AND SMALL CAP VALUE FUNDS

The Growth and Income and Small Cap Value Funds' 30-day (or one month)
standard yields described in their Prospectuses are calculated separately for
each series of shares in each Fund in accordance with the method prescribed
by the SEC for mutual funds:

a - b 6
YIELD = 2[(- - - - - + 1) - 1]
cd

Where: a = dividends and interest earned by a Fund
during the period;

b = expenses accrued for the period (net of
reimbursements);

c = average daily number of shares outstanding
during the period, entitled to receive dividends; and

d = maximum offering price per share on the last
day of the period.

43
<PAGE>

For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the Fund. Except as noted below,
interest earned on debt obligations held by a Fund is calculated by computing
the yield to maturity of each obligation based on the market value of the
obligation (including actual accrued interest) at the close of business on
the last business day of each month, or, with respect to obligations
purchased during the month, the purchase price (plus actual accrued interest)
and dividing the result by 360 and multiplying the quotient by the market
value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the
subsequent month that the obligation is held by the Fund. For purposes of
this calculation, it is assumed that each month contains 30 days. The
maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date. With respect to debt obligations purchased at a discount or
premium, the formula generally calls for amortization of the discount or
premium. The amortization schedule will be adjusted monthly to reflect
changes in the market value of such debt obligations. Expenses accrued for
the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts and to the particular series of shares
in proportion to the length of the base period and the Fund's mean (or
median) account size. Undeclared earned income will be subtracted from the
offering price per share (variable "d" in the formula).

Interest earned on tax-exempt obligations that are issued without
original issue discount and have a current market discount is calculated by
using the coupon rate of interest instead of the yield to maturity. In the
case of tax-exempt obligations that are issued with original issue discount
but which have discounts based on current market value that exceed the
then-remaining portion of the original issue discount (market discount), the
yield to maturity is the imputed rate based on the original issue discount
calculation. On the other hand, in the case of tax-exempt obligations that
are issued with original issue discount but which have discounts based on
current market value that are less than the then-remaining portion of the
original issue discount (market premium), the yield to maturity is based on
the market value.

With respect to mortgage or other receivables-backed obligations that
are expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay downs are
accounted for as an increase or decrease to interest income during the
period, and (ii) each Fund may elect either (a) to amortize the discount and
premium on the remaining security, based on the cost of the security, to the
weighted average maturity date, if such information is available, or to the
remaining term of the security, if any, if the weighted average date is not
available or (b) not to amortize discount or premium on the remaining
security.

Based on the foregoing calculations, for the 30-day period ended October
31, 1997, the yields for Trust Shares of the Growth and Income Fund and Small
Cap Value Fund were 1.24% and 0.21%, respectively.

44
<PAGE>

Each Fund that advertises its "average annual total return" computes
such return separately for each series of shares by determining the average
annual compounded rate of return during specified periods that equates the
initial amount invested to the ending redeemable value of such investment
according to the following formula:

ERV l/n
T = [(------) - 1]
P

Where: T = average annual total return;

ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the l, 5 or 10 year
(or other) periods at the end of the applicable period
(or a fractional portion thereof);

P = hypothetical initial payment of $1,000 less any
applicable sales charge; and

n = period covered by the computation, expressed in years.

Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment.
The formula for calculating aggregate total return is as follows:

ERV
Aggregate Total Return = [(------) - l]
P

The calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date (reflecting any sales load charged
upon such reinvestment), (2) all recurring fees charged to all shareholder
accounts are included, and (3) for any account fees that vary with the size
of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.

The average annual total returns for the one-year period ended October
31, 1997 and for the period from December 14, 1992 (date of initial public
offering) to October 31, 1997 were 30.43% and 17.85%, respectively, for Trust
Shares of the Growth and Income Fund, and 44.08% and 20.70%, respectively,
for Trust Shares of the Small Cap Value Fund.

45
<PAGE>

The aggregate total returns for Trust Shares of the Growth and Income
Fund and Small Cap Value Fund for the period December 14, 1992 (date of
initial public offering) to October 31, 1997 were 122.84% and 150.38%,
respectively.

MISCELLANEOUS

As used in the Prospectuses, "assets belonging to a Fund" or "assets
belonging to a particular series of a Fund" means the consideration received
by Galaxy upon the issuance of shares in that particular Fund or that
particular series of the Fund, together with all income, earnings, profits,
and proceeds derived from the investment thereof, including any proceeds from
the sale of such investments, any funds or payments derived from any
reinvestment of such proceeds and a portion of any general assets of Galaxy
not belonging to a particular series or Fund. In determining the net asset
value of a particular Fund or series of a Fund, assets belonging to the
particular Fund or series of the Fund are charged with the direct liabilities
in respect of that Fund or series and with a share of the general liabilities
of Galaxy, which are allocated in proportion to the relative asset values of
the respective series and Funds at the time of allocation. Subject to the
provisions of Galaxy's Declaration of Trust, determinations by the Board of
Trustees as to the direct and allocable liabilities, and the allocable
portion of any general assets with respect to a particular series or Fund,
are conclusive.

46
<PAGE>

(13.70%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000003748, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (34.36%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000016771, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (51.84%); International Equity Fund -- Norstar Trust Company, Gales &
Co., Funds Control, Account 00000004088, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (11.59%); Norstar Trust Company, Gales &
Co., Funds Control, Account 00000000876, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (39.24%); Norstar Trust Company, Gales &
Co., Funds Control, Account 00000000073, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (47.07%); Growth and Income Fund -- Norstar
Trust Company, Gales & Co., Funds Control, Account 05000503793, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (66.30%); Norstar Trust
Company, Gales & Co., Funds Control, Account 05000603873, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (29.85%); Asset
Allocation Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account
00000002598, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (14.30%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000000073, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (80.32%); Small Company Equity Fund -- Norstar Trust Company, Gales &
Co., Funds Control, Account 00000006102, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (5.76%); Norstar Trust Company, Gales &
Co., Funds Control, Account 00000001492, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (15.90%); Norstar Trust Company, Gales &
Co., Funds Control, Account 00000000046, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (70.60%); Small Cap Value Fund -- Norstar
Trust Company, Gales & Co., Funds Control, Account 06000503917, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (6.32%); Norstar Trust
Company, Gales & Co., Funds Control, Account 05000503999, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (71.98%); Norstar Trust
Company, Gales & Co., Funds Control, Account 05000503953, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (11.25%); Short-Term
Bond Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account
00000000064, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (41.78%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000001090, Attn: Julie Hogestyn, One East Avenue, Rochester, New York,
14638 (16.05%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000008627, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (42.06%); Intermediate Government Income Fund -- Norstar Trust Company,
Gales & Co., Funds Control, Account 00000007183, Attn: Julie Hogestyn, One
East Avenue, Rochester, New York 14638 (29.57%); Norstar Trust Company, Gales
& Co., Funds Control, Account 00000000037, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (28.12%); Norstar Trust Company, Gales &
Co., Funds Control, Account 00000038408, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (42.32%); Swarovski North America Ret Plan,
c/o Norstar Trust Co., Gates & Co., 159 East Main St., Rochester, NY 14638
(5.72%); High Quality Bond Fund -- Norstar Trust Company, Gales & Co., Funds
Control, Account 00000006095, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (11.82%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000001465, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (21.18%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000037, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (67.00%); Corporate Bond Fund -- Norstar Trust
Company, Gales

47
<PAGE>

& Co., Funds Control, Account 00000000046, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (53.41%); Norstar Trust Company, Gales &
Co., Funds Control, Account 00000006102, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (34.28%); Tax-Exempt Bond Fund -- Norstar
Trust Company, Gales & Co., Funds Control, Account 00000000670, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (20.10%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000028, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (37.86%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000005899, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (42.04%); New York
Municipal Bond Fund -- Norstar Trust Company, Gales & Co., Funds Control,
Account 00000005292, Attn: Julie Hogestyn, One East Avenue, Rochester, New
York 14638 (10.50%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000000019, Attn: Julie Hogestyn, One East Avenue, Rochester, New
York 14638 (13.66%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000001107, Attn: Julie Hogestyn, One East Avenue, Rochester, New
York 14638 (75.75%); Connecticut Municipal Bond Fund -- Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000037, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (20.74%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000019, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (78.60%); and
Massachusetts Municipal Bond Fund --Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000073, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (36.98%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000019, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (63.02%).

As of January 28, 1998, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding
Retail A Shares of each of Galaxy's investment portfolios (including shares
of the Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds) were as follows: Tax-Exempt Money Market Fund -- Hope H. Van
Beuren, P.O. Box 4098, Middletown, RI 02842 (15.35%); Massachusetts Municipal
Money Market Fund -- Fleet New York, Fleet Investment Services, 160 East Main
St., NY/RO/TO3C, Rochester, NY 14638 (44.97%); Connecticut Municipal Money
Market Fund -- Fleet New York, Fleet Investment Services, 159 East Main St.,
NY/RO/TO3C, Rochester, NY 14638 (30.56%); International Equity Fund -- Credit
Suisse First Boston Corp., 11 Madison Ave., 4th Floor, Attn: Mark Gorton, New
York, NY 10010 (8.56%); Massachusetts Municipal Bond Fund -- New England
Realty Associates, Robert Bilse, Ronald Brown, Howard Brown & Carl Vajeri, 39
Brighton Ave., Boston, MA 02128 (5.73%); and Rhode Island Municipal Bond Fund
- -- Norstar Trust Company, Gales & Co., Funds Control, Attn: Julie Hogestyn,
One East Ave., Rochester, NY 14638 (33.61%); James R. McCulloch, c/o
Microfibre, P.O. Box 1208, Pawtucket, RI 02860 (7.65%); Gerald M. Gannon, 293
Promenade Ave., Warwick, RI 02886-8324 (5.81%).

48
<PAGE>

14006, Account 05100347130, (6.06%); Peter Daniel Mendelsohn, 540 East 6th
Street, Apt. 2B, New York, NY 10009, Account 05100353961, (6.85%); Thomas A.
Dowd, Myrna L. Dowd(JTWROS) 9 Cypress Ave., Shrewsbury, MA 01546, Account
06100563501, (17.13%); Mario J. Vidal, Customer Nathan S. Vidal, 106
Aquidneck Street, New Bedford, MA 02744, Account 06100567151, (8.54%);
Barbara A. Saganich, 4 St. James Circle, Acton, MA 01720, Account
05100663842, (5.09%); High Quality Bond Fund -- E.L. Bradley and Co., Inc.,
16 Helen Rd., Needham, MA 02192, Account 05100649206, (7.78%); Short-Term
Bond Fund -- Colonial Marble Co., Inc., 25 Garvey Street, P.O. Box 187,
Everett, MA 02149, Account 00970037797, (7.17%); Wilbur J. Wade, Jr., 122
Snyder Road, Fort Plain, NY 13339, Account 05100596030, (5.58%); and
Tax-Exempt Bond Fund -- Katrina A. Seltzer, 121 Schuyler Street, Boonville,
NY 13309, Account 051001743724, (12.25%); David Fendler, 72 Brinkerhoff Ave.,
Stamford, CT 06905, Account 05100255354, (25.74%); Joseph R. Copeland, 201
College Street, Springfield, MA 01109, Account 05100388896, (12.97%).

FINANCIAL STATEMENTS

Galaxy's Annual Reports to Shareholders with respect to the Funds for
the fiscal year ended October 31, 1997 have been filed with the Securities
and Exchange Commission. The financial statements in such Annual Reports
(the "Financial Statements") are incorporated hereby by reference into this
Statement of Additional Information. The Financial Statements included in
the Annual Reports for the Funds for the fiscal year ended October 31, 1997
have been audited by Galaxy's independent accountants, PricewaterhouseCoopers
LLP, whose reports thereon also appear in such Annual Reports and are
incorporated herein by reference. The Financial Statements in such Annual
Reports have been incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.

49
<PAGE>

APPENDIX A

DESCRIPTION OF SECURITIES RATINGS

The following is a description of the securities ratings of Duff &
Phelps Credit Rating Co. ("D&P"), Fitch IBCA, Inc. ("Fitch IBCA"), Standard &
Poor's Ratings Group, ("S&P"), Moody's Investors Service, Inc. ("Moody's")
and Thomson BankWatch ("Thomson").

CORPORATE AND TAX-EXEMPT BOND RATINGS

The five highest ratings of D&P for tax-exempt and corporate
fixed-income securities are AAA, AA, A, BBB and BB. Securities rated AAA are
of the highest credit quality. The risk factors are considered to be
negligible, being only slightly more than for risk-free U.S. Treasury debt.
Securities rated AA are of high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions. Securities that are rated "A" have protection factors
that are average but adequate. However, risk factors are more variable and
greater in periods of economic stress. Securities that are rated "BBB" have
below average protection factors but are still considered sufficient for
prudent investment. Considerable variability in risk is present during
economic cycles. Securities that are rated BB are considered to be below
investment grade but are deemed likely to meet obligations when due. The AA,
A, BBB and BB ratings may be modified by an addition of a plus (+) or minus
(-) sign to show relative standing within these major rating categories.

The five highest ratings of Fitch IBCA for tax-exempt and corporate
bonds are AAA, AA, A, BBB and BB. Plus (+) and minus (-) signs are used with
a rating symbol to indicate the relative position of a credit within the
rating category. AAA bonds are considered to be investment grade and of the
highest credit quality. The obligor is judged to have an exceptionally
strong ability to pay interest and repay principal, which is unlikely to be
affected by reasonably foreseeable events. AA bonds are considered to be
investment grade and of very high credit quality. The obligor's ability to
pay interest and repay principal is very strong, although not quite as strong
as bonds rated AAA. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated F-1+. A bonds are considered to be
investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings. BBB bonds are considered to be investment grade
and of satisfactory credit quality. The obligor's ability to pay interest
and repay principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely to have an
adverse impact on these bonds, and therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade
is higher than for bonds with higher ratings. BB bonds are considered to be
speculative investments and represent the likelihood of timely payment of
principal and interest in accordance with the terms of obligation for issues
not in default.

The five highest ratings of S&P for tax-exempt and corporate bonds are
AAA, AA, A,

A-1
<PAGE>

BBB and BB. Bonds rated AAA bear the highest rating assigned by S&P to a
debt obligation and the AAA rating indicates in its opinion an extremely
strong capacity to pay interest and repay principal. Bonds rated AA by S&P
are judged by it to have a very strong capacity to pay interest and repay
principal, and they differ from AAA issues only in small degree. Bonds rated
A are considered to have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds of a higher
rated category. Bonds rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Whereas such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest
and repay principal for debt in this category than for higher rated
categories. Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, such bonds face major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions which could lend to inadequate capacity to meet timely interest
and principal payments. The AA, A, BBB and BB ratings may be modified by an
addition of a plus (+) or minus (-) sign to show relative standing within
these major rating categories.

The five highest ratings of Moody's for tax-exempt and corporate bonds
are Aaa, Aa, A, Baa and Ba. Tax-exempt and corporate bonds rated Aaa are
judged to be of the "best quality." The rating of Aa is assigned to bonds
which are of "high quality by all standards." Aa bonds are rated lower than
Aaa bonds because margins of protection may not be as large or fluctuations
of protective elements may be of greater amplitude or there may be other
elements which make the long-term risks appear somewhat larger. Bonds that
are rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
that suggest a susceptibility to impairment sometime in the future. Bonds
that are rated Baa are considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well. Bonds rated Ba provide questionable
protection of interest and principal and indicate some speculative elements.
Moody's may modify a rating of Aa, A, Baa or Ba by adding numerical modifiers
of 1, 2 or 3 to show relative standing within these categories. The
foregoing ratings are sometimes presented in parentheses preceded with a
"con" indicating the bonds are rated conditionally. Such parenthetical rating
denotes the probable credit stature upon completion of construction or
elimination of the basis of the condition.

A-2
<PAGE>

CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS

The highest rating of D&P for commercial paper is Duff 1. D&P employs
three designations, Duff 1 plus, Duff 1 and Duff 1 minus, within the highest
rating category. Duff 1 plus indicates highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is judged to be "outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations." Duff 1 indicates
very high certainty of timely payment. Liquidity factors are excellent and
supported by good fundamental protection factors. Risk factors are
considered to be minor. Duff 1 minus indicates high certainty of timely
payment. Liquidity factors are strong and supported by good fundamental
protection factors. Risk factors are very small. Duff 2 indicates good
certainty of timely payment. Liquidity factors and company fundamentals are
sound. Although ongoing funding needs may enlarge total financing
requirements, access to capital markets is good. Risk factors are small.
Duff 3 indicates satisfactory liquidity and other protection factors qualify
such issues as to investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected. Duff 4 indicates
speculative investment characteristics.

Fitch IBCA's short-term ratings apply to tax-exempt and corporate debt
obligations that are payable on demand or have original maturities of up to
three years. The four highest ratings of Fitch for short-term securities are
F-1+, F-1, F-2 and F-3. F-1+ securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment. F-1 securities possess very strong
credit quality. Issues assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+. F-2 securities
possess good credit quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the F-1+ and F-1 categories. F-3 securities possess fair credit
quality. Issues assigned this rating have characteristics suggesting that the
degree of assurance for timely payment is adequate; however, near-term
adverse changes could cause these securities to be rated below investment
grade.

S&P's commercial paper ratings are current assessments of the likelihood
of timely payment of debt considered short-term in the relevant market.
Issues assigned A-1 ratings, in S&P's opinion, indicate that the degree of
safety regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics will be denoted with a plus
(+) designation. Issues rated A-2 by S&P indicate that capacity for timely
payment on these issues is satisfactory. However, the relative degree of
safety is not as high as for issues designated A-1. Issues rated A-3 have an
adequate capacity for timely payment. They are, however, somewhat more
vulnerable to the adverse effects of changes and circumstances than
obligations carrying the higher designations. Issues rated B are regarded as
having only a speculative capacity for timely payment.

A-3
<PAGE>

capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance
on debt and ample asset protection; broad margins in earning coverage of
fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity. Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of short-term promissory
obligations. This capacity will normally be evidenced by many of the
characteristics of Prime-1 rated issues, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is maintained. Issuers
rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. Issuers rated
Not Prime do not fall within any of the Prime rating categories.

Thomson commercial paper ratings assess the likelihood of an untimely or
incomplete payment of principal or interest of debt having a maturity of one
year or less, which is issued by a bank holding company or an entity within
the holding company structure. The designation TBW-1 represents the highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis. The designation TBW-2
represents the second highest rating category and indicates that while the
degree of safety regarding timely payment of principal and interest is
strong, the relative degree of safety is not as high as for issues rated
TBW-1. The designation TBW-3 represents the lowest investment grade category
and indicates that while more susceptible to adverse developments (both
internal and external) than obligations with higher ratings, the capacity to
service principal and interest in a timely fashion is considered adequate.

TAX-EXEMPT NOTE RATINGS

A S&P rating reflects the liquidity concerns and market access risks
unique to notes due in three years or less. Notes rated SP-1 are issued by
issuers that exhibit very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics are given a plus (+) designation. Notes rated SP-2 are
issued by issuers that exhibit satisfactory capacity to pay principal and
interest. Notes rated SP-3 are issued by issuers that exhibit speculative
capacity to pay principal and interest.

Moody's ratings for state and municipal notes and other short-term loans
are designated MIG and variable rate demand obligations are designated VMIG.
Such ratings recognize the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG-1 or VMIG-1 are of the
best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing. Loans bearing the designation MIG-2 or VMIG-2 are of high
quality, with margins of protection ample although not so large as with loans
rated MIG-1 or VMIG-1. Loans bearing the designation MIG-3 or VMIG-3 are of
favorable quality with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be
less well established. Loans

A-4
<PAGE>

bearing the designation MIG-4 or VMIG-4 are of adequate quality, carrying
specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.

Fitch IBCA uses its short-term ratings described above under "Corporate
and Tax-Exempt Commercial Paper Ratings" for tax-exempt notes.

A-5
<PAGE>

APPENDIX B

As stated in the applicable Prospectuses, the Growth and Income and
Small Cap Value Funds may enter into futures transactions for hedging
purposes. The following is a description of such transactions.

I. INTEREST RATE FUTURES CONTRACTS

USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate
futures contracts as a defense, or hedge, against anticipated interest rate
changes and not for speculation. As described below, this would include the
use of futures contract sales to protect against expected increases in
interest rates and futures contract purchases to offset the impact of
interest rate declines.

The Funds presently could accomplish a similar result to that which they
hope to achieve through the use of futures contracts by selling bonds with
long maturities and investing in bonds with short maturities when interest
rates are expected to increase, or conversely, selling short-term bonds and
investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures
market, the protection is more likely to be achieved, perhaps at a lower cost
and without changing the rate of interest being earned by the Funds, through
using futures contracts.

DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract
at a specific future time for a specified price. A futures contract purchase
would create an obligation by the Fund, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at
settlement date, would not be determined until at or near that date. The
determination would be in accordance with the rules of the exchange on which
the futures contract sale or purchase was made.

Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's
entering into a futures contract purchase for the same aggregate amount of
the specific type of financial instrument and the same delivery date. If the
price of the sale exceeds the price of the offsetting purchase, the Fund
immediately is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the
difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected

B-1
<PAGE>

by a Fund entering into a futures contract sale. If the offsetting sale
price exceeds the purchase price, the Fund realizes a gain, and if the
purchase price exceeds the offsetting sale price, the Fund realizes a loss.

Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges -- principally, the Chicago Board of Trade,
the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds
would deal only in standardized contracts on recognized exchanges. Each
exchange guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.

A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any interest rate
futures contracts for which there exists a public market, including, without
limitation, the foregoing instruments.

EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the
loss in market value that would otherwise accompany a decline in long-term
securities prices. Assume that the market value of a certain security held
by a particular Fund tends to move in concert with the futures market prices
of long-term United States Treasury bonds ("Treasury bonds"). Fleet wishes
to fix the current market value of this portfolio security until some point
in the future. Assume the portfolio security has a market value of 100, and
Fleet believes that, because of an anticipated rise in interest rates, the
value will decline to 95. The Fund might enter into futures contract sales of
Treasury bonds for an equivalent of 98. If the market value of the portfolio
security does indeed decline from 100 to 95, the equivalent futures market
price for the Treasury bonds might also decline from 98 to 93.

In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the
imperfect correlation between cash and futures prices mentioned below.

Fleet could be wrong in its forecast of interest rates, and the
equivalent futures market price could rise above 98. In this case, the
market value of the portfolio securities, including the portfolio security
being protected, would increase. The benefit of this increase would be
reduced by the loss realized on closing out the futures contract sale.

If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.

EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an
interest rate futures

B-2
<PAGE>

contract purchase when it is not fully invested in long-term bonds but wishes
to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments, e.g., shorter term
securities whose yields are greater than those available on long-term bonds.
A Fund's basic motivation would be to maintain for a time the income
advantage from investing in the short-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or part of an
expected increase in market price of the long-term bonds that the Fund may
purchase.

For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury bonds. Fleet wishes to fix the current
market price (and thus 10% yield) of the long-term bond until the time (four
months away in this example) when it may purchase the bond. Assume the
long-term bond has a market price of 100, and Fleet believes that, because of
an anticipated fall in interest rates, the price will have risen to 105 (and
the yield will have dropped to about 9 1/2%) in four months. The Fund might
enter into futures contracts purchases of Treasury bonds for an equivalent
price of 98. At the same time, the Fund would assign a pool of investments
in short-term securities that are either maturing in four months or earmarked
for sale in four months, for purchase of the long-term bond at an assumed
market price of 100. Assume these short-term securities are yielding 15%.
If the market price of the long-term bond does indeed rise from 100 to 105,
the equivalent futures market price for Treasury bonds might also rise from
98 to 103. In that case, the 5 point increase in the price that the Fund
pays for the long-term bond would be offset by the 5 point gain realized by
closing out the futures contract purchase.

Fleet could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market
price could fall below 98. If short-term rates at the same time fall to 10%
or below, it is possible that the Fund would continue with its purchase
program for long-term bonds. The market price of available long-term bonds
would have decreased. The benefit of this price decrease, and thus yield
increase, will be reduced by the loss realized on closing out the futures
contract purchase.

If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio,
including those originally in the pool assigned to the particular long-term
bond, would remain higher than yields on long-term bonds. The benefit of
this continued incremental income will be reduced by the loss realized on
closing out the futures contract purchase. In each transaction, expenses
would also be incurred.

II. MARGIN PAYMENTS

B-3
<PAGE>

that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as
the price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a
rise in the underlying instruments, that position will have increased in
value and the Fund will be entitled to receive from the broker a variation
margin payment equal to that increase in value. Conversely, where the Fund
has purchased a futures contract and the price of the future contract has
declined in response to a decrease in the underlying instruments, the
position would be less valuable and the Fund would be required to make a
variation margin payment to the broker. At any time prior to expiration of
the futures contract, Fleet may elect to close the position by taking an
opposite position, subject to the availability of a secondary market, which
will operate to terminate the Fund's position in the futures contract. A
final determination of variation margin is then made, additional cash is
required to be paid by or released to the Fund, and the Fund realizes a loss
or gain.

III. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS

There are several risks in connection with the use of futures by the
Equity Funds as hedging devices. One risk arises because of the imperfect
correlation between movements in the price of the futures and movements in
the price of the instruments that are the subject of the hedge. The price of
the futures may move more than or less than the price of the instruments
being hedged. If the price of the futures moves less than the price of the
instruments which are the subject of the hedge, the hedge will not be fully
effective but, if the price of the instruments being hedged has moved in an
unfavorable direction, a Fund would be in a better position than if it had
not hedged at all. If the price of the instruments being hedged has moved in
a favorable direction, this advantage will be partially offset by the loss on
the futures. If the price of the futures moves more than the price of the
hedged instruments, the Funds involved will experience either a loss or gain
on the futures, which will not be completely offset by movements in the price
of the instruments which are the subject of the hedge. To compensate for the
imperfect correlation of movements in the price of instruments being hedged
and movements in the price of futures contracts, a Fund may buy or sell
futures contracts in a greater dollar amount than the dollar amount of
instruments being hedged if the volatility over a particular time period of
the prices of such instruments has been greater than the volatility over such
time period of the futures, or if otherwise deemed to be appropriate by the
investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of
the instruments being hedged is less than the volatility over such time
period of the futures contract being used, or if otherwise deemed to be
appropriate by Fleet. It is also possible that, where a Fund had sold
futures to hedge its portfolio against a decline in the market, the market
may advance and the value of instruments held in the Fund may decline. If
this occurred, the Fund would lose money on the futures and also experience a
decline in value in its portfolio securities.

B-4
<PAGE>

Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may
decline instead; if the Fund then concludes not to invest its cash at that
time because of concern as to possible further market decline or for other
reasons, the Fund will realize a loss on the futures contract that is not
offset by a reduction in the price of the instruments that were to be
purchased.

In instances involving the purchase of futures contracts by a Fund, an
amount of cash and liquid portfolio securities, equal to the market value of
the futures contracts, will be deposited in a segregated account with
Galaxy's custodian and/or in a margin account with a broker to collateralize
the position and thereby insure that the use of such futures is unleveraged.

In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and
the instruments being hedged, the price of futures may not correlate
perfectly with movement in the cash market due to certain market distortions.
Rather than meeting additional margin deposit requirements, investors may
close futures contracts through off-setting transactions that could distort
the normal relationship between the cash and futures markets. Second, with
respect to financial futures contracts, the liquidity of the futures market
depends on participants entering into off-setting transactions rather than
making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced thus producing
distortions. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements
in the securities market. Therefore, increased participation by speculators
in the futures market may also cause temporary price distortions. Due to the
possibility of price distortion in the futures market, and because of the
imperfect correlation between the movements in the cash market and movements
in the price of futures, a correct forecast of general market trends or
interest rate movements by the adviser may still not result in a successful
hedging transaction over a short time frame.

Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the
Equity Funds intend to purchase or sell futures only on exchanges or boards
of trade where there appear to be active secondary markets, there is no
assurance that a liquid secondary market on any exchange or board of trade
will exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures investment position, and in
the event of adverse price movements, a Fund would continue to be required to
make daily cash payments of variation margin. However, in the event futures
contracts have been used to hedge portfolio securities, such securities will
not be sold until the futures contract can be terminated. In such
circumstances, an increase in the price of the securities, if any, may
partially or completely offset losses on the futures contract. However, as
described above, there is no guarantee that the price of the securities will
in fact correlate with the price movements in the futures contract and thus
provide an offset on a futures contract.

Further, it should be noted that the liquidity of a secondary market in
a futures contract

B-5
<PAGE>

may be adversely affected by "daily price fluctuation limits" established by
commodity exchanges which limit the amount of fluctuation in a futures
contract price during a single trading day. Once the daily limit has been
reached in the contract, no trades may be entered into at a price beyond the
limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation
margin payments.

Successful use of futures by the Equity Funds is also subject to Fleet's
ability to predict correctly movements in the direction of the market. For
example, if a particular Fund has hedged against the possibility of a decline
in the market adversely affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if the Fund has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market.
The Funds may have to sell securities at a time when it may be
disadvantageous to do so.

B-6

<PAGE>

GALAXY FUND

STATEMENT OF ADDITIONAL INFORMATION

Trust Shares of the

Short-Term Bond Fund
Intermediate Government Income Fund
High Quality Bond Fund

Trust Shares, Retail A Shares and/or
Retail B Shares of the

Corporate Bond Fund
Tax-Exempt Bond Fund
New Jersey Municipal Bond Fund
New York Municipal Bond Fund
Connecticut Municipal Bond Fund
Massachusetts Municipal Bond Fund
Rhode Island Municipal Bond Fund

February 28, 1998
(as revised October 30, 1998)

<PAGE>

This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectuses (the "Prospectuses") for (i) Trust
Shares of the Short-Term Bond, Intermediate Government Income and High Quality
Bond Funds and (ii) Trust Shares, Retail A Shares and/or Retail B Shares of the
Corporate Bond, Tax-Exempt Bond, New Jersey Municipal Bond, New York Municipal
Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds, each dated February 28, 1998, of The Galaxy Fund
("Galaxy"), as they may from time to time be supplemented or revised. This
Statement of Additional Information is incorporated by reference in its entirety
into each such Prospectus. No investment in shares of the Funds should be made
without reading the Prospectuses. Copies of the Prospectuses may be obtained by
writing Galaxy c/o First Data Distributors, 4400 Computer Drive, Westboro,
Massachusetts 01581 or by calling Galaxy at 1-800-628-0414.

SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.

<PAGE>

Table of Contents
<TABLE>
<CAPTION>

Page
----
<S> <C>
THE GALAXY FUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . 1
Variable and Floating Rate Obligations. . . . . . . . . . . . . . . . . . 1
Bank Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Asset-Backed Securities . . . . . . . . . . . . . . . . . . . . . . . . . 2
Municipal Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
When-Issued Securities and Forward Commitment and Delayed Settlement
Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Stand-By Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Repurchase Agreements; Reverse Repurchase Agreements; Loans Of Portfolio
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
U.S. Government Securities. . . . . . . . . . . . . . . . . . . . . . . . 6
Derivative Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Foreign Currency Exchange Transactions. . . . . . . . . . . . . . . . . . 6
Special Considerations Relating to New Jersey Municipal Securities. . . . 7
Special Considerations Relating to New York Municipal Securities. . . . . 9
Special Considerations Relating to Connecticut Municipal Securities . . .22
Additional Investment Limitations . . . . . . . . . . . . . . . . . . . .25
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . .27
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
ADDITIONAL INFORMATION CONCERNING TAXES. . . . . . . . . . . . . . . . . . . .32
In General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Tax-Exempt Bond Funds . . . . . . . . . . . . . . . . . . . . . . . . . .33
Taxable Bond Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Taxation of Certain Financial Instruments . . . . . . . . . . . . . . . .35
State Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . . .41
ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER
AGENCY AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Custodian and Transfer Agent. . . . . . . . . . . . . . . . . . . . . . .45
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
SHAREHOLDER SERVICES PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . .47
DISTRIBUTION AND SERVICES PLAN . . . . . . . . . . . . . . . . . . . . . . . .48
DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
AUDITORS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
COUNSEL... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
PERFORMANCE AND YIELD INFORMATION. . . . . . . . . . . . . . . . . . . . . . .52
Yield and Performance of the Funds. . . . . . . . . . . . . . . . . . . .52
Tax Equivalency Tables - New Jersey Municipal Bond and New York Municipal
Bond Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58

-i-
<PAGE>

MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
</TABLE>

-ii-
<PAGE>

THE GALAXY FUND

The Galaxy Fund ("Galaxy") is an open-end management investment company
currently authorized to offer shares of beneficial interest in thirty investment
portfolios.

This Statement of Additional Information relates to ten of those investment
portfolios: (i) Trust Shares of the Short-Term Bond Fund, Intermediate
Government Income Fund and High Quality Bond Fund and (ii) Trust Shares, Retail
A Shares and/or Retail B Shares of the Corporate Bond Fund, Tax-Exempt Bond
Fund, New Jersey Municipal Bond Fund, New York Municipal Bond Fund, Connecticut
Municipal Bond Fund, Massachusetts Municipal Bond Fund and Rhode Island
Municipal Bond Fund. (The Short-Term Bond Fund, Intermediate Government Income
Fund, High Quality Bond Fund and Corporate Bond Fund are referred to herein
collectively as the "Taxable Bond Funds," the Tax-Exempt Bond Fund, New Jersey
Municipal Bond Fund, New York Municipal Bond Fund, Connecticut Municipal Bond
Fund, Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond Fund are
referred to herein collectively as the "Tax-Exempt Bond Funds," and the Taxable
Bond Funds and the Tax-Exempt Bond Funds are referred to herein collectively as
the "Funds"). This Statement of Additional Information provides additional
investment information with respect to all Funds and should be read in
conjunction with the current Prospectuses.

INVESTMENT OBJECTIVES AND POLICIES

VARIABLE AND FLOATING RATE OBLIGATIONS

The Funds may purchase variable and floating rate instruments as described
in their Prospectuses. If such an instrument is not rated, Fleet Investment
Advisors Inc. ("Fleet"), the investment adviser to the Funds, must determine
that such instrument is comparable to rated instruments eligible for purchase by
a Fund and will consider the earning power, cash flows and other liquidity
ratios of the issuers and guarantors of such instruments and will continuously
monitor their financial status in order to meet payment on demand. In
determining average weighted portfolio maturity of each of these Funds, a
variable or floating rate instrument issued or guaranteed by the U.S. Government
or an agency or instrumentality thereof will be deemed to have a maturity equal
to the period remaining until the obligation's next interest rate adjustment.
Long-term variable and floating rate obligations with a demand feature will be
deemed to have a maturity equal to the longer of the period remaining to the
next interest rate adjustment or the demand notice period.

BANK OBLIGATIONS

Investments by the Funds in non-negotiable time deposits are limited to no
more than 5% of each such Fund's total assets at the time of purchase.

<PAGE>

ASSET-BACKED SECURITIES

Asset-backed securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in an underlying pool
of assets, or as debt instruments, which are also known as collateralized
obligations, and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties.

The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.

Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.

Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.

MUNICIPAL SECURITIES

Municipal Securities acquired by the Tax-Exempt Bond Funds include debt
obligations issued by governmental entities to obtain funds for various public
purposes, including the construction of a wide range of public facilities, the
refunding of outstanding obligations, the payment of general operating expenses,
and the extension of loans to public institutions and facilities. Private
activity bonds that are issued by or on behalf of public authorities to finance
various privately operated facilities are "Municipal Securities" if the interest
paid thereon is exempt from regular federal income tax and not treated as a
specific tax preference item under the federal alternative minimum tax.

The two principal categories of Municipal Securities include "general
obligation" and "revenue" issues. The Tax-Exempt Bond Funds' portfolios may
also include "moral obligation"

- 2 -
<PAGE>

issues, which are normally issued by special purpose authorities. There are, of
course, variations in the quality of Municipal Securities, both within a
particular category and between categories, and the yields on Municipal
Securities depend upon a variety of factors, including general market
conditions, the financial condition of the issuer, general conditions of the
municipal bond market, the size of a particular offering, the maturity of the
obligation, and the rating of the issue. The ratings of a nationally recognized
statistical rating organization ("NRSRO"), such as Moody's Investors Service,
Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P"), described in the
Prospectus for each Tax-Exempt Bond Fund and in Appendix A hereto, represent
such rating services' opinion as to the quality of Municipal Securities. It
should be emphasized that these ratings are general and are not absolute
standards of quality. Municipal Securities with the same maturity, interest
rate and rating may have different yields. Municipal Securities of the same
maturity and interest rate with different ratings may have the same yield.
Subsequent to its purchase by a Tax-Exempt Bond Fund, an issue of Municipal
Securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by the Fund.

The payment of principal and interest on most Municipal Securities
purchased by the Tax-Exempt Bond Funds will depend upon the ability of the
issuers to meet their obligations. Each state, the District of Columbia, each
of their political subdivisions, agencies, instrumentalities and authorities and
each multistate agency of which a state is a member is a separate "issuer" as
that term is used in this Statement of Additional Information and the Tax-Exempt
Bond Funds' Prospectuses. The non-governmental user of facilities financed by
private activity bonds is also considered to be an "issuer." An issuer's
obligations under its Municipal Securities are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code and laws, if any, which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or upon the ability of municipalities to levy taxes. The
power or ability of an issuer to meet its obligations for the payment of
interest on and principal of its Municipal Securities may be materially
adversely affected by litigation or other conditions.

Among other instruments, the Tax-Exempt Bond Funds may purchase short-term
general obligation notes, tax anticipation notes, bond anticipation notes,
revenue anticipation notes, tax-exempt commercial paper, construction loan notes
and other forms of short-term loans. Such instruments are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements or other revenues. In addition, the Tax-Exempt Bond Funds may
invest in long-term tax-exempt instruments, such as municipal bonds and private
activity bonds to the extent consistent with the limitations set forth in the
Prospectus for each Fund.

Private activity bonds are or have been issued to obtain funds to provide,
among other things, privately operated housing facilities, pollution control
facilities, convention or trade show facilities, mass transit, airport, port or
parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities.

- 3 -
<PAGE>

The principal and interest on these obligations may be payable from the general
revenues of the users of such facilities.

From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. For example, under the Tax Reform Act of
1986, interest on certain private activity bonds must be included in an
investor's federal alternative minimum taxable income, and corporate investors
must include all tax-exempt interest in their federal alternative minimum
taxable income. Galaxy cannot, of course, predict what legislation may be
proposed in the future regarding the income tax status of interest on Municipal
Securities, or which proposals, if any, might be enacted. Such proposals, while
pending or if enacted, might materially and adversely affect the availability of
Municipal Securities for investment by the Tax-Exempt Bond Funds and the
liquidity and value of their respective portfolios. In such an event, each
Tax-Exempt Bond Fund would re-evaluate its investment objective and policies and
consider possible changes in its structure or possible dissolution.

Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the
Tax-Exempt Bond Funds nor Fleet will review the proceedings relating to the
issuance of Municipal Securities or the bases for such opinions.

The Taxable Bond Funds may also invest in Municipal Securities when such
investments are deemed appropriate by Fleet in light of the Funds' investment
objectives. As a result of the favorable tax treatment afforded such
obligations under the Internal Revenue Code of 1986, as amended, yields on
municipal obligations can generally be expected under normal market conditions
to be lower than yields on corporate and U.S. Government obligations, although
from time to time Municipal Securities have outperformed, on a total return
basis, comparable corporate and federal debt obligations as a result of
prevailing economic, regulatory or other circumstances.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENT AND DELAYED SETTLEMENT
TRANSACTIONS

When a Fund agrees to purchase securities on a "when-issued," "forward
commitment" or "delayed settlement" basis, the Fund's custodian will set aside
cash or liquid portfolio securities equal to the amount of the commitment in a
separate account. In the event of a decline in the value of the securities that
the custodian has set aside, the Fund may be required to place additional assets
in the separate account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. A Fund's net assets may fluctuate
to a greater degree if it sets aside portfolio securities to cover such purchase
commitments than if it sets aside cash. Because a Fund sets aside liquid assets
to satisfy its purchase commitments in the manner described, its liquidity and
ability to manage its portfolio might be adversely affected in the event its
commitments to purchase "forward commitments," commitments to purchase
"when-issued" securities or commitments to purchase securities on a "delayed
settlement" basis exceeded 25% of the value of its assets.

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<PAGE>

When a Fund engages in "when-issued," "forward commitment" or "delayed
settlement" transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous for a
security. For purposes of determining the average weighted maturity of a Fund's
portfolio, the maturity of "when-issued" securities is calculated from the date
of settlement of the purchase to the maturity date.

STAND-BY COMMITMENTS

Under a "stand-by commitment," a dealer agrees to purchase from a Fund, at
the Fund's option, specified Municipal Securities at a specified price.
Stand-by commitments are exercisable by a Fund at any time before the maturity
of the underlying Municipal Security, and may be sold, transferred or assigned
by the Fund only with respect to the underlying instruments.

Although stand-by commitments are often available without the payment of
any direct or indirect consideration, if necessary or advisable, a Fund may pay
for a stand-by commitment either separately in cash or by paying a higher price
for securities that are acquired subject to the commitment. Where a Fund pays
any consideration directly or indirectly for a stand-by commitment, its cost
will be reflected as unrealized depreciation for the period during which the
commitment is held by the Fund.

A Fund will enter into stand-by commitments only with banks and
broker/dealers that present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, Fleet will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.

The Funds will acquire stand-by commitments solely to facilitate liquidity
and do not intend to exercise their rights thereunder for trading purposes.
Stand-by commitments will be valued at zero in determining a Fund's net asset
value.

REPURCHASE AGREEMENTS; REVERSE REPURCHASE AGREEMENTS; LOANS OF PORTFOLIO
SECURITIES

Each Fund may enter into repurchase agreements. The repurchase price under
a repurchase agreement generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement).
Securities subject to repurchase agreements will be held by a Fund's custodian
or sub-custodian in a segregated account or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by a Fund
under the Investment Company Act of 1940, as amended, (the "1940 Act").

Each Fund may enter into reverse repurchase agreements. Whenever a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account liquid assets such as cash or liquid portfolio securities
equal to the repurchase price (including accrued interest). The Fund will
monitor the account to ensure such equivalent value is maintained. Reverse
repurchase agreements are considered to be borrowings by a Fund under the 1940
Act.

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A Fund that loans portfolio securities would continue to accrue interest on
the securities loaned and would also earn income on the loans. Any cash
collateral received by a Fund would be invested in high quality, short-term
"money market" instruments.

U.S. GOVERNMENT SECURITIES

Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and
Maritime Administration.

DERIVATIVE SECURITIES

FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Short-Term Bond and
Corporate Bond Funds may buy and sell securities denominated in currencies other
than the U.S. dollar, and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Funds may enter into foreign currency
exchange transactions to convert United States currency to foreign currency and
foreign currency to United States currency as well as convert foreign currency
to other foreign currencies. A Fund either enters into these transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or uses forward contracts to purchase or sell foreign
currencies.

A forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a specified price and future date, which
may be any fixed number of days from the date of the contract. Forward foreign
currency exchange contracts establish an exchange rate at a future date. These
contracts are transferable in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward foreign currency exchange contract generally has no deposit requirement
and is traded at a net price without commission. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the prices
of a Fund's portfolio securities or in foreign exchange rates, or prevent loss
if the prices of these securities should decline.

The Short-Term Bond and Corporate Bond Funds may enter into foreign
currency hedging transactions in an attempt to protect against changes in
foreign currency exchange rates between the trade and settlement dates of
specific securities transactions or changes in foreign currency exchange rates
that would adversely affect a portfolio position or an anticipated portfolio
position. Since consideration of the prospect for currency parities will be
incorporated into a Fund's long-term investment decisions, neither Fund will
routinely enter into foreign currency hedging transactions with respect to
portfolio security transactions; however, it is important to have the
flexibility to enter into foreign currency hedging transactions when it is
determined that the transactions would be in a Fund's best interest. Although
these transactions

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tend to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time they tend to limit any potential gain that might be
realized should the value of the hedged currency increase. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible because the future value of these securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date the forward contract is entered into and
the date it matures. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.

SPECIAL CONSIDERATIONS RELATING TO NEW JERSEY MUNICIPAL SECURITIES

The State of New Jersey and its political subdivisions, agencies and public
authorities are authorized to issue two general classes of indebtedness: general
obligation bonds and revenue bonds. Both classes of bonds may be included in
the New Jersey Municipal Bond Fund's portfolio. The repayment of principal and
interest on general obligation bonds is secured by the full faith and credit of
the issuer, backed by the issuer's taxing authority, without recourse to any
special project or source of revenue. Special obligation or revenue bonds may
be repaid only from revenues received in connection with the project for which
the bonds are issued, special excise taxes, or other special revenue sources and
generally are issued by entities without taxing power. Neither the State of New
Jersey nor any of its subdivisions is liable for the repayment of principal or
interest on revenue bonds except to the extent stated in the preceding
sentences.

General obligation bonds of the State are repaid from revenues obtained
through the State's general taxing authority. An inability to increase taxes
may adversely affect the State's ability to authorize or repay debt.

Public authorities, private non-profit corporations, agencies and similar
entities of New Jersey ("Authorities") are established for a variety of
beneficial purposes, including economic development, housing and mortgage
financing, health care facilities and public transportation. The Authorities
are not operating entities of the State of New Jersey, but are separate legal
entities that are managed independently. The State oversees the Authorities by
appointing the governing boards, designating management, and by significantly
influencing operations. The Authorities are not subject to New Jersey
constitutional restrictions on the incurrence of debt, applicable to the State
of New Jersey itself, and may issue special obligation or private activity bonds
in legislatively authorized amounts.

An absence or reduction of revenue will affect a bond-issuing Authority's
ability to repay debt on special obligation bonds and no assurance can be given
that sufficient revenues will be obtained to make such payments, although in
some instances repayment may be guaranteed or otherwise secured.

Various Authorities have issued bonds for the construction of health care
facilities, transportation facilities, office buildings and related facilities,
housing facilities, pollution control facilities, water and sewage facilities
and power and electric facilities. Each of these facilities may incur different
difficulties in meeting its debt repayment obligations. Hospital facilities,
for example, are subject to changes in Medicare and Medicaid reimbursement
regulations, attempts

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by Federal and state legislatures to limit the costs of health care and
management's ability to complete construction projects on a timely basis as well
as to maintain projected rates of occupancy and utilization. At any given time,
there are several proposals pending on a federal and state level concerning
health care which may further affect a hospital's debt service obligation.

Housing facilities may be subject to increases in operating costs,
management's ability to maintain occupancy levels, rent restrictions and
availability of federal or state subsidies, while power and electric facilities
may be subject to increased costs resulting from environmental restrictions,
fluctuations in fuel costs, delays in licensing procedures and the general
regulatory framework in which these facilities operate. All of these entities
are constructed and operated under rigid regulatory guidelines.

Some entities which financed facilities with proceeds of private activity
bonds issued by the New Jersey Economic Development Authority, a major issuer of
special obligation bonds, have defaulted on their debt service obligations.
Because these special obligation bonds were repayable only from revenue received
from the specific projects which they funded, the New Jersey Economic
Development Authority was unable to repay the debt service to bondholders for
such facilities. Each issue of special obligation bonds, however, depends on
its own revenue for repayment, and thus these defaults should not affect the
ability of the New Jersey Economic Development Authority to repay obligations on
other bonds that it issues in the future.

The State has experienced a gradual economic recovery in the past five
years. While unemployment in manufacturing has declined, employment gains have
been recorded in business services, construction and retail sectors. Business
investment expenditures and consumer spending have also increased substantially
in the State as well as in the Nation. To the extent that any adverse
conditions exist in the future which affect the obligor's ability to repay debt,
the value of the New Jersey Municipal Bond Fund may be immediately and
substantially affected.

The following are cases presently pending or threatened in which the State
has a potential for either a significant loss of revenue or a significant
unanticipated expenditure: (1) several labor unions have challenged 1994
legislation mandating a revaluation of several public employee pension funds
which resulted in a refund of millions of dollars in public employer
contributions to the State and significant ongoing annual savings to the State;
(ii) several cases filed in the State courts challenged the basis on which
recoveries of certain costs for residents in State psychiatric hospitals and
other facilities are shared between the State Department of Human Services and
the State's county governments, and certain counties are seeking the recovery
from the Department of costs they have incurred for the maintenance of such
residents; (iii) the County of Passaic and other parties have filed suit
alleging the State violated a 1984 consent order concerning the construction of
a resource recovery facility in that county; (iv) several Medicaid eligible
children and the Association for Children of New Jersey have filed suit claiming
the Medicaid reimbursement rates for services rendered to such children are
inadequate under federal law; (v) a coalition of churches and church leaders in
Hudson County have filed suit asserting the State-owned Liberty State Park in
Jersey City violates environmental standards; (vi) representatives of the
trucking industry have filed a constitutional challenge to annual hazardous and
solid waste licensure renewal fees; (vii) the Education Law Center filed a
motion

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<PAGE>

compelling the State to close the spending gap between poor urban school
districts and wealthy rural school districts; (viii) a group of insurance
companies have filed a constitutional challenge to the State's assessment of
monies pursuant to the Fair Automobile Insurance Reform Act of 1990; (ix) a
class action consisting of prisoners with serious mental disorders has been
filed against officers of the Department of Corrections, alleging sex
discrimination, violation of the Americans with Disabilities Act of 1990, and
constitutional violations; (x) a class action has been brought in federal court
challenging the State's method of determining the monthly needs of a spouse of
an institutionalized person under the Medicare Catastrophic Act; (xi) several
suits have been filed against the State in federal court alleging that the State
committed securities fraud and environmental violations in the financing of a
new Atlantic City highway and tunnel; (xii) a class action has been filed
against the State alleging the State's breach of contract for not paying certain
Medicare co-insurance and deductibles; and (xiii) an action has been filed
challenging the State's issuance of bonds to fund the accrued liability in its
pension funds under the Pension Bond Financing Act of 1997.

Although the New Jersey Municipal Bond Fund generally intends to invest its
assets primarily in New Jersey Municipal Securities rated within the four
highest rating categories assigned by S&P or Moody's, there can be no assurance
that such ratings will remain in effect until such obligations mature or are
redeemed or will not be revised downward or withdrawn. Such revisions or
withdrawals may have an adverse affect on the market price of such securities.

Although there can be no assurance that such conditions will continue, the
State's general obligation bonds are currently rated "AA+" by S&P and "AA1" by
Moody's.

SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL SECURITIES

Some of the significant financial considerations relating to the Fund's
investments in New York Municipal Securities are summarized below. This summary
information is not intended to be a complete description and is principally
derived from official statements relating to issues of New York Municipal
Securities that were available prior to the date of this Statement of Additional
Information. The accuracy and completeness of the information contained in
those official statements have not been independently verified.

STATE ECONOMY. New York is the third most populous state in the nation and has
a relatively high level of personal wealth. The State's economy is diverse with
a comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a very small share of the nation's
farming and mining activity. The State's location and its excellent air
transport facilities and natural harbors have made it an important link in
international commerce. Travel and tourism constitute an important part of the
economy. Like the rest of the nation, New York has a declining proportion of
its workforce engaged in manufacturing, and an increasing proportion engaged in
service industries.

The State has historically been one of the wealthiest states in the nation.
For decades, however, the State has grown more slowly than the nation as a
whole, gradually eroding its relative economic position. State per capita
personal income has historically been significantly higher than the national
average, although the ratio has varied substantially. Because New York

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City (the "City") is a regional employment center for a multi-state region,
State personal income measured on a residence basis understates the relative
importance of the State to the national economy and the size of the base to
which State taxation applies.

The forecast of the State's economy shows continued expansion during the
1998 calendar year, with employment growth gradually slowing as the year
progresses. The financial and business service sectors are expected to continue
to do well, while employment in the manufacturing and government sectors will
post only small, if any, declines. On an average annual basis, the employment
growth rate in the State is expected to be higher than in 1997 and the
unemployment rate is expected to drop further to 6.1 percent. Personal income
is expected to record moderate gains in 1998. Wage growth in 1998 is expected
to be slower than in the previous year as the recent robust growth in bonus
payments moderates.

There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.

STATE BUDGET. The State Constitution requires the governor (the "Governor") to
submit to the State legislature (the "Legislature") a balanced executive budget
which contains a complete plan of expenditures for the ensuing fiscal year and
all moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the executive budget.
The entire plan constitutes the proposed State financial plan for that fiscal
year. The Governor is required to submit to the Legislature quarterly budget
updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.

State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State, as a part of the 1998-99 Executive Budget
projections submitted to the Legislature in February 1998, projected a 1999-00
General Fund budget gap of approximately $1.7 billion and a 2000-01 gap of $3.7
billion. As a result of changes made in the 1998-99 enacted budget, the 1999-00
gap is now expected to be roughly $1.3 billion, or about $400 million less than
previously projected, after application of reserves created as part of the
1998-99 budget process. Such reserves would not be available against subsequent
year imbalances.

Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. However, the State's projections in 1999-00 currently assume actions
to achieve $600 million in lower disbursements and $250 million in additional
receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of the
current round of contracts at the end of the 1998-99 fiscal year. The State
expects that the 1990-00 Financial Plan will achieve savings from initiatives by
State agencies to deliver services more efficiently, workforce management
efforts, maximization

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<PAGE>

of federal and non-General Fund spending offsets, and other actions necessary to
bring projected disbursements and receipts into balance.

Other actions taken in the 1997-98 adopted budget add further pressure to
future budget balance in the State. For example, the fiscal effects of tax
reductions adopted in the 1997-98 budget are projected to grow more
substantially beyond the 1998-99 fiscal year, with incremental costs averaging
in excess of $1.3 billion annually over the last three years of the tax
reduction program. These incremental costs reflect the phase-in of State-funded
school property tax and local income tax relief, the phase-out of the
assessments on medical providers, and reductions in estate and gift levies,
utility gross receipts taxes, and the State sales tax on clothing. The full
annual cost of the enacted tax reduction package is estimated at approximately
$4.8 billion when fully effective in State fiscal year 2001-02. In addition,
the 1997-98 budget included multi-year commitments for school aid and
pre-kindergarten early learning programs which could add as much as $1.4 billion
in costs when fully annualized in fiscal year 2001-02. These spending
commitments are subject to annual appropriation.

On September 11, 1997, the New York State Comptroller issued a report which
noted that the ability to deal with future budget gaps could become a
significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2002 State fiscal year
could grow to nearly $12 billion.

The State's current fiscal year began on April 1, 1998 and ends on
March 31, 1999 and is referred to herein as the State's 1998-99 fiscal year.
The Legislature adopted the debt service component of the State budget for the
1998-99 fiscal year on March 30, 1998 and the remainder of the budget on April
18, 1998. In the period prior to adoption of the budget for the current fiscal
year, the Legislature also enacted appropriations to permit the State to
continue its operations and provide for other purposes. On April 25, 1998, the
Governor vetoed certain items that the Legislature added to the Executive
Budget. The Legislature had not overridden any of the Governor's vetoes as of
the start of the legislative recess on June 19, 1998 (under the State
Constitution, the Legislature can override one or more of the Governor's vetoes
with the approval of two-thirds of the members of each house).

General Fund disbursements in 1998-99 are now projected to grow by
$2.43 billion over 1997-98 levels, or $690 million more than proposed in the
Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive Budget to the enacted budget reflects
legislative additions (net of the value of the Governor's vetoes), actions taken
at the end of the regular legislative session, as well as spending that was
originally anticipated to occur in 1997-98 but is now expected to occur in
1998-99. The State projects that the 1998-99 State Financial Plan is balanced
on a cash basis, with an estimated reserve for future needs of $761 million.

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The State's enacted budget includes several new multi-year tax reduction
initiatives, including acceleration of State-funded property and local income
tax relief for senior citizens under the School Tax Relief Program ("STAR"),
expansion of the child care income-tax credit for middle-income families, a
phased-in reduction of the general business tax, and reduction of several other
taxes and fees, including an accelerated phase-out of assessments on medical
providers. The enacted budget also provides for significant increases in
spending for public schools, special education programs, and for the State and
City university systems. It also allocates $50 million for a new Debt Reduction
Reserve Fund ("DRRF") that may eventually be used to pay debt service costs on
or to prepay outstanding State-supported bonds.

The 1998-99 State Financial Plan projects a closing balance in the General
Fund of $1.42 billion that is comprised of a reserve of $761 million available
for future needs, a balance of $400 million in the Tax Stabilization Reserve
Fund ("TSRF"), a balance of $158 million in the Community Projects Fund ("CPF"),
and a balance of $100 million in the Contingency Reserve Fund ("CRF"). The TSRF
can be used in the event of an unanticipated General Fund cash operating
deficit, as provided under the State Constitution and State Finance Law. The
CPF is used to finance various legislative and executive initiatives. The CRF
provides resource to help finance any extraordinary litigation costs during the
fiscal year.

The forecast of General Fund receipts in 1998-99 incorporates several
Executive Budget tax proposals that, if enacted, would further reduce receipts
otherwise available to the General Fund by approximately $700 million during
1998-99. The Executive Budget proposes accelerating school tax relief for
senior citizens under STAR, which is projected to reduce General Fund receipts
by $537 million in 1998-99. The proposed reduction supplements STAR tax
reductions already scheduled in law, which are projected at $187 million in
1998-99. The Budget also proposes several new tax-cut initiatives and other
funding changes that are projected to further reduce receipts available to the
General Fund by over $200 million. These initiatives include reducing the fee
to register passenger motor vehicles and earmarking a larger portion of such
fees to dedicated funds and other purposes; extending the number of weeks in
which certain clothing purchases are exempt from sales taxes; more fully
conforming State law to reflect recent Federal changes in estate taxes;
continuing lower pari-mutuel tax rates; and accelerating scheduled property tax
relief for farmers from 1999 to 1998. In addition to the specific tax and fee
reductions discussed above, the Executive Budget also proposes establishing a
reserve of $100 million to permit the acceleration into 1998-99 of other tax
reductions that are otherwise scheduled in law for implementation in future
fiscal years.

The Division of the Budget ("DOB") estimates that the 1998-99 Financial
Plan includes approximately $62 million in non-recurring resources, comprising
less than two-tenths of one percent of General Fund disbursements. The
non-recurring resources projected for use in 1998-99 consist of $27 million in
retroactive federal welfare reimbursements for family assistance recipients with
HIV/AIDS, $25 million in receipts from the Housing Finance Agency that were
originally anticipated in 1997-98, and $10 million in other measures, including
$5 million in asset sales.

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<PAGE>

Disbursements from Capital Projects funds in 1998-99 are estimated at
$4.82 billion, or $1.07 billion higher than 1997-98. The proposed spending plan
includes: $2.51 billion in disbursements for transportation purposes, including
the State and local highway and bridge program; $815 million for environmental
activities; $379 million for correctional services; $228 million for the State
University of New York ("SUNY") and the City University of New York ("CUNY");
$290 million for mental hygiene projects; and $375 million for CEFAP.
Approximately 28 percent of capital projects are proposed to be financed by
"pay-as-you-go" resources. State-supported bond issuances finance 46 percent of
capital projects, with federal grants financing the remaining 26 percent.

The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the federal government, that
are not under the control of the State. In addition, the financial plan is
based upon forecasts of national and State economic activity. Economic
forecasts have frequently failed to predict accurately the timing and magnitude
of changes in the national and the State economies. Actual results, however,
could differ materially and adversely from the projections set forth in a
financial plan, and those projections may be changed materially and adversely
from time to time.

In the past, the State has taken management actions and made use of
internal sources to address potential State financial plan shortfalls, and the
Division of Budget believes it could take similar actions should variances occur
in its projections for the current fiscal year.

RECENT FINANCIAL RESULTS. The General Fund is the principal operating fund of
the State and is used to account for all financial transactions, except those
required to be accounted for in another fund. It is the State's largest fund
and receives almost all State taxes and other resources not dedicated to
particular purposes.

The State ended its 1997-98 fiscal year in balance on a cash basis, with a
General Fund cash surplus as reported by DOB of approximately $2.04 billion.
The cash surplus was derived primarily from higher-than-anticipated receipts and
lower spending on welfare, Medicaid, and other entitlement programs.

The General Fund had a closing balance of $638 million, an increase of
$205 million from the prior fiscal year. The balance is held in three accounts
within the General Fund: the Tax Stabilization Reserve Fund, the Contingency
Reserve Fund and the Community Projects Fund. The TSRF closing balance was
$400 million, following a required deposit of $15 million (repaying a transfer
made in 1991-92) and an extraordinary deposit of $68 million made from the
1997-98 surplus. The CRF closing balance was $68 million, following a $27
million deposit from the surplus. The CPF, which finances legislative
initiatives, closed the fiscal year with a balance of $170 million, an increase
of $95 million. The General Fund closing balance did not include $2.39 billion
in the tax refund reserve account, of which $521 million was made available as a
result of the Local Government Assistance Corporation ("LGAC") financing program
and was required to be on deposit on March 31, 1998.

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<PAGE>

General Fund receipts and transfers from other funds for the 1997-98 fiscal
year (including net tax refund reserve account activity) totaled $34.55 billion,
an annual increase of $1.51 billion, or 4.57 percent over 1996-97. General Fund
disbursements and transfers to other funds were $34.35 billion, an annual
increase of $1.45 billion or 4.41 percent.

DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by which the
State of New York may incur debt. Under the State Constitution, the State may
not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (I.E., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.

The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.

The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financings, which involve obligations of public
authorities or municipalities that are State-supported but are not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the LGAC to restructure the
way the State makes certain local aid payments.

In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates
that it will transact additional refinancings in 1999, 2000 and 2003 to complete
its long-term plan of finance and further alleviate cash flow imbalances which
are likely to occur in future years. The State does not anticipate that it will
be called upon to make

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<PAGE>

any payments pursuant to the State guarantee in the 1997-98 fiscal year. JDA
recently resumed its lending activities under a revised set of lending programs
and underwriting guidelines.

On January 13, 1992, Standard & Poor's Ratings Services ("Standard &
Poor's") reduced its ratings on the State's general obligation bonds from A to
A- and, in addition, reduced its ratings on the State's moral obligation, lease
purchase, guaranteed and contractual obligation debt. On August 28, 1997,
Standard & Poor's revised its ratings on the State's general obligation bonds
from A- to A and revised its ratings on the State's moral obligation, lease
purchase, guaranteed and contractual obligation debt. On March 2, 1998,
Standard & Poor's affirmed its A rating on the State's outstanding bonds.

On January 6, 1992, Moody's Investors Service, Inc. ("Moody's") reduced its
ratings on outstanding limited-liability State lease purchase and contractual
obligations from A to Baa1. On February 28, 1994, Moody's reconfirmed its A
rating on the State's general obligation long-term indebtedness. On March 20,
1998, Moody's assigned the highest commercial paper rating of P-1 to the
short-term notes of the State. On July 6, 1998, Moody's assigned an A2 rating
with a stable outlook to the State's general obligations.

The State anticipates that its capital programs will be financed, in part,
through borrowings by the State and its public authorities in the 1998-99 fiscal
year. Information on the State's five-year Capital Program and Financing Plan
for the 1998-99 through 2002-03 fiscal years, updated to reflect actions taken
in the 1998-99 State budget, will be released on or before July 30, 1998. The
projection of State borrowings for the 1998-99 fiscal year is subject to change
as market conditions, interest rates and other factors vary throughout the
fiscal year.

The State expects to issue $528 million in general obligation bonds
(including $154 million for purposes of redeeming outstanding BANs) and $154
million in general obligation commercial paper. The State also anticipates the
issuance of up to a total of $419 million in Certificates of Participation to
finance equipment purchases (including costs of issuance, reserve funds, and
other costs) during the 1998-99 fiscal year. Of this amount, it is anticipated
that approximately $191 million will be issued to finance agency equipment
acquisitions, including amounts to address Statewide technology issues related
to Year 2000 compliance. Approximately $228 million will also be issued to
finance equipment acquisitions for welfare reform-related information technology
systems.

Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $2.93 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 1998-99.

The proposed 1997-98 through 2002-03 Capital Program and Financing Plan was
released with the 1998-99 Executive Budget on January 20, 1998. As a part of
that Plan, changes were proposed to the State's 1997-98 borrowing plan,
including: the delay in the issuance of COPs to finance welfare information
systems until 1998-99 to permit a thorough assessment of needs; and the
elimination of issuances for the CEFAP to reflect the proposed conversion of
that bond-financed program to pay-as-you-go financing.

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New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.

LITIGATION. Certain litigation pending against New York State or its officers
or employees could have a substantial or long-term adverse effect on New York
State finances. Among the more significant of these cases are those that
involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) action against New York
State and New York City officials alleging inadequate shelter allowances to
maintain proper housing; (4) alleged responsibility of New York State officials
to assist in remedying racial segregation in the City of Yonkers; (5) challenges
to regulations promulgated by the Superintendent of Insurance establishing
certain excess medical malpractice premium rates; (6) challenges to the
constitutionality of Public Health Law 2807-d, which imposes a gross receipts
tax from certain patient care services; (7) action seeking enforcement of
certain sales and excise taxes and tobacco products and motor fuel sold to
non-Indian consumers on Indian reservations; (8) a challenge to the
constitutionality of Clean Water/Clean Air Bond Act; and (9) a challenge to the
Governor's application of his constitutional line item veto authority.

Several actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to state employee retirement systems
have been decided against the State. As a result, the Comptroller developed a
plan to restore the State's retirement systems to prior funding levels. Such
funding is expected to exceed prior levels by $116 million in fiscal 1996-97,
$193 million in fiscal 1997-98, peaking at $241 million in fiscal 1998-99.
Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of STATE OF DELAWARE v. STATE OF NEW YORK, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.

The legal proceedings noted above involve State finances, State programs
and miscellaneous cure rights, tort, real property and contract claims in which
the State is a defendant and the monetary damages sought are substantial,
generally in excess of $100 million. These proceedings could affect adversely
the financial condition of the State in the 1997-98 fiscal year or thereafter.
Adverse developments in these proceedings, other proceedings for which there are
unanticipated, unfavorable and material judgments, or the initiation of new
proceedings could affect the ability of the State to maintain a balanced
financial plan. An adverse decision in any of

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these proceedings could exceed the amount of the reserve established in the
State's financial plan for the payment of judgments and, therefore, could affect
the ability of the State to maintain a balanced financial plan.

Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.

AUTHORITIES. The fiscal stability of New York State is related, in part, to the
fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is
State-supported or State-related.

Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance payments are so
diverted, the affected localities could seek additional State funds.

NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State may also be
impacted by the fiscal health of its localities, particularly the City, which
has required and continues to require significant financial assistance from the
State. The City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. There can be no assurance that there
will not be reductions in State aid to the City from amounts currently projected
or that State budgets will be adopted by the April 1 statutory deadline or that
any such reductions or delays will not have adverse effects on the City's cash
flow or expenditures. In addition, the Federal budget negotiation process could
result in a reduction in or a delay in the receipt of Federal grants which could
have additional adverse effects on the City's cash flow or revenues.

In 1975, New York City suffered a fiscal crisis that impaired the borrowing
ability of both the City and New York State. In that year the City lost access
to the public credit markets. The City was not able to sell short-term notes to
the public again until 1979. In 1975, Standard

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& Poor's suspended its A rating of City bonds. This suspension remained in
effect until March 1981, at which time the City received an investment grade
rating of BBB from Standard & Poor's.

On July 2, 1985, Standard & Poor's revised its rating of City bonds upward
to BBB+ and on November 19, 1987, to A-. On February 3, 1998 and again on May
27, 1998, Standard & Poor's assigned a BBB+ rating to the City's general
obligation debt and placed the ratings on CreditWatch with positive
implications.

Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in
May 1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's
upgraded nearly $28 billion of the City's general obligations from Baa1 to A3.
On June 9, 1998, Moody's again assigned an A3 rating to the City's general
obligations and stated that its outlook was stable.

New York City is heavily dependent on New York State and federal assistance
to cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. To help alleviate the City's financial difficulties, the Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. Since its
creation, MAC has provided, among other things, financing assistance to the City
by refunding maturing City short-term debt and transferring to the City funds
received from sales of MAC bonds and notes. MAC is authorized to issue bonds
and notes payable from certain stock transfer tax revenues, from the City's
portion of the State sales tax derived in the City and, subject to certain prior
claims, from State per capita aid otherwise payable by the State to the City.
Failure by the State to continue the imposition of such taxes, the reduction of
the rate of such taxes to rates less than those in effect on July 2, 1975,
failure by the State to pay such aid revenues and the reduction of such aid
revenues below a specified level are included among the events of default in the
resolutions authorizing MAC's long-term debt. The occurrence of an event of
default may result in the acceleration of the maturity of all or a portion of
MAC's debt. MAC bonds and notes constitute general obligations of MAC and do
not constitute an enforceable obligation or debt of either the State or the
City. As of June 30, 1997, MAC had outstanding an aggregate of approximately
$4.267 billion of its bonds. MAC is authorized to issue bonds and notes to
refund its outstanding bonds and notes and to fund certain reserves, without
limitation as to principal amount, and to finance certain capital commitments to
the Transit Authority and the New York City School Construction Authority
through the 1997 fiscal year in the event the City fails to provide such
financing.

Since 1975, the City's financial condition has been subject to oversight
and review by the New York State Financial Control Board (the "Control Board")
and since 1978 the City's financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City is
required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory

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<PAGE>

requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.

On June 10, 1997, the City submitted to the Control Board the Financial
Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal years,
relating to the City, the Board of Education ("BOE") and CUNY and reflected the
City's expense and capital budgets for the 1998 fiscal year, which were adopted
on June 6, 1997. The 1998-2001 Financial Plan projected revenues and
expenditures for the 1998 fiscal year balanced in accordance with GAAP. The
1998-99 Financial Plan projects General Fund receipts (including transfers from
other funds) of $36.22 billion, an increase of $1.02 billion over the estimated
1997-987 level. Recurring growth in the State General Fund tax base is
projected to be approximately six percent during 1998-99, after adjusting for
tax law and administrative changes. This growth rate is lower than the rates
for 1996-97 or currently estimated for 1997-98, but roughly equivalent to the
rate for 1995-96.

The 1998-99 forecast for user taxes and fees also reflects the impact of
scheduled tax reductions that will lower receipts by $38 million, as well as the
impact of two Executive Budget proposals that are projected to lower receipts by
an additional $79 million. The first proposal would divert $30 million in motor
vehicle registration fees from the General Fund to the Dedicated Highway and
Bridge Trust Fund; the second would reduce fees for motor vehicle registrations,
which would further lower receipts by $49 million. The underlying growth of
receipts in this category is projected at 4 percent, after adjusting for these
scheduled and recommended changes.

In comparison to the current fiscal year, business tax receipts are
projected to decline slightly in 1998-99, falling from $4.98 million to $4.96
billion. The decline in this category is largely attributable to scheduled tax
reductions. In total, collections for corporation and utility taxes and the
petroleum business tax are projected to fall by $107 million from 1997-98. The
decline in receipts in these categories is partially offset by growth in the
corporation franchise, insurance and bank taxes, which are projected to grow by
$88 million over the current fiscal year.

The Financial Plan is projected to show a GAAP-basis surplus of $131
million for 1997-98 and a GAAP-basis deficit of $1.3 billion for 1998-99 in the
General Fund, primarily as a result of the use of the 1997-98 cash surplus. In
1998-99, the General Fund GAAP Financial Plan shows total revenues of $34.68
billion, total expenditures of $35.94 billion, and net other financing sources
and uses of $42 million.

Although the City has maintained balanced budgets in each of its last
seventeen fiscal years and is projected to achieve balanced operating results
for the 1998 fiscal year, there can be no assurance that the gap-closing actions
proposed in the 1998-2001 Financial Plan can be successfully implemented or that
the City will maintain a balanced budget in future years without additional
State aid, revenue increases or expenditure reductions. Additional tax
increases and reductions in essential City services could adversely affect the
City's economic base.

The projections set forth in the 1998-2001 Financial Plan were based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in

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major assumptions could significantly affect the City's ability to balance its
budget as required by State law and to meet its annual cash flow and financing
requirements. Such assumptions and contingencies include the condition of the
regional and local economies, the impact on real estate tax revenues of the real
estate market, wage increases for City employees consistent with those assumed
in the 1998-2001 Financial Plan, employment growth, the ability to implement
proposed reductions in City personnel and other cost reduction initiatives, the
ability of the Health and Hospitals Corporation and the BOE to take actions to
offset reduced revenues, the ability to complete revenue generating
transactions, provision of State and Federal aid and mandate relief and the
impact on City revenues and expenditures of Federal and State welfare reform and
any future legislation affecting Medicare or other entitlements.

Implementation of the 1998-2001 Financial Plan is also dependent upon the
City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority, was
created as part of the City's effort to assist in keeping the City's
indebtedness within the forecast level of the constitutional restrictions on the
amount of debt the City is authorized to incur. Despite this additional
financing mechanism, the City currently projects that, if no further action is
taken, it will reach its debt limit in City fiscal year 1999-2000. Indebtedness
subject to the constitutional debt limit includes liability on capital contracts
that are expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a
declaratory judgment declaring the legislation establishing the Transitional
Finance Authority to be unconstitutional. If such legislation were voided,
projected contracts for the City capital projects would exceed the City's debt
limit during fiscal year 1997-98. Future developments concerning the City or
entities issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.

The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.

The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short-term obligations within their fiscal
year of issuance. Although the City's current financial plan projects $2.4
billion of seasonal financing for the 1998 fiscal year, the City expects to
undertake only approximately $1.4 billion of seasonal financing. The City
issued $2.4 billion of short-term obligations in fiscal year 1997. Seasonal
financing requirements for the 1996 fiscal year increased to $2.4 billion from
$2.2 billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.

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Certain localities, in addition to the City, have experienced financial
problems and have requested and received additional New York State assistance
during the last several State fiscal years. The potential impact on the State
of any future requests by localities for additional assistance is not included
in the State's projections of its receipts and disbursements for the 1997-98
fiscal year.

Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the re-establishment of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.

Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.

Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, and that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share in more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional $21 million
will be dispersed among all cities, towns and villages, a 3.97% increase in
General Purpose State Aid.

The 1998-99 budget includes an additional $29.4 million in unrestricted aid
targeted to 57 municipalities across the State. Other assistance for
municipalities with special needs totals more than $25.6 million. Twelve
upstate cities will receive $24.2 million in one-time assistance from a cash
flow acceleration of State aid.

Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1996, the total indebtedness of all localities in
the State other than New York City was approximately $20.0 billion. A small
portion (approximately $77.2 million) of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to enabling State
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City that are authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
Twenty-one localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1996.

From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities.
If the State, the City or any of the Authorities were to suffer serious
financial difficulties jeopardizing their respective access to the

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public credit markets, the marketability of notes and bonds issued by localities
within the State could be adversely affected. Localities also face anticipated
and potential problems resulting from certain pending litigation, judicial
decisions and long-range economic trends. Long-range potential problems of
declining urban population, increasing expenditures and other economic trends
could adversely affect localities and require increasing the State assistance in
the future.

YEAR 2000 COMPLIANCE. The State is currently addressing "Year 2000" data
processing compliance issues. The Year 2000 compliance issue ("Y2K") arises
because most computer software programs allocate two digits to the data field
for "year" on the assumption that the first two digits will be "19". Such
programs will thus interpret the year 2000 as the year 1900 absent
reprogramming. Y2K could impact both the ability to enter data into computer
programs and the ability of such programs to correctly process data.

The Office for Technology is monitoring compliance on a quarterly basis and
is providing assistance and assigning resources to accelerate compliance for
mission critical systems, with most compliance testing expected to be completed
by mid-1999. There can be no guarantee, however, that all of the State's
mission-critical and high-priority computer systems will be Year 2000 compliant
and that there will not be an adverse impact upon State operations or State
finances as a result.

SPECIAL CONSIDERATIONS RELATING TO CONNECTICUT MUNICIPAL SECURITIES

The following information is a brief summary of factors affecting the
economies and financial strengths of the State of Connecticut, its
municipalities and its political subdivisions and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based primarily upon one or more publicly available offering
statements relating to debt offerings of this State of Connecticut that were
available prior to the date of this Statement of Additional Information. The
accuracy and completeness of the information contained in such offering
statements have not been independently verified.

The ability of the issuers of Connecticut Municipal Securities to pay the
principal and interest on their obligations may be impacted by a variety of
factors relating to the economy of Connecticut and to the fiscal stability of
issuers of Connecticut Municipal Securities. The latter may include such
matters as the ability of issuers to raise sufficient tax and other revenues to
meet their needs, the availability of aid from other governmental bodies, and
the burdens that may be imposed on issuers by law or necessity. To the extent
that the Fund invests in obligations that are not general obligations of their
issuers, payments of principal and interest will depend on all factors affecting
the revenue sources from which payments thereon are to be derived. The value of
the obligations held by the Fund would be adversely affected not only by any
actual inability of their issuers to pay the principal and interest thereon, but
also by a public perception that such ability is in doubt.

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<PAGE>

employment in service-related industries and a decline in manufacturing
employment, manufacturing accounted for only 17.39% of total non-agricultural
employment in Connecticut in 1996. Defense-related business represents a
relatively high proportion of the manufacturing sector. On a per capita basis,
defense awards to Connecticut have traditionally been among the highest in the
nation, and reductions in defense spending have had a substantial adverse impact
on Connecticut's economy.

The annual average unemployment rate in Connecticut increased from a low of
3.0% in 1988 to a high of 7.6% in 1992 and, after a number of important changes
in the method of calculation, was reported to be 5.8% in 1996. Average per
capita personal income of Connecticut residents increased in every year from
1987 to 1996, rising from $21,592 to $33,875. However, pockets of significant
unemployment and poverty exist in several Connecticut cities and towns.

At the end of the 1990-1991 fiscal year, the General Fund had an
accumulated unappropriated deficit of $965,712,000. For the six fiscal years
ended June 30, 1997, the General Fund ran operating surpluses, based on the
State's budgetary method of accounting, of approximately $110,200,000,
$113,500,000, $19,700,000, $80,500,000, $250,000,000, and $262,600,000,
respectively. General Fund budgets for the biennium ending June 30, 1999, were
adopted in 1997. General Fund expenditures and revenues are budgeted to be
approximately $9,550,000,000 and $9,700,000,000 for the 1997-1998 and 1998-1999
fiscal years, respectively, an increase of more than 35% from the budgeted
expenditures of approximately $7,008,000,000 for the fiscal year 1991-1992.

During 1991 the State issued a total of $965,710,000 Economic Recovery
Notes, of which $157,055,000 were outstanding as of December 1, 1997. The notes
were to be payable no later than June 30, 1996, but as part of the budget
adopted for the biennium ending June 30, 1997, payment of the notes scheduled to
be paid during the 1995-96 fiscal year was rescheduled to be made over the four
fiscal years ending June 30, 1999.

The State's primary method for financing capital projects is through the
sale of general obligation bonds. These bonds are backed by the full faith and
credit of the State. As of December 1, 1997, the State had authorized direct
general obligation bond indebtedness totaling $11,460,239,000, of which
$10,159,950,000 had been approved for issuance by the State Bond Commission and
$9,181,272,000 had been issued. As of December 1, 1997, State direct general
obligation indebtedness outstanding was $6,475,986,251.

In 1995, the State established the University of Connecticut as a separate
corporate entity to issue bonds and construct certain infrastructure
improvements. The University is authorized to issue $962,000,000 bonds to
finance the improvements. The University's bonds will be secured by a State
debt service commitment, the aggregate amount of which is limited to
$382,000,000 for the four fiscal years ending June 30, 1999, and $580,000,000
for the six fiscal years ending June 30, 2005.

In addition, the State has limited or contingent liability on a significant
amount of other bonds. Such bonds have been issued by the following
quasi-public agencies: the Connecticut

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Housing Finance Authority, the Connecticut Development Authority, the
Connecticut Higher Education Supplemental Loan Authority, the Connecticut
Resources Recovery Authority and the Connecticut Health and Educational
Facilities Authority. Such bonds have also been issued by the cities of
Bridgeport and West Haven and the Southeastern Connecticut Water Authority. As
of December 1, 1997, the amount of bonds outstanding on which the State has
limited or contingent liability totaled $4,000,900,000.

In 1984, the State established a program to plan, construct and improve the
State's transportation system (other than Bradley International Airport). The
total cost of the program through June 30, 2000, is currently estimated to be
$12.3 billion, to be met from federal, state, and local funds. The State
expects to finance most of its $5.1 billion share of such cost by issuing $4.6
billion of special tax obligation ("STO") bonds. The STO bonds are payable
solely from specified motor fuel taxes, motor vehicle receipts, and license,
permit and fee revenues pledged therefor and credited to the Special
Transportation Fund, which was established to budget and account for such
revenues.

As of July 1, 1998, the General Assembly had authorized $4,489,200,000 of
such STO bonds, of which $3,894,700,000 new money borrowings had been issued.
It is anticipated that additional STO bonds will be authorized annually in
amounts necessary to finance and to complete the infrastructure program. Such
additional bonds may have equal rank with the outstanding bonds provided certain
pledged revenue coverage requirements are met. The State expects to continue to
offer bonds for this program.

The State's general obligation bonds are rated AA- by Standard & Poor's and
Aa3 by Moody's. On March 17, 1995, Fitch reduced its ratings of the State's
general obligation bonds from AA+ to AA.

The State, its officers and its employees are defendants in numerous
lawsuits. Although it is not possible to determine the outcome of these
lawsuits, the Attorney General has opined that an adverse decision in any of the
following cases might have a significant impact on the State's financial
position: (i) a class action by the Connecticut Criminal Defense Lawyers
Association claiming a campaign of illegal surveillance activity and seeking
damages and injunctive relief; (ii) an action on behalf of all persons with
traumatic brain injury who have been placed in certain State hospitals, claiming
that their constitutional rights are violated by placement in State hospitals
alleged not to provide adequate treatment and training, and seeking placement in
community residential settings with appropriate support services; (iii)
litigation involving claims by Indian tribes to a portion of the State's land
area; and (iv) an action by certain students and municipalities claiming that
the State's formula for financing public education violates the State's
constitution and seeking a declaratory judgement and injunctive relief.

As a result of litigation on behalf of black and Hispanic school children
in the City of Hartford seeking "integrated education" within the Greater
Hartford metropolitan area, on July 9, 1996, the State Supreme Court directed
the legislature to develop appropriate measures to remedy the racial and ethnic
segregation in the Hartford public schools. The fiscal impact of this decision
might be significant but is not determinable at this time.

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General obligation bonds issued by municipalities are payable primarily
from ad valorem taxes on property located in the municipality. A municipality's
property tax base is subject to many factors outside the control of the
municipality, including the decline in Connecticut's manufacturing industry. In
recent years, certain Connecticut municipalities have experienced severe fiscal
difficulties and have reported operating and accumulated deficits. The most
notable of these is the City of Bridgeport which filed a bankruptcy petition on
June 7, 1991. The State opposed the petition. The United States Bankruptcy
Court for the District of Connecticut held that Bridgeport has authority to file
such a petition but that its petition should be dismissed on the grounds that
Bridgeport was not insolvent when the petition was filed. State legislation
enacted in 1993 prohibits municipal bankruptcy filings without the prior written
consent of the Governor.

In addition to general obligation bonds backed by the full faith and credit
of the municipality, certain municipal authorities finance projects by issuing
bonds that are not considered to be debts of the municipality. Such bonds may
be repaid only from revenues of the financed project, the revenues from which
may be insufficient to service the related debt obligations.

The U.S. Census Bureau reports that, at the time of the 1990 census,
Connecticut's capital city of Hartford was the eighth poorest city in the nation
based on the percentage of its residents living in poverty; the same report
indicates that four of Connecticut's largest cities ranked among the 130 poorest
cities in the nation by the same measure.

Regional economic difficulties, reduction in revenues and increases in
expenses could lead to further fiscal problems for the State and its political
subdivisions, authorities and agencies. Difficulties in payment of debt service
on borrowings could result in declines, possibly severe, in the value of their
outstanding obligations, increases in their future borrowing costs, and
impairment of their ability to pay debt service on their obligations.

ADDITIONAL INVESTMENT LIMITATIONS

In addition to the investment limitations disclosed in the Prospectuses,
the Funds are subject to the following investment limitations, which may be
changed with respect to a particular Fund only by a vote of the holders of a
majority of such Fund's outstanding shares (as defined under "Miscellaneous" in
the Prospectuses).

Each Fund may not:

1. Purchase securities on margin (except such short-term credits as may
be necessary for the clearance of purchases), make short sales of
securities, or maintain a short position.

- 25 -
<PAGE>

securities directly from the issuer thereof in accordance with the Fund's
investment objective, policies and limitations may be deemed to be
underwriting.

3. Purchase or sell real estate; except that each Taxable Bond Fund may
purchase securities that are secured by real estate and may purchase
securities of issuers which deal in real estate or interests therein; and
except that each Tax-Exempt Bond Fund may invest in Municipal Securities
secured by real estate or interests therein; however, the Funds will not
purchase or sell interests in real estate limited partnerships.

4. Purchase or sell commodities or commodity contracts or invest in oil,
gas, or other mineral exploration or development programs or mineral
leases; provided however, that the Tax-Exempt Bond Funds may enter into
municipal bond index futures contracts, and each Fund may enter into
interest rate futures contracts to the extent permitted under the Commodity
Exchange Act and the 1940 Act; and further provided that the Short-Term
Bond Fund and Corporate Bond Fund may enter into forward currency contracts
and foreign currency futures contracts and related options to the extent
permitted by their respective investment objectives and policies.

5. Invest in or sell put options, call options, straddles, spreads, or
any combination thereof.

6. Invest in companies for the purpose of exercising management or
control.

7. Purchase securities of other investment companies except in connection
with a merger, consolidation, reorganization, or acquisition of assets;
provided, however, that each Fund may acquire such securities in accordance
with the 1940 Act.

In addition to the above limitations:

8. The Tax-Exempt Bond Funds may not invest in industrial revenue bonds
where the payment of principal and interest are the responsibility of a
company (including its predecessors) with less than three years of
continuous operation.

9. The Funds, with the exception of the Short-Term Bond and Corporate
Bond Funds, may not purchase foreign securities, except that the
Intermediate Government Income and High Quality Bond Funds and the
Tax-Exempt Bond Funds may purchase certificates of deposit, bankers'
acceptances, or other similar obligations issued by U.S. branches of
foreign banks or foreign branches of U.S. banks; and provided, however,
that the Intermediate Government Income and High Quality Bond Funds may
also purchase obligations of Canadian Provincial Governments in accordance
with each Fund's investment objective and policies.

- 26 -
<PAGE>

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares of the Funds are sold on a continuous basis by First Data
Distributors, Inc. ("FD Distributors"), and FD Distributors has agreed to use
appropriate efforts to solicit all purchase orders. As described in the
applicable Prospectuses, Retail A Shares of the Corporate Bond Fund and
Tax-Exempt Bond Funds and Retail B Shares of the Tax-Exempt Bond Fund are sold
to customers ("Customers") of FIS Securities, Inc., Fleet Brokerage Securities,
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks, and other qualified banks,
savings and loan associations and broker/dealers ("Institutions"). As described
in the applicable Prospectuses, Retail A Shares of the Corporate Bond Fund and
Tax-Exempt Bond Funds and Retail B Shares of the Tax-Exempt Bond Fund may also
be sold to individuals, corporations or other entities, who submit a purchase
application to Galaxy, purchasing either for their own accounts or for the
accounts of others ("Direct Investors"). As described in the applicable
Prospectuses, Trust Shares of the Funds are offered to investors maintaining
qualified accounts at bank and trust institutions, including institutions
affiliated with Fleet Financial Group, Inc., and with respect to the Taxable
Bond Funds, to participants in employer-sponsored defined contribution plans.
Trust Shares of the Corporate Bond Fund are also offered to Direct Investors and
Customers of Institutions.

Retail A Shares of the Corporate Bond Fund and Tax-Exempt Bond Funds are
sold to Direct Investors and Customers at the public offering price based on a
Fund's net asset value plus a front-end sales charge as described in the
applicable Prospectuses. A deferred sales charge of up to 1.00% is assessed on
certain redemptions of Retail A Shares that are purchased with no initial sales
charge as part of an investment of $500,000 or more. Retail B Shares of the
Tax-Exempt Bond Fund are sold to Direct Investors and Customers at the net asset
value next determined after a purchase order is received, but are subject to a
contingent deferred sales charge which is payable on redemption of such shares
as described in the applicable prospectuses.

Retail A Shares of the Corporate Bond and Tax-Exempt Bond Funds are offered
for sale with a maximum front-end sales charge of 3.75%, with certain exemptions
as described in the applicable Prospectuses. An illustration of the computation
of the offering price per share of Retail A Shares of the Corporate Bond Fund
and Tax-Exempt Bond Funds, using the value of each Fund's net assets
attributable to such Shares and the number of outstanding Retail A Shares of
each Fund at the close of business on October 31, 1997 (with respect to the
Corporate Bond Fund and New Jersey Municipal Bond Fund, based on the projected
value of each Fund's net assets and the projected number of outstanding Retail A
Shares of each Fund on the date such Shares are first offered for sale to public
investors) and the maximum front-end sales charge of 3.75%, is as follows:

- 27 -
<PAGE>

Corporate
Bond Fund
---------
<S> <C>
Net Assets . . . . . . . . . . $ 10

Outstanding Shares . . . . . . 1

Net Asset Value Per
Share. . . . . . . . . . . . . $ 10.00

Sales Charge (3.75% of
the offering price). . . . . . $ 0.39

Offering Price to Public . . . $ 10.39
</TABLE>

<TABLE>
<CAPTION>
Tax-Exempt New Jersey Municipal
Bond Fund Bond Fund
------------ --------------------
<S> <C> <C>
Net Assets . . . . . . . . . . $ 25,465,173 $ 10

Outstanding Shares . . . . . . 2,302,321 1

Net Asset Value Per
Share. . . . . . . . . . . . . $ 11.06 $ 10.00

Sales Charge (3.75% of
the offering price). . . . . . $ 0.43 $ 0.39

Offering Price to Public . . . $ 11.49 $ 10.39
</TABLE>

- 28 -
<PAGE>

<TABLE>
<CAPTION>
New York Municipal Connecticut Municipal
Bond Fund Bond Fund
------------------ ---------------------
<S> <C> <C>
Net Assets . . . . . . . . . . $ 38,434,009 $ 23,354,832

Outstanding Shares . . . . . . 3,464,721 2,230,405

Net Asset Value Per
0Share . . . . . . . . . . . . $ 11.09 $ 10.47

Sales Charge (3.75% of
the offering price). . . . . . $ 0.43 $ 0.41

Offering Price to Public . . . $ 11.52 $ 10.88

<CAPTION>
Massachusetts Rhode Island
Municipal Bond Municipal
Fund Bond Fund
-------------- --------------
<S> <C> <C>
Net Assets . . . . . . . . . . $ 33,318,466 $ 17,134,415

Outstanding Shares . . . . . . 3,250,152 1,571,137

Net Asset Value Per Share. . . $ 10.25 $ 10.91

Sales Charge (3.75% of
the offering price). . . . . . $ 0.40 $ 0.43

Offering Price to Public . . . $ 10.65 $ 11.34
</TABLE>

If the Board of Trustees determines that conditions exist that make payment
of redemption proceeds wholly in cash unwise or undesirable, Galaxy may make
payment wholly or partly in securities or other property. Such redemptions will
only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property.

Galaxy may suspend the right of redemption or postpone the date of payment
for shares for more than seven days during any period when (a) trading in the
markets the Funds normally utilize is restricted, or an emergency, as defined by
the rules and regulations of the Securities and Exchange Commission (the "SEC")
exists making disposal of a Fund's investments or determination of its net asset
value not reasonably practicable; (b) the New York Stock Exchange is closed
(other than customary weekend and holiday closings); or (c) the SEC by order has
permitted such suspension.

- 29 -
<PAGE>

Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized.

DESCRIPTION OF SHARES

Galaxy is a Massachusetts business trust. Galaxy's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares and to
classify or reclassify any unissued shares into one or more additional classes
by setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. Pursuant to
such authority, the Board of Trustees has authorized the issuance of thirty
classes of shares, each representing interests in one of thirty separate
investment portfolios: Money Market Fund, Government Fund, U.S. Treasury Fund,
Tax-Exempt Fund, Connecticut Municipal Money Market Fund, Massachusetts
Municipal Money Market Fund, Institutional Government Money Market Fund, Prime
Reserves, Government Reserves, Tax-Exempt Reserves, Equity Value Fund, Equity
Growth Fund, Equity Income Fund, International Equity Fund, Small Company Equity
Fund, MidCap Equity Fund, Asset Allocation Fund, Growth and Income Fund, Small
Cap Value Fund, Strategic Equity Fund, Short-Term Bond Fund, Intermediate
Government Income Fund, High Quality Bond Fund, Corporate Bond Fund, Tax-Exempt
Bond Fund, New Jersey Municipal Bond Fund, New York Municipal Bond Fund,
Connecticut Municipal Bond Fund, Massachusetts Municipal Bond Fund and Rhode
Island Municipal Bond Fund. As stated in the applicable Prospectuses, two
separate series of shares (Retail A Shares and Trust Shares) of the Funds (plus
a third series of shares, i.e. Retail B Shares, of the Short-Term Bond, High
Quality Bond and Tax-Exempt Bond Funds) are offered under separate Prospectuses
to different categories of investors.

Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Except as noted below with respect to the Shareholder Services
Plan (which is currently applicable only to Retail A Shares of a Fund), the
Distribution and Services Plan for Retail B Shares of a Fund, and differing
transfer agency fees, Trust Shares, Retail A Shares and Retail B Shares bear pro
rata the same expenses and are entitled equally to a Fund's dividends and
distributions. In the event of a liquidation or dissolution of Galaxy or an
individual Fund, shareholders of a particular Fund would be entitled to receive
the assets available for distribution belonging to such Fund, and a
proportionate distribution, based upon the relative asset values of Galaxy's
respective Funds, of any general assets of Galaxy not belonging to any
particular Fund, which are available for distribution. Shareholders of a Fund
are entitled to participate in the net distributable assets of the particular
Fund involved in liquidation, based on the number of shares of the Fund that are
held by each shareholder, except that currently a Fund's Retail A Shares would
be solely responsible for the Fund's payments to Service Organizations under the
Shareholder Services Plan and a Fund's Retail B Shares would be solely
responsible for the Fund's payments to FD Distributors and to Service
Organizations under the Distribution and Services Plan.

- 30 -
<PAGE>

Holders of all outstanding shares of a particular Fund will vote together
in the aggregate and not by series on all matters, except that only Retail A
Shares and Trust Shares of a Fund will be entitled to vote on matters submitted
to a vote of shareholders pertaining to Galaxy's Shareholder Services Plan for
Retail A and Trust Shares and only Retail B Shares of a Fund will be entitled to
vote on matters submitted to a vote of shareholders pertaining to Galaxy's
Distribution and Services Plan for Retail B Shares. Further, shareholders of
all of the Funds, as well as those of any other investment portfolio now or
hereafter offered by Galaxy, will vote together in the aggregate and not
separately on a Fund-by-Fund basis, except as otherwise required by law or when
permitted by the Board of Trustees. Rule 18f-2 under the 1940 Act provides that
any matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as Galaxy shall not be deemed to have
been effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each Fund affected by the matter. A particular Fund is
deemed to be affected by a matter unless it is clear that the interests of each
Fund in the matter are substantially identical or that the matter does not
affect any interest of the Fund. Under the Rule, the approval of an investment
advisory agreement or any change in an investment objective or a fundamental
investment policy would be effectively acted upon with respect to a Fund only if
approved by a majority of the outstanding shares of such Fund (irrespective of
series designation). However, the Rule also provides that the ratification of
the appointment of independent public accountants, the approval of principal
underwriting contracts, and the election of trustees may be effectively acted
upon by shareholders of Galaxy voting without regard to class or series.

Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and, accordingly, the holders of more than 50% in the aggregate of Galaxy's
outstanding shares may elect all of the trustees, irrespective of the votes of
other shareholders.

Galaxy does not intend to hold annual shareholder meetings except as may be
required by the 1940 Act. Galaxy's Declaration of Trust provides that a meeting
of shareholders shall be called by the Board of Trustees upon a written request
of shareholders owning at least 10% of the outstanding shares of Galaxy entitled
to vote.

Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another Fund of Galaxy and, in
connection therewith, to cause all outstanding shares of any Fund to be redeemed
at their net asset value or converted into shares of another class of Galaxy's
shares at the net asset value. In the event that shares are redeemed in cash at
their net asset value, a shareholder may receive in payment for such shares, due
to changes in the market prices of the Fund's portfolio securities, an amount
that is more or less than the original investment. The exercise of such

- 31 -
<PAGE>

authority by the Board of Trustees will be subject to the provisions of the 1940
Act, and the Board of Trustees will not take any action described in this
paragraph unless the proposed action has been disclosed in writing to the Fund's
shareholders at least 30 days prior thereto.

ADDITIONAL INFORMATION CONCERNING TAXES

IN GENERAL

The following summarizes certain additional tax considerations generally
affecting the Funds and their shareholders that are not described in the Funds'
Prospectuses. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or their shareholders, and the discussion here and in the
Prospectuses is not intended as a substitute for careful tax planning. Potential
investors should consult their tax advisers with specific reference to their own
tax situation.

Each Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended, (the "Code"), and each Fund intends to qualify
as a "regulated investment company" under the Code. By following this policy,
each Fund expects to eliminate or reduce to a nominal amount the federal income
taxes to which it may be subject. If for any taxable year a Fund does not
qualify for the special federal tax treatment afforded regulated investment
companies, all of the Fund's taxable income would be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In
such event, a Fund's distributions to shareholders (including amounts derived
from interest on Municipal Securities) would be taxable as ordinary income, to
the extent of the current and accumulated earnings and profits of the particular
Fund, and would be eligible for the dividends received deduction in the case of
corporate shareholders.

Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income, if any, net of
certain deductions for such year (the "Distribution Requirement"). In addition,
each Fund must satisfy certain requirements with respect to the source of its
income for a taxable year. At least 90% of the gross income of each Fund must
be derived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign
currencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies (the "Income Requirement").
The Treasury Department may by regulation exclude from qualifying income foreign
currency gains which are not directly related to a Fund's principal business of
investing in stock or securities, or options and futures with respect to stock
or securities. Any income derived by a Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of
investing in stock, securities or currencies, only to the extent that such
income is attributable to items of income which would have been qualifying
income if realized by the Fund in the same manner as by the partnership or
trust.

- 32 -
<PAGE>

Substantially all of each Fund's net capital gain (excess of net long-term
capital gain over net short-term capital loss), if any, will be distributed at
least annually to Fund shareholders. A Fund will generally have no tax
liability with respect to such gains and the distributions will be taxable to
Fund shareholders who are not currently exempt from federal income taxes as
long-term capital gain, regardless of how long the shareholders have held Fund
shares and whether such gains are received in cash or reinvested in additional
shares.

Each Fund will designate the tax status of any distribution in a written
notice mailed to shareholders within 60 days after the close of its taxable
year. Shareholders should note that, upon the sale or exchange of Fund shares,
if the shareholder has not held such shares for more than six months, any loss
on the sale or exchange of those shares will be treated as long term capital
loss to the extent of the capital gain dividends received with respect to the
shares.

Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable and
the phase-out of personal exemptions, the maximum effective marginal rate of tax
for some taxpayers may be higher. An individual's long term capital gains on
stocks and securities are taxable at a maximum nominal rate of 20% for gains on
capital assets held more than 12 months. For corporations, long-term capital
gains and ordinary income are both taxable at a maximum average rate of 35% (a
maximum effective marginal rate of 39% applies in the case of corporations
having taxable income between $100,000 and $335,000).

A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses) for the 1-year period ending on October 31 of such calendar
year. The balance of such income must be distributed during the next calendar
year. Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain net income
prior to the end of each calendar year to avoid liability for this excise tax.

The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to withholding by the Internal Revenue Service for
failure to properly include on his or her return payments of taxable interest or
dividends, or (iii) has failed to certify to the Funds that he or she is not
subject to back up withholding when required to do so or that he or she is an
"exempt recipient."

TAX-EXEMPT BOND FUNDS

As stated in the Prospectuses for the Tax-Exempt Bond Funds, an investment
in the respective Fund is not intended to constitute a balanced investment
program. Shares of the Funds would not be suitable for tax-exempt institutions
and may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans and individual retirement accounts because such plans and
accounts are generally tax-exempt and, therefore, not only would the shareholder
not gain any additional benefit from the Funds' dividends being tax-exempt, but
such dividends would be ultimately taxable to the beneficiaries when
distributed. In addition, the

- 33 -
<PAGE>

Funds may not be an appropriate investment for entities which are "substantial
users" of facilities financed by "private activity bonds" or "related persons"
thereof. "Substantial user" is defined under U.S. Treasury Regulations to
include a non-exempt person who (i) regularly uses a part of such facilities in
his or her trade or business and whose gross revenues derived with respect to
the facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, (ii) occupies more than 5% of
the usable area of such facilities or (iii) are persons for whom such facilities
or a part thereof were specifically constructed, reconstructed or acquired.
"Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S corporation and its
shareholders.

In order for the Tax-Exempt Bond Funds to pay exempt-interest dividends for
any taxable year, at the close of each taxable quarter, at least 50% of the
aggregate value of a Fund's portfolio must consist of exempt-interest
obligations. Within 60 days after the close of its taxable year, each Fund will
notify its shareholders of the portion of the dividends paid by the Fund which
constitutes exempt-interest dividends with respect to such taxable year.
However, the aggregate amount of dividends so designated by a Fund cannot exceed
the excess of the amount of interest exempt from tax under Section 103 of the
Code received by the Fund over any amounts disallowed as deductions under
Sections 265 and 171(a)(2) of the Code. The percentage of total dividends paid
by a Fund with respect to any taxable year that qualifies as federal
exempt-interest dividends will be the same for all shareholders receiving
dividends from the Fund for such year.

Shareholders should note that, upon the sale or exchange of Fund shares, if
the shareholder has not held such shares for more than six months, any loss on
the sale or exchange of those shares will be disallowed to the extent of the
exempt dividends received with respect to the shares.

TAXABLE BOND FUNDS

Income received by the Taxable Bond Funds from sources within foreign
countries may be subject to withholding and other foreign taxes. The payment of
such taxes will reduce the amount of dividends and distributions paid to a
Fund's shareholders. So long as a Fund qualifies as a regulated investment
company, certain distribution requirements are satisfied, and more than 50% of
the value of the Fund's assets at the close of the taxable year consists of
stock or securities of foreign corporations, the Fund may elect, for U.S.
federal income tax purposes, to treat foreign income taxes paid by the Fund that
can be treated as income taxes under U.S. income tax principles as paid by its
shareholders. A Fund may qualify for and make this election in some, but not
necessarily all, of its taxable years. If a Fund were to make an election, an
amount equal to the foreign income taxes paid by the Fund would be included in
the income of its shareholders, and each shareholder would be entitled either
(i) to credit their portions of this amount against their U.S. tax due, if any,
or (ii) if the shareholder itemizes deductions, to deduct such portion from
their U.S taxable income, if any, should the shareholder so choose. Shortly
after any year for which it makes such an election, a Fund will report to its
shareholders, in writing, the amount per share of such foreign tax that must be
included in each shareholder's gross income and the amount which will be
available for deduction or credit. Certain limitations

- 34 -
<PAGE>

are imposed on the extent to which the credit (but not the deduction) for
foreign taxes may be claimed.

Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to the limitation that the credit may not exceed
the shareholder's United States tax (determined without regard to the
availability of the credit) attributable to his or her total foreign source
taxable income. For this purpose, the portion of dividends and distributions
paid by the Fund from its foreign source income will be treated as foreign
source income. A Fund's gains and losses from the sale of securities generally
will be treated as derived from United States sources and certain foreign
currency gains and losses likewise will be treated as derived from United States
sources. The limitation on the foreign tax credit is applied separately to
foreign source "passive income," such as the portion of dividends received from
a Fund which qualifies as foreign source income. Additional limitations apply
to using the foreign tax credit to offset the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, shareholders may be
unable to claim a credit for the full amount of their proportionate shares of
the foreign income taxes paid by a Fund.

TAXATION OF CERTAIN FINANCIAL INSTRUMENTS

Special rules govern the federal income tax treatment of financial
instruments that may be held by the Funds. These rules may have a particular
impact on the amount of income or gain that the Funds must distribute to their
respective shareholders to comply with the Distribution Requirement, and on the
income or gain qualifying under the Income Requirement.

Generally, futures contracts and options on futures contracts held by the
Funds and certain foreign currency contracts entered into by the Taxable Bond
Funds (as described above) (collectively, the "Instruments") at the close of
their taxable year are treated for federal income tax purposes as sold for their
fair market value on the last business day of such year, a process known as
"mark-to-market." Forty percent of any gain or loss resulting from such
constructive sales will be treated as short-term capital gain or loss, and 60%
of such gain or loss will be treated as long-term capital gain or loss without
regard to the period a Fund has held the Instruments ("the 40-60 rule"). The
amount of any capital gain or loss actually realized by a Fund in a subsequent
sale or other disposition of those Instruments is adjusted to reflect any
capital gain or loss taken into account by the Fund in a prior year as a result
of the constructive sale of the Instruments. Losses with respect to futures
contracts to sell related options, and certain foreign currency contracts, which
are regarded as parts of a "mixed straddle" because their values fluctuate
inversely to the values of specific securities held by the Funds, are subject to
certain loss deferral rules, which limit the amount of loss currently deductible
on either part of the straddle to the amount thereof that exceeds the
unrecognized gain, if any, with respect to the other part of the straddle, and
to certain wash sales regulations. With respect to certain Instruments,
deductions for interest and carrying charges may not be allowed.
Notwithstanding the rules described above, with respect to futures contracts
that are part of a "mixed straddle" to sell related options, and certain foreign
currency contracts that are properly identified as such, a Fund may make an
election which will exempt (in whole or in part) those identified futures
contracts, options and foreign currency contracts from the Rules of Section 1256
of the Code including "the 40-60 rule" and "mark-to-market," but gains and
losses will be subject to such

- 35 -
<PAGE>

short sales, wash sales and loss deferral rules and the requirement to
capitalize interest and carrying charges. Under Temporary Regulations, a Fund
would be allowed (in lieu of the foregoing) to elect either (1) to offset gains
or losses from portions that are part of a mixed straddle by separately
identifying each mixed straddle to which such treatment applies, or (2) to
establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under either
election, "the 40-60 rule" will apply to the net gain or loss attributable to
the Instruments, but in the case of a mixed straddle account election, not more
than 50% of any net gain may be treated as long-term and no more than 40% of any
net loss may be treated as short-term.

A foreign currency contract must meet the following conditions in order to
be subject to the mark-to-market rules described above: (1) the contract must
require delivery of, or the settlement of the contract must depend on the value
of, a foreign currency of a type in which regulated futures contracts are
traded; (2) the contract must be entered into at arm's length at a price
determined by reference to the price in the interbank market; and (3) the
contract must be traded in the interbank market. The Treasury Department has
broad authority to issue regulations under the provisions respecting foreign
currency contracts. As of the date of this Statement of Additional Information,
the Treasury Department has not issued any such regulations. Other foreign
currency contracts entered into by a Fund may result in the creation of one or
more straddles for federal income tax purposes, in which case certain loss
deferral, short sales, and wash sales rules and the requirement to capitalize
interest and carrying charges may apply.

Some of the non-U.S. dollar denominated investments that a Fund may make,
such as foreign securities, European Depository Receipts and foreign currency
contracts, may be subject to the provisions of Subpart J of the Code, which
govern the federal income tax treatment of certain transactions denominated in
terms of a currency other than the U.S. dollar or determined by reference to the
value of one or more currencies other than the U.S dollar. The types of
transactions covered by these provisions include the following: (1) the
acquisition of, or becoming the obligor under, a bond or other debt instrument
(including, to the extent provided in Treasury regulations, preferred stock);
(2) the accruing of certain trade receivables and payables; and (3) the entering
into or acquisition of any forward contract, futures contract, option and
similar financial instrument. The disposition of a currency other than the U.S.
dollar by a U.S. taxpayer also is treated as a transaction subject to the
special currency rules. However, foreign currency-related regulated futures
contracts and nonequity options are generally not subject to the special
currency rules if they are or would be treated as sold for their fair market
value at year-end under the mark-to-market rules, unless an election is made to
have such currency rules apply. With respect to transactions covered by the
special rules, foreign currency gain or loss is calculated separately from any
gain or loss on the underlying transaction and is normally taxable as ordinary
gain or loss. A taxpayer may elect to treat as capital gain or loss foreign
currency gain or loss arising from certain identified forward contracts, futures
contracts and options that are capital assets in the hands of the taxpayer and
which are not part of a straddle. In accordance with Treasury regulations,
certain transactions that are part of a "Section 988 hedging transaction" (as
defined in the Code and Treasury regulations) may be integrated and treated as a
single transaction or otherwise treated consistently for purposes of the Code.
"Section 988 hedging transactions" are not subject to the mark-to-market or loss
deferral rules under the Code.

- 36 -
<PAGE>

Gain or loss attributable to the foreign currency component of transactions
engaged in by the Funds, which is not subject to the special currency rules
(such as foreign equity investments other than certain preferred stocks), is
treated as capital gain or loss and is not segregated from the gain or loss on
the underlying transaction.

The Funds may be subject to U.S. federal income tax on a portion of any
"excess distribution" or a gain from the disposition of passive foreign
investment companies even if it distributes the income to its shareholders.

STATE TAXATION

Depending upon the extent of Galaxy's activities in states and localities
in which its offices are maintained, in which its agents or independent
contractors are located, or in which it is otherwise deemed to be conducting
business, each Fund may be subject to the tax laws of such states or localities.
In addition, in those states and localities that have income tax laws, the
treatment of a Fund and its shareholders under such laws may differ from their
treatment under federal income tax laws. Under state or local law,
distributions of net investment income may be taxable to shareholders as
dividend income even though a substantial portion of such distributions may be
derived from interest on U.S. Government obligations which, if realized
directly, would be exempt from such income taxes. Shareholders are advised to
consult their tax advisers concerning the application of state and local taxes.

TRUSTEES AND OFFICERS

The trustees and executive officers of Galaxy, their addresses, principal
occupations during the past five years, and other affiliations are as follows:

<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
---------------- ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & President & Director, Vicks
Vicks Lithograph & Trustee Lithograph & Printing
Printing Corporation Corporation (book
Commercial Drive manufacturing and commercial
P.O. Box 270 printing); Director, Utica
Yorkville, NY 13495 Fire Insurance Company;
Age 64 Trustee, Savings Bank of
Utica; Director, Monitor Life
Insurance Company; Director,
Commercial Travelers Mutual
Insurance Company; Trustee,
The Galaxy VIP Fund; Trustee,
Galaxy Fund II.

- 37 -
<PAGE>

<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
---------------- ----------- ----------------------
<S> <C> <C>
John T. O'Neill(1) President, Executive Vice President and
Hasbro, Inc. Treasurer & CFO, Hasbro, Inc. (toy and
1027 Newport Drive Trustee game manufacturer); Trustee,
Pawtucket, RI 02862 The Galaxy VIP Fund; Trustee,
Age 53 Galaxy Fund II.

Louis DeThomasis Trustee President, Saint Mary's
Saint Mary's College College of Minnesota;
of Minnesota Director, Bright Day Travel,
Winona, MN 55987 Inc.; Trustee, Religious
Age 57 Communities Trust; Trustee,
The Galaxy VIP Fund; Trustee,
Galaxy Fund II.

Donald B. Miller Trustee Chairman, Horizon Media, Inc.
10725 Quail Covey Road (broadcast services);
Boynton Beach, FL 33436 Director/Trustee, Lexington
Age 72 Funds; Chairman, Executive
Committee, Compton
International, Inc.
(advertising agency); Trustee,
Keuka College; Trustee, The
Galaxy VIP Fund; Trustee,
Galaxy Fund II.

James M. Seed Trustee Chairman and President, The
The Astra Ventures, Astra Projects, Incorporated,
Inc. (land development); President
One Citizens Plaza The Astra Ventures,
Providence, RI 02903 Incorporated (previously,
Age 56 Buffinton Box Company
manufacturer of cardboard
boxes); Trustee, The Galaxy
VIP Fund; Commissioner, Rhode
Island Investment Commission;
Trustee, Galaxy Fund II.

- 38 -
<PAGE>

<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
---------------- ----------- ----------------------
<S> <C> <C>
Bradford S. Wellman(1) Trustee Private Investor; Vice
2468 Ohio Street President and Director, Acadia
Bangor, ME 04401 Management Company (investment
Age 66 services); Director, Essex
County Gas Company, until
January 1994; Director, Maine
Mutual Fire Insurance Co.;
Member, Maine Finance
Authority; Trustee, The Galaxy
VIP Fund; Trustee, Galaxy Fund
II.

W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National Drinker Biddle & Reath LLP,
Bank Building Philadelphia, Pennsylvania.
1345 Chestnut Street
Philadelphia, PA 19107
Age 54

Jylanne Dunne Vice President Vice President, First Data
First Data Investor and Assistant Investor Services Group, Inc.,
Services Group, Inc. Treasurer 1990 to present.
4400 Computer Drive
Westboro, MA 01581
Age 38
</TABLE>
- --------------------------

(1) An interested person within the definition set forth in Section 2(a)(19) of
the 1940 Act.

- 39 -
<PAGE>

annual aggregate fee of $2,500 for their services in these respective
capacities. The foregoing trustees' and officers' fees are allocated among the
portfolios of the Trusts based on their relative net assets. Prior to March 5,
1998, (i) each trustee received an annual aggregate fee of $29,000 for his
services as a trustee of the Trusts, plus an additional $2,250 for each
in-person Galaxy Board meeting attended and $1,500 for each in-person Galaxy VIP
or Galaxy II Board meeting attended not held concurrently with an in-person
Galaxy Board meeting, and (ii) the President and Treasurer of the Trusts
received the same fees as they are currently paid for their services in these
capacities.

Effective March 1, 1996, each trustee became entitled to participate in The
Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation Plans
(the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments.
Deferral of trustees' fees will have no effect on a portfolio's assets,
liabilities, and net income per share, and will not obligate the Trusts to
retain the services of any trustee or obligate a portfolio to any level of
compensation to the trustee. The Trusts may invest in underlying securities
without shareholder approval.

No employee of First Data Investor Services Group, Inc., ("Investor
Services Group") receives any compensation from Galaxy for acting as an officer.
No person who is an officer, director or employee of Fleet, or any of its
affiliates, serves as a trustee, officer or employee of Galaxy. The trustees
and officers of Galaxy own less than 1% of its outstanding shares.

The following chart provides certain information about the fees received by
Galaxy's trustees in the most recently completed fiscal year.

- 40 -
<PAGE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pension or Total
Retirement Compensation
Benefits from Galaxy and
Aggregate Accrued as Fund
Name of Compensation from Part of Fund Complex*Paid to
Person/Position Galaxy Expenses Trustees
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $34,591 None $38,500
Trustee
- --------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $38,184 None $42,500
Chairman & Trustee
- --------------------------------------------------------------------------------
Donald B. Miller** $34,574 None $38,500
Trustee
- --------------------------------------------------------------------------------
Rev. Louis DeThomasis $34,591 None $38,500
Trustee
- --------------------------------------------------------------------------------
John T. O'Neill $36,837 None $41,000
President, Treasurer &
Trustee
- --------------------------------------------------------------------------------
James M. Seed** $34,574 None $38,500
Trustee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>

- --------------

* The "Fund Complex" consists of The Galaxy Fund, The Galaxy VIP Fund and
Galaxy Fund II.

** Deferred compensation in the amounts of $35,777 and $40,992 accrued during
Galaxy's fiscal year ended October 31, 1997 for Messrs. Miller and Seed,
respectively.

SHAREHOLDER AND TRUSTEE LIABILITY

Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
Galaxy, and that every note, bond, contract, order or other undertaking made by
Galaxy shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder and not
because of his or her acts or omissions outside such capacity or some other
reason. The Declaration of Trust also provides that Galaxy shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of Galaxy and shall satisfy any judgment thereon. Thus, the risk of
shareholder liability is limited to circumstances in which Galaxy itself would
be unable to meet its obligations.

- 41 -
<PAGE>

The Declaration of Trust states further that no trustee, officer or agent
of Galaxy shall be personally liable for or on account of any contract, debt,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.

With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.

ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER AGENCY AGREEMENTS

Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the Funds
as described in the Prospectuses. Fleet has also agreed to pay all expenses
incurred by it in connection with its activities under the advisory agreement
other than the cost of securities (including brokerage commissions) purchased
for the Funds. See "Expenses" in the Prospectuses.

For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, Fleet received advisory fees (net of fee waivers) of $359,155,
$531,062 and $470,347, respectively, with respect to the Short-Term Bond Fund;
$1,527,441, $1,653,803 and $1,535,166, respectively, with respect to the
Intermediate Government Income Fund; $818,510, $932,381 and $1,089,506,
respectively, with respect to the High Quality Bond Fund; $657,065, $696,116
and $789,598, respectively, with respect to the Tax-Exempt Bond Fund; and
$348,654, $360,298 and $351,041, respectively, with respect to the New York
Municipal Bond Fund.

For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, Fleet waived advisory fees of $130,062, $193,702 and $171,035,
respectively, with respect to the Short-Term Bond Fund; $557,058, $608,385 and
$558,241, respectively, with respect to the Intermediate Government Income Fund;
$297,640, $339,047 and $396,183, respectively, with respect to the High Quality
Bond Fund; $238,933, $253,133 and $287,127, respectively, with respect to the
Tax-Exempt Bond Fund; and $126,783, $131,020 and $127,651, respectively, with
respect to the New York Municipal Bond Fund.

For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, Fleet reimbursed advisory fees of $65,354, $40,375 and $2,300,
respectively, with respect to the Short-Term Bond Fund; $60,356, $0 and $0,
respectively, with respect to the Intermediate

- 42 -
<PAGE>

Government Income Fund; and $34,946, $2,956 and $28,489, respectively, with
respect to the High Quality Bond Fund.

For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, Fleet reimbursed advisory fees of $88,394, $62,854 and $73,334,
respectively, with respect to the Tax-Exempt Bond Fund; and $107,711, $123,317
and $48,842, respectively, with respect to the New York Municipal Bond Fund.

For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, Fleet received advisory fees (net of fee waivers) of $31,286, $67,091
and $74,799, respectively, with respect to the Connecticut Municipal Bond Fund;
and $32,245, $78,783 and $102,040, respectively, with respect to the
Massachusetts Municipal Bond Fund.

For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, Fleet waived advisory fees of $125,384, $163,904 and $149,599,
respectively, with respect to the Connecticut Municipal Bond Fund; and $128,981,
$191,624 and $204,080, respectively, with respect to the Massachusetts Municipal
Bond Fund.

For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, Fleet reimbursed advisory fees of $1,528, $0 and $0, respectively,
with respect to the Connecticut Municipal Bond Fund; and $14,041, $0 and $0,
respectively, with respect to the Massachusetts Municipal Bond Fund.

For the period December 12, 1994 (commencement of operations) to October
31, 1995 and for the fiscal years ended October 31, 1996 and October 31, 1997,
Fleet received advisory fees (net of fee waivers) of $171,959, $604,322 and
$507,794, respectively, with respect to the Corporate Bond Fund. For the same
periods, Fleet waived advisory fees of $62,531, $219,753 and $184,653,
respectively, with respect to the Corporate Bond Fund.

For the period December 20, 1994 (commencement of operations) to October
31, 1995 and for the fiscal years ended October 31, 1996 and October 31, 1997,
Fleet received advisory fees (net of fee waivers) of $9,841, $38,943 and
$37,641, respectively, with respect to the Rhode Island Municipal Bond Fund.

For the period December 20, 1994 (commencement of operations) through
October 31, 1995 and for the fiscal years ended October 31, 1996 and October 31,
1997, Fleet reimbursed advisory fees of $71,657, $15,079 and $538, respectively,
and waived advisory fees of $32,013, $60,030 and $75,284, respectively, with
respect to the Rhode Island Municipal Bond Fund.

- 43 -
<PAGE>

such continuance is approved at least annually (i) by the vote of a majority of
trustees who are not parties to such advisory agreement or interested persons
(as defined in the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval; and (ii) by Galaxy's Board of
Trustees, or by a vote of a majority of the outstanding shares of such Fund.
The term "majority of the outstanding shares of such Fund" means, with respect
to approval of an advisory agreement, the vote of the lesser of (i) 67% or more
of the shares of the Fund present at a meeting, if the holders of more than 50%
of the outstanding shares of the Fund are present or represented by proxy, or
(ii) more than 50% of the outstanding shares of the Fund. The advisory
agreement may be terminated by Galaxy or by Fleet on sixty days' written notice,
and will terminate immediately in the event of its assignment.

Fleet Bank, an affiliate of Fleet, is paid a fee for sub-account and
administrative services performed with respect to Trust Shares of the Taxable
Bond Funds held by defined contribution plans. Pursuant to an agreement between
Fleet Bank and Investor Services Group, Fleet Bank will be paid $21.00 per year
for each defined contribution plan participant sub-account. As of October 31,
1997, there were approximately 19,492 defined contribution plan participant
sub-accounts invested in Trust Shares of the Taxable Bond Funds; thus it is
expected that Fleet Bank will receive annually approximately $409,332 for
sub-account services. Investor Services Group bears this expense directly, and
shareholders of Trust Shares of the Taxable Bond Funds bear this expense
indirectly through fees paid to Investor Services Group for transfer agency
services.

Investor Services Group, a wholly-owned subsidiary of First Data
Corporation, serves as Galaxy's administrator. Under the administration
agreement, Investor Services Group has agreed to maintain office facilities for
Galaxy, furnish Galaxy with statistical and research data, clerical, accounting,
and bookkeeping services, certain other services such as internal auditing
services required by Galaxy, and compute the net asset value and net income of
the Funds. Investor Services Group prepares the Funds' annual and semi-annual
reports to the SEC, federal and state tax returns, and filings with state
securities commissions, arranges for and bears the cost of processing share
purchase and redemption orders, maintains the Funds' financial accounts and
records, and generally assists in all aspects of Galaxy's operations.

Prior to March 31, 1995, Galaxy's administrator and transfer agent was 440
Financial Group of Worcester, Inc., a wholly-owned subsidiary of State Mutual
Life Assurance Company of America. On March 31, 1995, Investor Services Group
acquired all of the assets of 440 Financial Group of Worcester, Inc.

For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, Investor Services Group and/or its predecessors received
administration fees (net of fee waivers) of $57,153, $82,440 and $69,851,
respectively, with respect to the Short-Term Bond Fund; $244,446, $256,059 and
$227,963, respectively, with respect to the Intermediate Government Income Fund;
$130,250, $143,905 and $161,732, respectively, with respect to the High Quality
Bond Fund; $104,560, $108,062 and $117,223, respectively, with respect to the
Tax-Exempt Bond Fund and $55,482, $55,624 and $26,292, respectively, with
respect to the New York Municipal Bond Fund. During the fiscal year ended
October 31, 1997, Investor Services Group waived administration fees of $25,827
for the New York Municipal Bond Fund.

- 44 -
<PAGE>

For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, Investor Services Group and/or its predecessors received
administration fees (net of fee waivers) of $0, $0 and $0, respectively, with
respect to the Connecticut Municipal Bond Fund; and $0, $0 and $2,406,
respectively, with respect to the Massachusetts Municipal Bond Fund. For the
fiscal years ended October 31, 1995, October 31, 1996 and October 31, 1997,
Investor Services Group and/or its predecessors waived administration fees of
$39,479, $46,559 and $39,755, respectively, with respect to the Connecticut
Municipal Bond Fund; and $39,900, $46,772 and $30,919, respectively, with
respect to the Massachusetts Municipal Bond Fund.

For the period December 12, 1994 (commencement of operations) to October
31, 1995 and for the fiscal years ended October 31, 1996 and October 31, 1997,
Investor Services Group and/or its predecessors received administration fees of
$27,410, $93,185 and $75,411, respectively with respect to the Corporate Bond
Fund.

For the period December 20, 1994 (commencement of operations) to October
31, 1995 and for the fiscal years ended October 31, 1996 and October 31, 1997,
Investor Services Group and/or its predecessors received administration fees of
$4,830, $11,196 and $12,293, respectively with respect to the Rhode Island
Municipal Bond Fund.

CUSTODIAN AND TRANSFER AGENT

The Chase Manhattan Bank ("Chase Manhattan") serves as custodian to the
Funds pursuant to a Global Custody Agreement. Under its custody agreement,
Chase Manhattan has agreed to: (i) maintain a separate account or accounts in
the name of each Fund; (ii) hold and disburse portfolio securities on account of
each Fund; (iii) collect and make disbursements of money on behalf of each Fund;
(iv) collect and receive all income and other payments and distributions on
account of each Fund's portfolio securities; (v) respond to correspondence from
security brokers and others relating to its duties; and (vi) make periodic
reports to the Board of Trustees concerning the Funds' operations. Chase
Manhattan is authorized to select one or more banks or trust companies to serve
as sub-custodian for the Funds, provided that Chase Manhattan shall remain
responsible for the performance of all of its duties under the custodian
agreement and shall be liable to the Funds for any loss which shall occur as a
result of the failure of a sub-custodian to exercise reasonable care with
respect to the safekeeping of the Funds' assets. In addition, Chase Manhattan
may employ sub-custodians for the Short-Term Bond and Corporate Bond Funds upon
prior approval by the Board of Trustees in accordance with the regulations of
the SEC, for the purpose of providing custodial services for the foreign assets
of those Funds held outside the United States. The assets of the Funds are held
under bank custodianship in compliance with the 1940 Act.

Investor Services Group also serves as Galaxy's transfer agent and dividend
disbursing agent pursuant to a Transfer Agency and Services Agreement ("Transfer
Agency Agreement"). Under the Transfer Agency Agreement, Investor Services
Group has agreed to: (i) issue and redeem shares of each Fund; (ii) transmit all
communications by each Fund to its shareholders of record, including reports to
shareholders, dividend and distribution notices and proxy materials for meetings
of shareholders; (iii) respond to correspondence by security brokers and others

- 45 -
<PAGE>

relating to its duties; (iv) maintain shareholder accounts; and (v) make
periodic reports to the Board of Trustees concerning Galaxy's operations.

PORTFOLIO TRANSACTIONS

Debt securities purchased or sold by the Funds are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.

The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year.

In purchasing or selling securities for the Funds, Fleet will seek to
obtain the best net price and the most favorable execution of orders. To the
extent that the execution and price offered by more than one broker/dealer are
comparable, Fleet may effect transactions in portfolio securities with
broker/dealers who provide research, advice or other services such as market
investment literature.

Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to, Fleet,
Investor Services Group, or their affiliates, and will not give preference to
affiliates and correspondent banks of Fleet with respect to such transactions.

Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
During fiscal year ended October 31, 1997, the Galaxy bond funds did not acquire
or sell securities of its regular brokers and dealers.

Investment decisions for each Fund are made independently from those for
the other Funds and portfolios of Galaxy and for any other investment companies
and accounts advised or managed by Fleet. When a purchase or sale of the same
security is made at substantially the same time on behalf of a Fund, another
portfolio of Galaxy, and/or another investment company or account, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which Fleet believes to be equitable to the Fund and such
other portfolio, investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or sold by such Fund. To the extent
permitted by law, Fleet may aggregate the securities to be sold or purchased for
a Fund with those to be sold or purchased for Galaxy's other Funds and
portfolios, or other investment companies or accounts in order to obtain best
execution.

- 46 -
<PAGE>

SHAREHOLDER SERVICES PLAN

As stated in the Prospectuses for each Fund, Galaxy may enter into
agreements ("Servicing Agreements") pursuant to its Shareholder Services Plan
("Services Plan") with Institutions and other organizations (including Fleet
Bank and its affiliates) (collectively, "Service Organizations") pursuant to
which Service Organizations will be compensated by Galaxy for offering to
provide certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares and Trust Shares of a Fund. As of October
31, 1997, Galaxy had entered into Servicing Agreements only with Fleet Bank and
affiliates. As of the date of this Statement of Additional Information, the
Services Plan has not been implemented with respect to Trust Shares of the
Funds.

Each Servicing Agreement between Galaxy and a Service Organization relating
to the Services Plan requires that, with respect to those Funds which declare
dividends on a daily basis, the Service Organization agree to waive a portion of
the servicing fee payable to it under the Services Plan to the extent necessary
to ensure that the fees required to be accrued with respect to the Retail A
Shares of such Funds on any day do not exceed the income to be accrued to such
Retail A Shares on that day.

For the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997, payments to Service Organizations totaled $47,093, $42,210 and
$37,652, respectively, with respect to Retail A Shares of the Tax-Exempt Bond
Fund; $60,513, $57,674 and $56,596, respectively, with respect to Retail A
Shares of the New York Municipal Bond Fund; $25,383, $36,878 and $32,160,
respectively, with respect to Retail A Shares of the Connecticut Municipal Bond
Fund; $22,206, $38,823 and $40,842, respectively, with respect to Retail A
Shares of the Massachusetts Municipal Bond Fund; and $0, $0 and $0,
respectively, with respect to Retail A Shares of the Rhode Island Municipal Bond
Fund. As of the date of this Statement of Additional Information, Galaxy has
not offered Retail A Shares of the Corporate Bond and New Jersey Municipal Bond
Funds.

Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Services Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid under
the Servicing Agreements and the purposes for which the expenditures were made.
In addition, the arrangements with Service Organizations must be approved
annually by a majority of Galaxy's trustees, including a majority of the
trustees who are not "interested persons" of Galaxy as defined in the 1940 Act
and who have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").

- 47 -
<PAGE>

with Service Organizations are in effect, the selection and nomination of the
members of Galaxy's Board of Trustees who are not "interested persons" (as
defined in the 1940 Act) of Galaxy will be committed to the discretion of such
Disinterested Trustees.

DISTRIBUTION AND SERVICES PLAN

Galaxy has adopted a Distribution and Services Plan (the "12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to Retail B Shares of the
Tax-Exempt Bond Fund. The 12b-1 Plan is described in the applicable Prospectus.

Under the 12b-1 Plan for Retail B Shares, payments by Galaxy (i) for
distribution expenses may not exceed .65% (annualized) of the average daily net
assets attributable to such Fund's outstanding Retail B Shares, (ii) to an
Institution for shareholder liaison services and/or administrative support
services may not exceed .15% (annualized) and .15% (annualized), respectively,
of the average daily net assets attributable to such Fund's outstanding Retail B
Shares which are owned of record or beneficially by that Institution's Customers
for whom the Institution is the dealer of record or shareholder of record or
with whom it has a servicing relationship. As of the date of this Statement of
Additional Information, Galaxy intends to limit the Fund's payments for
shareholder liaison and administrative support services under the 12b-1 Plan to
an aggregate fee of not more than .15% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
Customers of Institutions.

Payments for distribution expenses under the 12b-1 Plan are subject to Rule
12b-1 (the "Rule") under the 1940 Act. The Rule defines distribution expenses
to include the cost of "any activity which is primarily intended to result in
the sale of Galaxy shares." The Rule provides, among other things, that an
investment company may bear such expenses only pursuant to a plan adopted in
accordance with the Rule. In accordance with the Rule, the 12b-1 Plan provides
that a report of the amounts expended under the 12b-1 Plan, and the purposes for
which such expenditures were incurred, will be made to the Board of Trustees for
its review at least quarterly. The 12b-1 Plan provides that it may not be
amended to increase materially the costs which Retail B Shares of the Tax-Exempt
Bond Fund may bear for distribution pursuant to the 12b-1 Plan without
shareholder approval, and that any other type of material amendment must be
approved by a majority of the Board of Trustees, and by a majority of the
Trustees who are neither "interested persons" (as defined in the 1940 Act) of
Galaxy nor have any direct or indirect financial interest in the operation of
the 12b-1 Plan or in any related agreements, by vote cast in person at a meeting
called for the purpose of considering such amendments (the "Disinterested
Trustees").

For the fiscal year ended October 31, 1997, Retail B Shares of the
Tax-Exempt Bond Fund bore the following distribution and shareholder servicing
fees under the 12b-1 Plan: $7,788 in distribution fees and $1,784 in
shareholder servicing fees. For the fiscal year ended October 31, 1997, all
amounts paid under the 12b-1 Plan were attributable to payments to
broker-dealers. For the period from March 4, 1996 (date of initial public
offering of Retail B Shares) through October 31, 1996, Retail B Shares of the
Tax-Exempt Bond Fund bore the following distribution and shareholder servicing
fees under the 12b-1 Plan: $300 in distribution fees and

- 48 -
<PAGE>

$0 in shareholder servicing fees. For the fiscal year ended October 31, 1996,
all amounts paid under the 12b-1 Plan were attributable to payments to
broker-dealers.

Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Tax-Exempt Bond Fund and holders
of Retail B Shares. The 12b-1 Plan is subject to annual reapproval by a
majority of the Disinterested Trustees and is terminable at any time with
respect to the Fund by a vote of a majority of such Trustees or by vote of the
holders of a majority of the Retail B Shares of the Fund. Any agreement entered
into pursuant to the 12b-1 Plan with a Service Organization is terminable with
respect to the Fund without penalty, at any time, by vote of a majority of the
Disinterested Trustees, by vote of the holders of a majority of the Retail B
Shares of the Fund, by FD Distributors or by the Service Organization. An
agreement will also terminate automatically in the event of its assignment.

As long as the 12b-1 Plan is in effect, the nomination of the trustees who
are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of such Disinterested Trustees.

DISTRIBUTOR

First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of Investor Services Group, serves as Galaxy's distributor. On March
31, 1995, Investor Services Group acquired all of the issued and outstanding
stock of FD Distributors. Prior to that time, FD Distributors was a
wholly-owned subsidiary of 440 Financial Group of Worcester, Inc. and an
indirect subsidiary of State Mutual Life Assurance Company of America.

Unless otherwise terminated, the Distribution Agreement between Galaxy and
FD Distributors, remains in effect until May 31, 1999, and thereafter will
continue from year to year upon annual approval by Galaxy's Board of Trustees,
or by the vote of a majority of the outstanding shares of Galaxy and by the vote
of a majority of the Board of Trustees of Galaxy who are not parties to the
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Agreement will terminate
in the event of its assignment, as defined in the 1940 Act.

FD Distributors is entitled to the payment of a front-end sales charge on
the sale of Retail A Shares of the Corporate Bond Fund and Tax-Exempt Bond Funds
as described in the applicable Prospectuses. For the fiscal year ended October
31, 1997, the Distributor received front-end sales charges in connection with
Retail A Share purchases as follows: Tax-Exempt Bond Fund -- $19,403; New York
Municipal Bond Fund -- $49,295; Connecticut Municipal Bond Fund -- $46,322;
Massachusetts Municipal Bond Fund -- $140,492; and Rhode Island Municipal Bond
Fund -- $22,941. Of these amounts, FD Distributors and affiliates of Fleet
retained $0 and $19,403, respectively, with respect to the Tax-Exempt Bond Fund;
$0 and $49,295, respectively, with respect to the New York Municipal Bond Fund;
$0 and $46,322, respectively, with respect to the Connecticut Municipal Bond
Fund; $0 and $140,492, respectively, with respect to the Massachusetts Municipal
Bond Fund; and $0 and $22,941, respectively, with respect to the Rhode Island
Municipal Bond Fund.

- 49 -
<PAGE>

FD Distributors is also entitled to the payment of contingent deferred
sales charges upon the redemption of Retail B Shares of the Tax-Exemp Bond Fund.
For the fiscal year ended October 31, 1997, FD Distributors received contingent
deferred sales charges in connection with Retail B Share redemptions as follows:
Tax-Exempt Bond Fund -- $5,353. All such amounts were paid over to affiliates
of Fleet.

The following table shows all sales charges, commissions and other
compensation received by FD Distributors directly or indirectly from the Funds
with respect to the Shares covered by this Statement of Additional Information
during the fiscal year ended October 31, 1997:

- 50 -
<PAGE>

<TABLE>
<CAPTION>
Brokerage
Net Commissions in
Underwriting Compensation on Connection
Discounts and Redemption and with Fund Other
Fund Commissions(1) Repurchase(2) Transactions Compensation(3)
---- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Corporate Bond $ 0 N/A $0 $ 0

Tax-Exempt $24,755.31 $5,352.55 $0 $48,104
Bond

New York $49,295.04 N/A $0 $56,022
Municipal
Bond

Connecticut $46,322.00 N/A $0 $40,755
Municipal
Bond

Massachusetts $140,491.67 N/A $0 $33,505
Municipal
Bond

Rhode Island $22,941.37 N/A $0 $ 0
Municipal
Bond

</TABLE>
- ----------------------

(1) Represents amounts received from front-end sales charges on Retail A Shares
and commissions received in connection with sales of Retail B Shares.

(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such amounts
were paid to affiliates of Fleet.

(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1997, which includes fees accrued in the fiscal year ended October 31, 1996
which were paid in 1997 (see "Shareholder Services Plan" and "Distribution
and Services Plan" above).

AUDITORS

PricewaterhouseCoopers LLP, independent certified public accountants, with
offices at One Post Office Square, Boston, Massachusetts 02109, serve as
auditors to Galaxy. The financial highlights for the respective Funds included
in the Prospectuses and the financial statements for the Funds contained in
Galaxy's Annual Reports to Shareholders and incorporated herein by reference
into this Statement of Additional Information for the respective fiscal periods
ended October 31 of each calendar year have been audited by
PricewaterhouseCoopers LLP for the periods included in their report thereon
which appears therein.

- 51 -
<PAGE>

COUNSEL

Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), 1345 Chestnut Street, Suite 1100, Philadelphia,
Pennsylvania 19107, are counsel to Galaxy, will pass upon certain legal matters
on its behalf, and has reviewed the portion of this Statement of Additional
Information and the Prospectuses with respect to the New Jersey Municipal Bond
Fund concerning New Jersey taxes and the description of special considerations
relating to New Jersey Municipal Securities. The law firm of Willkie Farr &
Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York 10022,
serves as special New York counsel to Galaxy and has reviewed the portion of
this Statement of Additional Information and the Prospectuses with respect to
the New York Municipal Bond Fund concerning New York taxes and the description
of special considerations relating to New York Municipal Securities. The law
firm of Day, Berry & Howard, Cityplace, Hartford, Connecticut 06103-3499 serves
as special Connecticut counsel to Galaxy and has reviewed the portion of this
Statement of Additional Information and the Prospectuses with respect to the
Connecticut Municipal Bond Fund concerning Connecticut taxes and the description
of special considerations relating to Connecticut Municipal Securities. The law
firm of Ropes & Gray, One International Place, Boston, Massachusetts 02110-2624
serves as special Massachusetts counsel and special Rhode Island counsel to
Galaxy and has reviewed the portion of the Prospectuses with respect to the
Massachusetts Municipal Bond Fund concerning Massachusetts taxes and the
description of special considerations relating to Massachusetts Municipal
Securities and the portion of the Prospectuses with respect to the Rhode Island
Municipal Bond Fund concerning Rhode Island taxes and the description of Special
Considerations relating to Rhode Island Municipal Securities.

PERFORMANCE AND YIELD INFORMATION

YIELD AND PERFORMANCE OF THE FUNDS

The Funds' 30-day (or one month) standard yields described in their
Prospectuses are calculated separately for each series of shares in each Fund in
accordance with the method prescribed by the SEC for mutual funds:

a - b 6
YIELD = 2[( - - - - +1 ) - 1]
cd

Where: a = dividends and interest earned by a Fund during the period;

b = expenses accrued for the period (net of reimbursements);

c = average daily number of shares outstanding during the period,
entitled to receive dividends; and

- 52 -
<PAGE>

d = maximum offering price per share on the last day of the period.

For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market value of such debt obligations. Expenses accrued
for the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts in proportion to the length of the base
period and the Fund's mean (or median) account size. Undeclared earned income
will be subtracted from the offering price per share (variable "d" in the
formula).

Interest earned on tax-exempt obligations that are issued without original
issue discount and have a current market discount is calculated by using the
coupon rate of interest instead of the yield to maturity. In the case of
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have discounts based on current market value that are
less than the then-remaining portion of the original issue discount (market
premium), the yield to maturity is based on the market value.

With respect to mortgage or other receivables-backed obligations that are
expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay downs are
accounted for as an increase or decrease to interest income during the period,
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.

The "tax-equivalent" yield of the New Jersey Municipal Bond, New York
Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds is computed by: (a) dividing the portion of
each Fund's yield (calculated as above) that is exempt from both federal and
state income taxes by one minus a stated combined federal

- 53 -
<PAGE>

and state income tax rate; (b) by dividing the portion of the Fund's yield
(calculated as above) that is exempt from federal income tax only by one minus a
stated federal income tax rate; and (c) adding the figures resulting from (a)
and (b) above to that portion, if any, of the yield that is not exempt from
federal income tax. The tax-equivalent yield of the Tax-Exempt Bond Fund is
computed by (a) dividing the portion of the yield (calculated as above) that is
exempt from federal income tax by one minus a stated federal income tax rate and
(b) adding that figure to that portion, if any, of the yield that is not exempt
from federal income tax.

Based on the foregoing calculation, (i) the standard yields for Retail A
Shares of the Tax-Exempt Bond, New York Municipal Bond, Connecticut Municipal
Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds for the
30-day period ended October 31, 1997 were 3.97%, 4.21%, 3.89%, 4.04% and 4.25%,
respectively, and (ii) the tax-equivalent yield for Retail A Shares of the
Tax-Exempt Bond, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds for the
30-day period ended October 31, 1997 were 5.75%, 6.62%, 5.90%, 6.66% and 7.02%,
respectively. Retail A Shares of the Corporate Bond Fund were not offered
during the fiscal year ended October 31, 1997. The New Jersey Municipal Bond
Fund did not conduct investment operations during the fiscal year ended
October 31, 1997.

Based on the foregoing calculation, (i) the standard yield for Retail B
Shares of the Tax-Exempt Bond Fund for the 30-day period ended October 31, 1997
was 3.48% and (ii) the tax-equivalent yield for Retail B Shares of the
Tax-Exempt Bond Fund for the 30-day period ended October 31, 1997 was 5.04%.

Based on the foregoing calculation, (i) the standard yield for Trust Shares
of the Short-Term Bond, Intermediate Government Income, High Quality Bond,
Corporate Bond, Tax-Exempt Bond, New York Municipal Bond, Connecticut Municipal
Bond and Massachusetts Municipal Bond Funds for the 30-day period ended October
31, 1997 were 5.26%, 5.65%, 5.65%, 5.73%, 4.36%, 4.59%, 4.25% and 4.34%,
respectively, and (ii) the tax-equivalent yield for Trust Shares of the
Tax-Exempt Bond, New York Municipal Bond, Connecticut Municipal Bond and
Massachusetts Municipal Bond Funds for the 30-day period ended October 31, 1997
were 6.32%, 7.22%, 6.45% and 7.15%, respectively. Trust Shares of the Rhode
Island Municipal Bond Fund were not offered during the fiscal year ended
October 31, 1997. The New Jersey Municipal Bond Fund did not conduct investment
operations during the fiscal year ended October 31, 1997.

Each Fund that advertises its "average annual total return" computes such
return separately for each series of shares by determining the average annual
compounded rate of return during specified periods that equates the initial
amount invested to the ending redeemable value of such investment according to
the following formula:

- 54 -
<PAGE>

l/n
T = [(ERV/P) - 1]

Where: T = average annual total return;

ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the l, 5 or 10 year
(or other) periods at the end of the applicable period
(or a fractional portion thereof);

P = hypothetical initial payment of $1,000; and

n = period covered by the computation, expressed in years.

Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:

Aggregate Total Return = [(ERV/P) - 1]

The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. In addition, the Funds' average annual return and aggregate
total returns will reflect the deduction of the maximum sales load charged in
connection with purchases of Retail A shares or redemptions of Retail B shares,
as the case may be.

Aggregate total returns for Retail A Shares of the Tax-Exempt Bond and New
York Municipal Bond Funds from December 30, 1991 (inception) to October 31, 1997
were 41.53% and 39.54%, respectively. From December 30, 1991 (inception) to
October 31, 1997, average annual total returns for Retail A Shares of the
Tax-Exempt Bond and New York Municipal Bond Funds were 6.13% and 5.88%,
respectively. For the one-year and five-year periods ended October 31, 1997,
the average annual total returns for Retail A Shares of the Tax-Exempt Bond and
New York Municipal Bond Funds were 3.46% and 6.25%, and 3.87% and 6.09%,
respectively.

Aggregate total return for Retail A Shares of the Connecticut Municipal
Bond Fund from March 16, 1993 (inception) to October 31, 1997 was 23.27%; and
for Retail A Shares of the Massachusetts Municipal Bond Fund from March 12, 1993
(inception) to October 31, 1997 was 22.04%. From March 16, 1993 (inception) to
October 31, 1997, average annual total return for Retail A Shares of the
Connecticut Municipal Bond Fund was 4.63%. From March 12, 1993 (inception) to
October 31, 1997, average annual total return for Retail A Shares of the

- 55 -
<PAGE>

Massachusetts Municipal Bond Fund was 4.39%. For the one-year period ending
October 31, 1997, the average annual total returns for Retail A Shares of the
Connecticut Municipal Bond and Massachusetts Municipal Bond Funds were 3.76% and
3.85%, respectively.

Aggregate total return for Retail A Shares of the Rhode Island Municipal
Bond Fund from December 20, 1994 (inception) to October 31, 1997 was 21.46%.
From December 20, 1994 (inception) to October 31, 1997, average annual total
return for Retail A Shares of the Rhode Island Municipal Bond Fund was 7.02%.
For the one-year period ended October 31, 1997, the average annual total return
for Retail A Shares of the Rhode Island Municipal Bond Fund was 3.78%.

Aggregate total return for Retail B Shares of the Tax-Exempt Bond Fund from
March 4, 1996 (date of initial public offering) through October 31, 1997 was
3.98%. From March 4, 1996 (date of initial public offering) through October 31,
1997, the average annual total return for Retail B Shares of the Tax-Exempt Bond
Fund was 2.38%. For the one-year period ended October 31, 1997, the average
annual total return for Retail B Shares of the Tax-Exempt Bond Fund was 1.83%.

Aggregate total return for Trust Shares of the Intermediate Government
Income Fund for the period September 1, 1988 (inception) to October 31, 1997 was
93.76%. From September 1, 1988 (inception) to October 31, 1997, average annual
total return for Trust Shares of the Intermediate Government Income Fund was
7.48%. For the one-year and five-year periods ended October 31, 1997, the
average annual total returns for Trust Shares of the Intermediate Government
Income Fund were 7.63% and 5.31%, respectively.

Aggregate total return for Trust Shares of the High Quality Bond Fund from
December 14, 1990 (inception) to October 31, 1997 was 72.71%. From December 14,
1990 (inception) to October 31, 1997, average annual total return for Trust
Shares of the High Quality Bond Fund was 8.27%. For the one-year and five-year
periods ended October 31, 1997, the average annual total returns for Trust
Shares of the High Quality Bond Fund were 8.36% and 7.31%, respectively.

Aggregate total returns for Trust Shares of the Short-Term Bond, Tax-Exempt
Bond and New York Municipal Bond Funds from December 30, 1991 (inception) to
October 31, 1997 were 35.92%, 48.07% and 45.90%, respectively. From December
30, 1991 (inception) to October 31, 1997, average annual total returns for Trust
Shares of the Short-Term Bond, Tax-Exempt Bond and New York Municipal Bond Funds
were 5.40%, 6.96% and 6.69%, respectively. For the one-year and five-year
periods ended October 31, 1997, the average annual total returns for Trust
Shares of the Short-Term Bond, Tax-Exempt Bond and New York Municipal Bond Funds
were 5.77% and 5.26%, 7.75% and 7.21%, and 8.17% and 7.04%, respectively.

Aggregate total returns for Trust Shares of the Connecticut Municipal Bond
Fund from March 16, 1993 (inception) to October 31, 1997 was 28.91% and for
Trust Shares of the Massachusetts Municipal Bond Fund from March 12, 1993
(inception) to October 31, 1997 was 27.46%. From March 16, 1993 (inception) to
October 31, 1997, the average annual total return for Trust Shares of the
Connecticut Municipal Bond Fund was 5.64%. From March 12, 1993

- 56 -
<PAGE>

(inception) to October 31, 1997, average annual total return for Trust Shares of
the Massachusetts Municipal Bond Fund was 5.37%. For the one-year period ended
October 31, 1996, the average annual total returns for Trust Shares of the
Connecticut Municipal Bond and Massachusetts Municipal Bond Funds were 8.06% and
8.06%, respectively.

Aggregate total return for Trust Shares of the Corporate Bond Fund from
December 12, 1994 (inception) to October 31, 1997 was 28.58%. From December 12,
1994 (inception) to October 31, 1997, average annual total return for Trust
Shares of the Corporate Bond Fund was 9.10%. For the one-year period ended
October 31, 1997, the average annual total return for Trust Shares of the
Corporate Bond Fund was 7.56%.

As stated in the prospectus, the Funds may also calculate total return
quotations without deducting the maximum sales load imposed on purchases of
Retail A Shares or redemptions of Retail B Shares. The effect of not deducting
the sales charge will be to increase the total return reflected.

TAX EQUIVALENCY TABLES - NEW JERSEY MUNICIPAL BOND AND NEW YORK MUNICIPAL BOND
FUNDS

The New Jersey Municipal Bond and New York Municipal Bond Funds may use
tax-equivalency tables in advertising and sales.

These tables are intended to demonstrate the advantages of investing in tax
free investments such as the New Jersey Municipal Bond and New York Municipal
Bond Funds.

The tax exempt yields used here are hypothetical and no assurance can be
made that the Fund will obtain any particular yield. A Fund's yield fluctuates
as market conditions change.

The tax brackets and related yield calculations are based on the expected
1998 Federal and state marginal tax rates. The combined Federal and state rate
reflects an assumed deduction of the state tax liability for Federal tax
purposes. In fact, however, certain limitations on this deductibility may
apply. Also, the tables do not reflect the phase out of personal exemptions and
itemized deductions which will apply to certain higher income taxpayers.

Investors are urged to consult their tax advisors as to these matters.

* NOTE THAT THE OFFICIAL 1998 FEDERAL, NEW JERSEY AND NEW YORK TAX RATES WERE
NOT YET AVAILABLE AS OF THE DATE OF COMPILATION OF THIS TABLE.

- 57 -
<PAGE>

New Jersey 1998
Equivalent yields: Tax-exempt
<TABLE>
<CAPTION>

New Jersey New Jersey Tax Equivalent Yields: **
$ Taxable Income State Federal & Federal ---------------------------------------------------------------------------
Single Rate Rate Effective Rate 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 20,000 1.40% 15.0% 16.19% 1.79% 2.39% 2.98% 3.58% 4.18% 4.77% 5.37% 5.97% 6.56% 7.16%
20,001-25,350 1.75% 15.0% 16.49% 1.80% 2.39% 2.99% 3.59% 4.19% 4.79% 5.39% 5.99% 6.59% 7.18%
25,351 - 35,000 1.75% 28.0% 29.26% 2.12% 2.83% 3.53% 4.24% 4.95% 5.65% 6.36% 7.07% 7.77% 8.48%
35,001 - 40,000 3.50% 28.0% 30.52% 2.16% 2.88% 3.60% 4.32% 5.04% 5.76% 6.48% 7.20% 7.92% 8.64%
40,001 - 61,400 5.525% 28.0% 31.98% 2.21% 2.94% 3.68% 4.41% 5.15% 5.88% 6.62% 7.35% 8.09% 8.82%
61,401- 75,000 5.525% 31.0% 34.81% 2.30% 3.07% 3.84% 4.60% 5.37% 6.14% 6.90% 7.67% 8.44% 9.20%
75,001- 128,100 6.37% 31.0% 35.40% 2.32% 3.10% 3.87% 4.64% 5.42% 6.19% 6.97% 7.74% 8.51% 9.29%
128,101 - 278,450 6.37% 36.0% 40.08% 2.50% 3.34% 4.17% 5.01% 5.84% 6.68% 7.51% 8.34% 9.18% 10.01%
Over 278,450 6.37% 39.6% 43.45% 2.65% 3.54% 4.42% 5.30% 6.19% 7.07% 7.96% 8.84% 9.73% 10.61%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
New Jersey New Jersey Tax Equivalent Yields: **
$ Taxable Income State Federal & Federal ---------------------------------------------------------------------------
Married Filing Jointly Rate Rate Effective Rate 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 20,000 1.40% 15.0% 16.19% 1.79% 2.39% 2.98% 3.58% 4.18% 4.77% 5.37% 5.97% 6.56% 7.16%
20,001-42,350 1.75% 15.0% 16.49% 1.80% 2.39% 2.99% 3.59% 4.19% 4.79% 5.39% 5.99% 6.59% 7.18%
42,351 - 50,000 1.75% 28.0% 29.26% 2.12% 2.83% 3.53% 4.24% 4.95% 5.65% 6.36% 7.07% 7.77% 8.48%
50,001 - 70,000 2.45% 28.0% 29.76% 2.14% 2.85% 3.56% 4.27% 4.98% 5.70% 6.41% 7.12% 7.83% 8.54%
70,001 - 80,000 3.50% 28.0% 30.52% 2.16% 2.88% 3.60% 4.32% 5.04% 5.76% 6.48% 7.20% 7.92% 8.64%
80,001 - 102,300 5.525% 28.0% 31.98% 2.21% 2.94% 3.68% 4.41% 5.15% 5.88% 6.62% 7.35% 8.09% 8.82%
102,301- 150,000 5.525% 31.0% 34.81% 2.30% 3.07% 3.84% 4.60% 5.37% 6.14% 6.90% 7.67% 8.44% 9.20%
150,001- 155,950 6.37% 31.0% 35.40% 2.32% 3.10% 3.87% 4.64% 5.42% 6.19% 6.97% 7.74% 8.51% 9.29%
155,951 - 278,450 6.37% 36.0% 40.08% 2.50% 3.34% 4.17% 5.01% 5.84% 6.68% 7.51% 8.34% 9.18% 10.01%
Over 278,450 6.37% 39.6% 43.45% 2.65% 3.54% 4.42% 5.30% 6.19% 7.07% 7.96% 8.84% 9.73% 10.61%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income for New Jersey tax purposes is the
same as defined in the Internal Revenue Code. In fact, however, New Jersey
taxable income may differ due to differences in exemptions, itemized
deductions and other items.

** Each entry represents the taxable yield that is the equivalent to the
specified Federal and New Jersey tax-exempt yield for a New Jersey taxpayer
in the specified income bracket.

- 58 -
<PAGE>

NEW YORK STATE AND CITY: 1998

Equivalent yields: Tax-exempt 09-Feb-98
<TABLE>
<CAPTION>

Taxable Income* State New York State New York State
- ------------------------------- State City Federal and Federal City and Federal
Single City rate*** rate Combined rate Effective Date Effective Rate**
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0 - 8,000 3.08% 4% 7.08000% 15% 18.40% 21.02%
8,001 - 8,400 3.08% 4.5% 7.58000% 15% 18.83% 21.44%
8,401 - 11,000 3.66% 4.5% 8.16000% 15% 18.83% 21.94%
11,001 - 12,000 3.66% 5.25% 8.91000% 15% 19.46% 22.57%
12,001 - 13,000 4.34% 5.25% 9.59000% 15% 19.46% 23.15%
13,001 - 15,000 4.34% 5.9% 10.24000% 15% 20.02% 23.70%
15,001 - 20,000 4.39% 5.9% 10.29000% 15% 20.02% 23.75%
20,001 - 25,000 4.39% 6.85% 11.24000% 15% 20.82% 24.55%
25,001 - 25,350 4.40% 6.85% 11.25000% 15% 20.82% 24.56%
25,351 - 50,000 4.40% 6.85% 11.25000% 28% 32.93% 36.10%
50,001 - 61,400 4.46% 6.85% 11.31000% 28% 32.93% 36.14%
61,401 - 128,100 4.46% 6.85% 11.31000% 31% 35.73% 38.80%
128,101 - 278,450 4.46% 6.85% 11.31000% 36% 40.38% 43.24%
over 278,450 4.46% 6.85% 11.31000% 39.6% 43.74% 46.43%

New York Tax Equivalent Yields:****
Taxable Income* --------------------------------------------------------------------------------------------------
Single 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 8,000 1.90% 2.53% 3.17% 3.80% 4.43% 5.06% 5.70% 6.33% 6.96% 7.60%
8,001 - 8,400 1.91% 2.55% 3.18% 3.82% 4.46% 5.09% 5.73% 6.36% 7.00% 7.64%
8,401 - 11,000 1.92% 2.56% 3.20% 3.84% 4.48% 5.12% 5.76% 6.41% 7.05% 7.69%
11,001 - 12,000 1.94% 2.58% 3.23% 3.87% 4.52% 5.17% 5.81% 6.46% 7.10% 7.75%
12,001 - 13,000 1.96% 2.60% 3.25% 3.90% 4.55% 5.21% 5.86% 6.51% 7.16% 7.81%
13,001 - 15,000 1.97% 2.62% 3.28% 3.93% 4.59% 5.24% 5.90% 6.55% 7.21% 7.86%
15,001 - 20,000 1.97% 2.62% 3.28% 3.93% 4.59% 5.25% 5.90% 6.56% 7.21% 7.87%
20,001 - 25,000 1.99% 2.65% 3.31% 3.98% 4.64% 5.30% 5.96% 6.63% 7.29% 7.95%
25,001 - 25,350 1.99% 2.65% 3.31% 3.98% 4.64% 5.30% 5.97% 6.63% 7.29% 7.95%
25,351 - 50,000 2.35% 3.13% 3.91% 4.69% 5.48% 6.26% 7.04% 7.82% 8.61% 9.39%
50,001 - 61,400 2.35% 3.13% 3.92% 4.70% 5.48% 6.26% 7.05% 7.83% 8.61% 9.40%
61,401 - 128,100 2.45% 3.27% 4.09% 4.90% 5.72% 6.54% 7.35% 8.17% 8.99% 9.80%
128,101 - 278,450 2.64% 3.52% 4.40% 5.29% 6.17% 7.05% 7.93% 8.81% 9.69% 10.57%
over 278,450 2.80% 3.73% 4.67% 5.60% 6.53% 7.47% 8.40% 9.33% 10.27% 11.20%

Taxable Income* State New York State New York State
- ------------------------------- State City Federal and Federal City and Federal
Joint City rate*** rate Combined rate Effective Date Effective Rate**
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0 - 14,400 3.08% 4% 7.0800% 15% 18.40% 21.02%
14,401 - 16,000 3.66% 4% 7.6600% 15% 18.40% 21.51%
16,001 - 21,600 3.66% 4.5% 8.1600% 15% 18.83% 21.94%
21,601 - 22,000 4.34% 4.5% 8.8400% 15% 18.83% 22.51%
22,001 - 26,000 4.34% 5.25% 9.5900% 15% 19.46% 23.15%
26,001 - 27,000 4.34% 5.9% 10.2400% 15% 20.02% 23.70%
27,001 - 40,000 4.39% 5.9% 10.2900% 15% 20.02% 23.75%
40,001 - 42,350 4.39% 6.85% 11.2400% 15% 20.82% 24.55%
42,351 - 45,000 4.39% 6.85% 11.2400% 28% 32.93% 36.09%
45,001 - 90,000 4.40% 6.85% 11.2500% 28% 32.93% 36.10%
90,001 -102,300 4.46% 6.85% 11.3100% 28% 32.93% 36.14%
102,301 -155,950 4.46% 6.85% 11.3100% 31% 35.73% 38.80%
155,951 -278,450 4.46% 6.85% 11.3100% 36% 40.38% 43.24%
over 278,450 4.46% 6.85% 11.3100% 39.6% 43.74% 46.43%

<CAPTION>
New York Tax Equivalent Yields:****
Taxable Income* --------------------------------------------------------------------------------------------------
Joint 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 14,400 1.90% 2.53% 3.17% 3.80% 4.43% 5.06% 5.70% 6.33% 6.96% 7.60%
14,401 - 16,000 1.91% 2.55% 3.19% 3.82% 4.46% 5.10% 5.73% 6.37% 7.01% 7.64%
16,001 - 21,600 1.92% 2.56% 3.20% 3.84% 4.48% 5.12% 5.76% 6.41% 7.05% 7.69%
21,601 - 22,000 1.94% 2.58% 3.23% 3.87% 4.52% 5.16% 5.81% 6.45% 7.10% 7.74%
22,001 - 26,000 1.95% 2.60% 3.25% 3.90% 4.55% 5.21% 5.86% 6.51% 7.16% 7.81%
26,001 - 27,000 1.97% 2.62% 3.28% 3.93% 4.59% 5.24% 5.90% 6.55% 7.21% 7.86%
27,001 - 40,000 1.97% 2.62% 3.28% 3.93% 4.59% 5.25% 5.90% 6.56% 7.21% 7.87%
40,001 - 42,350 1.99% 2.65% 3.31% 3.98% 4.64% 5.30% 5.96% 6.63% 7.29% 7.95%
42,351 - 45,000 2.35% 3.13% 3.91% 4.69% 5.48% 6.26% 7.04% 7.82% 8.61% 9.39%
45,001 - 90,000 2.35% 3.13% 3.91% 4.69% 5.48% 6.26% 7.04% 7.82% 8.61% 9.39%
90,001 -102,300 2.35% 3.13% 3.92% 4.70% 5.48% 6.26% 7.05% 7.83% 8.61% 9.40%
102,301 -155,950 2.45% 3.27% 4.09% 4.90% 5.72% 6.54% 7.35% 8.17% 8.99% 9.80%
155,951 -278,450 2.64% 3.52% 4.40% 5.29% 6.17% 7.05% 7.93% 8.81% 9.69% 10.57%
over 278,450 2.80% 3.73% 4.67% 5.60% 6.53% 7.47% 8.40% 9.33% 10.27% 11.20%
</TABLE>

* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income as defined in the Internal Revenue
Code is the same as under the New York State or City Personal Income Tax
law; however, New York state or city taxable income may differ due to
differences in exemptions, itemized deductions, and other items.

** For federal tax purposes, these combined rates reflect the applicable
marginal rates for 1998, including indexing for inflation. These rates
include the effect of deducting state and city taxes on your Federal
return. For New York purposes, these combined rates reflect the expected
New York State and New York City tax and surcharge rates for 1998.

*** The New York city rate is comprised of the tax base rate, city surcharge,
and the additional city surcharge for 1998.

**** These represent New York State, City, and Federal Equivalent Yields.

- 59 -
<PAGE>

MISCELLANEOUS

As used in the Prospectuses, "assets belonging to a particular series of a
Fund" means the consideration received by Galaxy upon the issuance of shares in
that particular series of the Fund, together with all income, earnings, profits,
and proceeds derived from the investment thereof, including any proceeds from
the sale of such investments, any funds or payments derived from any
reinvestment of such proceeds and a portion of any general assets of Galaxy not
belonging to a particular series or Fund. In determining the net asset value of
a particular series of a Fund, assets belonging to the particular series of the
Fund are charged with the direct liabilities in respect of that series and with
a share of the general liabilities of Galaxy, which are allocated in proportion
to the relative asset values of the respective series and Funds at the time of
allocation. Subject to the provisions of Galaxy's Declaration of Trust,
determinations by the Board of Trustees as to the direct and allocable
liabilities, and the allocable portion of any general assets with respect to a
particular series or Fund, are conclusive.

As of January 28, 1998, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Treasury Money Market Fund) were as follows: Money Market Fund --
Fleet New York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C,
Rochester, New York 14863 (98.22%); Government Money Market Fund -- Fleet New
York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C, Rochester,
New York 14638 (98.38%); U.S. Treasury Money Market Fund -- Fleet New York,
Fleet Investment Services, 159 East Main Street, NY/RO/TO3C, Rochester, New York
14638 (98.37%); Tax-Exempt Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main Street, NY/RO/TO3C, Rochester, New York 14638 (9.95%);
Institutional Treasury Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main Street; NY/RO/TO3C, Rochester, New York 14638 (97.40%);
Equity Value Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account
00000003294, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(16.78%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000000064, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(77.92%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000011551, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(5.27%); Equity Growth Fund -- Norstar Trust Company, Gales & Co., Funds
Control, Account 00000030718, Attn: Julie Hogestyn, One East Avenue, Rochester,
New York 14638 (13.66%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000010017, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (16.01%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000000082, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(70.42%); Equity Income Fund -- Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000037, Attn: Julie Hogestyn, One East Avenue, Rochester,
New York 14638 (13.70%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000003748, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (34.36%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000016771, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(51.84%); International Equity Fund -- Norstar Trust Company, Gales & Co., Funds
Control, Account 00000004088, Attn: Julie Hogestyn, One East Avenue, Rochester,
New York 14638 (11.59%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000000876, Attn: Julie Hogestyn, One East Avenue, Rochester, New York

- 60 -
<PAGE>

14638 (39.24%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000000073, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(47.07%); Growth and Income Fund -- Norstar Trust Company, Gales & Co., Funds
Control, Account 05000503793, Attn: Julie Hogestyn, One East Avenue, Rochester,
New York 14638 (66.30%); Norstar Trust Company, Gales & Co., Funds Control,
Account 05000603873, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (29.85%); Asset Allocation Fund -- Norstar Trust Company, Gales & Co.,
Funds Control, Account 00000002598, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (14.30%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000073, Attn: Julie Hogestyn, One East Avenue, Rochester,
New York 14638 (80.32%); Small Company Equity Fund -- Norstar Trust Company,
Gales & Co., Funds Control, Account 00000006102, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (5.76%); Norstar Trust Company, Gales & Co.,
Funds Control, Account 00000001492, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (15.90%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000046, Attn: Julie Hogestyn, One East Avenue, Rochester,
New York 14638 (70.60%); Small Cap Value Fund -- Norstar Trust Company, Gales &
Co., Funds Control, Account 06000503917, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (6.32%); Norstar Trust Company, Gales & Co., Funds
Control, Account 05000503999, Attn: Julie Hogestyn, One East Avenue, Rochester,
New York 14638 (71.98%); Norstar Trust Company, Gales & Co., Funds Control,
Account 05000503953, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (11.25%); Short-Term Bond Fund -- Norstar Trust Company, Gales & Co.,
Funds Control, Account 00000000064, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (41.78%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000001090, Attn: Julie Hogestyn, One East Avenue, Rochester,
New York, 14638 (16.05%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000008627, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (42.06%); Intermediate Government Income Fund -- Norstar Trust Company,
Gales & Co., Funds Control, Account 00000007183, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (29.57%); Norstar Trust Company, Gales & Co.,
Funds Control, Account 00000000037, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (28.12%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000038408, Attn: Julie Hogestyn, One East Avenue, Rochester,
New York 14638 (42.32%); Swarovski North America Ret Plan, c/o Norstar Trust
Co., Gates & Co., 159 East Main St., Rochester, NY 14638 (5.72%); High Quality
Bond Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account
00000006095, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(11.82%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000001465, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(21.18%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000000037, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(67.00%); Corporate Bond Fund -- Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000046, Attn: Julie Hogestyn, One East Avenue, Rochester,
New York 14638 (53.41%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000006102, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (34.28%); Tax-Exempt Bond Fund -- Norstar Trust Company, Gales & Co.,
Funds Control, Account 00000000670, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (20.10%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000028, Attn: Julie Hogestyn, One East Avenue, Rochester,
New York 14638 (37.86%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000005899, Attn: Julie Hogestyn, One East

- 61 -
<PAGE>

Avenue, Rochester, New York 14638 (42.04%); New York Municipal Bond Fund --
Norstar Trust Company, Gales & Co., Funds Control, Account 00000005292, Attn:
Julie Hogestyn, One East Avenue, Rochester, New York 14638 (10.50%); Norstar
Trust Company, Gales & Co., Funds Control, Account 00000000019, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (13.66%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000001107, Attn: Julie Hogestyn,
One East Avenue, Rochester, New York 14638 (75.75%); Connecticut Municipal Bond
Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account 00000000037,
Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638 (20.74%);
Norstar Trust Company, Gales & Co., Funds Control, Account 00000000019, Attn:
Julie Hogestyn, One East Avenue, Rochester, New York 14638 (78.60%); and
Massachusetts Municipal Bond Fund -- Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000073, Attn: Julie Hogestyn, One East Avenue, Rochester,
New York 14638 (36.98%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000000019, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (63.02%).

As of January 28, 1998, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows: Tax-Exempt Money Market Fund -- Hope H. Van Beuren,
P.O. Box 4098, Middletown, RI 02842 (15.35%); Massachusetts Municipal Money
Market Fund -- Fleet New York, Fleet Investment Services, 160 East Main St.,
NY/RO/TO3C, Rochester, NY 14638 (44.97%); Connecticut Municipal Money Market
Fund -- Fleet New York, Fleet Investment Services, 159 East Main St.,
NY/RO/TO3C, Rochester, NY 14638 (30.56%); International Equity Fund -- Credit
Suisse First Boston Corp., 11 Madison Ave., 4th Floor, Attn: Mark Gorton, New
York, NY 10010 (8.56%); Massachusetts Municipal Bond Fund -- New England Realty
Associates, Robert Bilse, Ronald Brown, Howard Brown & Carl Vajeri, 39 Brighton
Ave., Boston, MA 02128 (5.73%); and Rhode Island Municipal Bond Fund -- Norstar
Trust Company, Gales & Co., Funds Control, Attn: Julie Hogestyn, One East Ave.,
Rochester, NY 14638 (33.61%); James R. McCulloch, c/o Microfibre, P.O. Box 1208,
Pawtucket, RI 02860 (7.65%); Gerald M. Gannon, 293 Promenade Ave., Warwick, RI
02886-8324 (5.81%).

As of January 28, 1998, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail B
Shares of each of Galaxy's investment portfolios were as follows: Money Market
Fund -- Charles I. Boynton Insurance, 72 River Park Street, Needham, MA 02194,
Account 00920380973, (25.72%); Fleet Bank of Massachusetts, Customer if the IRA,
FBO Norris K. Smith, Jr., 9262 Versailles Rd., Angola, NY 14006, Account
05100347130, (6.06%); Peter Daniel Mendelsohn, 540 East 6th Street, Apt. 2B, New
York, NY 10009, Account 05100353961, (6.85%); Thomas A. Dowd, Myrna L.
Dowd(JTWROS) 9 Cypress Ave., Shrewsbury, MA 01546, Account 06100563501,
(17.13%); Mario J. Vidal, Customer Nathan S. Vidal, 106 Aquidneck Street, New
Bedford, MA 02744, Account 06100567151, (8.54%); Barbara A. Saganich, 4 St.
James Circle, Acton, MA 01720, Account 05100663842, (5.09%); High Quality Bond
Fund -- E.L. Bradley and Co., Inc., 16 Helen Rd., Needham, MA 02192, Account
05100649206, (7.78%); Short-Term Bond Fund -- Colonial Marble Co., Inc., 25
Garvey Street, P.O. Box 187, Everett, MA 02149, Account

- 62 -
<PAGE>

00970037797, (7.17%); Wilbur J. Wade, Jr., 122 Snyder Road, Fort Plain, NY
13339, Account 05100596030, (5.58%); and Tax-Exempt Bond Fund -- Katrina A.
Seltzer, 121 Schuyler Street, Boonville, NY 13309, Account 051001743724,
(12.25%); David Fendler, 72 Brinkerhoff Ave., Stamford, CT 06905, Account
05100255354, (25.74%); Joseph R. Copeland, 201 College Street, Springfield, MA
01109, Account 05100388896, (12.97%).

FINANCIAL STATEMENTS

Galaxy's Annual Reports to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1997 have been filed with the Securities and
Exchange Commission. The financial statements in such Annual Reports (the
"Financial Statements") are incorporated into this Statement of Additional
Information. The Financial Statements included in the Annual Reports for the
Funds for the fiscal year ended October 31, 1997 have been audited by Galaxy's
independent accountants, PricewaterhouseCoopers LLP whose report thereon also
appears in such Annual Reports and is incorporated herein by reference. The
Financial Statements in such Annual Reports have been incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.

- 63 -
<PAGE>

APPENDIX A

DESCRIPTION OF SECURITIES RATINGS

The following is a description of the securities ratings of Duff & Phelps
Credit Rating Co. ("D&P"), Fitch IBCA, Inc. ("Fitch IBCA"), Standard & Poor's
Ratings Group, Division of McGraw Hill ("S&P"), Moody's Investors Service, Inc.
("Moody's"), IBCA Limited and Thomson BankWatch, Inc. ("Thomson").

CORPORATE AND TAX-EXEMPT BOND RATINGS

The four highest ratings of D&P for tax-exempt and corporate fixed-income
securities are AAA, AA, A and BBB. Securities rated AAA are of the highest
credit quality. The risk factors are considered to be negligible, being only
slightly more than for risk-free U.S. Treasury debt. Securities rated AA are of
high credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions. Securities that
are rated "A" have protection factors that are average but adequate. However,
risk factors are more variable and greater in periods of economic stress.
Securities that are rated "BBB" have below average protection factors but are
still considered sufficient for prudent investment. Considerable variability in
risk is present during economic cycles. The AA, A and BBB ratings may be
modified by an addition of a plus (+) or minus (-) sign to show relative
standing within these major rating categories.

The four highest ratings of Fitch IBCA for tax-exempt and corporate bonds
are AAA, AA, A and BBB. Plus (+) and minus (-) signs are used with a rating
symbol to indicate the relative position of a credit within the rating category.
AAA bonds are considered to be investment grade and of the highest credit
quality. The obligor is judged to have an exceptionally strong ability to pay
interest and repay principal, which is very unlikely to be affected by
reasonably foreseeable events. AA bonds are considered to be investment grade
and of very high credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong as bonds rated AAA.
Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated F-1+. A bonds are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. BBB bonds
are considered to be investment grade and of good credit quality. The obligor's
ability to pay interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances, however, are more
likely to have an adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

The four highest ratings of S&P for tax-exempt and corporate bonds are AAA,
AA, A and BBB. Bonds rated AAA bear the highest rating assigned by S&P to a
debt obligation and the AAA rating indicates in its opinion an extremely strong
capacity to pay interest and repay principal. Bonds rated AA by S&P are judged
by it to have a very strong capacity to pay interest

A-1
<PAGE>

and repay principal, and they differ from AAA issues only in small degree.
Bonds rated A are considered to have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds of a higher rated
category. Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than for higher rated categories. The AA, A and BBB
ratings may be modified by an addition of a plus (+) or minus (-) sign to show
relative standing within these major rating categories.

The four highest ratings of Moody's for tax-exempt and corporate bonds are
Aaa, Aa, A and Baa. Tax-exempt and corporate bonds rated Aaa are judged to be
of the "best quality." The rating of Aa is assigned to bonds which are of "high
quality by all standards." Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large or fluctuations of protective elements
may be of greater amplitude or there may be other elements which make the
long-term risks appear somewhat larger. Bonds that are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present that suggest a susceptibility to impairment
sometime in the future. Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
Moody's may modify a rating of Aa, A or Baa by adding numerical modifiers of 1,
2 or 3 to show relative standing within these categories. The foregoing ratings
are sometimes presented in parentheses preceded with a "con" indicating the
bonds are rated conditionally. Such parenthetical rating denotes the probable
credit stature upon completion of construction or elimination of the basis of
the condition.

CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS

The highest rating of D&P for commercial paper is Duff 1. D&P employs
three designations, Duff 1 plus, Duff 1 and Duff 1 minus, within the highest
rating category. Duff 1 plus indicates highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is judged to be "outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations." Duff 1 indicates very
high certainty of timely payment. Liquidity factors are excellent and supported
by good fundamental protection factors. Risk factors are considered to be
minor. Duff 1 minus indicates high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small. Duff 2 indicates good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small. Duff 3 indicates satisfactory liquidity and other
protection factors qualify such issues as to investment grade. Risk factors are
larger and subject to more variation. Nevertheless, timely payment is expected.
Duff 4 indicates speculative investment characteristics.

A-2
<PAGE>

Fitch IBCA's short-term ratings apply to tax-exempt and corporate debt
obligations that are payable on demand or have original maturities of up to
three years. The four highest ratings of Fitch IBCA for short-term securities
are F-1+, F-1, F-2 and F-3. F-1+ securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment. F-1 securities possess very strong
credit quality. Issues assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+. F-2 securities
possess good credit quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as the F-1+ and F-1 categories. F-3 securities possess fair credit quality.
Issues assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.

S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market. Issues
assigned A-1 ratings, in S&P's opinion, indicate that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics will be denoted with a plus (+)
designation. Issues rated A-2 by S&P indicate that capacity for timely payment
on these issues is satisfactory. However, the relative degree of safety is not
as high as for issues designated A-1. Issues rated A-3 have an adequate
capacity for timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes and circumstances than obligations carrying the
higher designations. Issues rated B are regarded as having only a speculative
capacity for timely payment.

Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Issuers rated Prime-1 (or related supporting
institutions) in the opinion of Moody's "have a superior capacity for repayment
of short-term promissory obligations." Principal repayment capacity will
normally be evidenced by the following characteristics: leading market positions
in well established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well established access to a range of
financial markets and assured sources of alternate liquidity. Issuers rated
Prime-2 (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This capacity will normally be
evidenced by many of the characteristics of Prime-1 rated issues, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained. Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. Issuers
rated Not Prime do not fall within any of the Prime rating categories.

A-3
<PAGE>

TBW-1 represents the highest rating category and indicates a very high degree of
likelihood that principal and interest will be paid on a timely basis. The
designation TBW-2 represents the second highest rating category and indicates
that while the degree of safety regarding timely payment of principal and
interest is strong, the relative degree of safety is not as high as for issues
rated TBW-1. The designation TBW-3 represents the lowest investment grade
category and indicates that while more susceptible to adverse developments (both
internal and external) than obligations with higher ratings, the capacity to
service principal and interest in a timely fashion is considered adequate.

TAX-EXEMPT NOTE RATINGS

A S&P rating reflects the liquidity concerns and market access risks unique
to notes due in three years or less. Notes rated SP-1 are issued by issuers
that exhibit very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics are given
a plus (+) designation. Notes rated SP-2 are issued by issuers that exhibit
satisfactory capacity to pay principal and interest. Notes rated SP-3 are
issued by issuers that exhibit speculative capacity to pay principal and
interest.

Moody's ratings for state and municipal notes and other short-term loans
are designated MIG and variable rate demand obligations are designated VMIG.
Such ratings recognize the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG-1 or VMIG-1 are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing. Loans bearing the designation MIG-2 or VMIG-2 are of high quality,
with margins of protection ample although not so large as with loans rated MIG-1
or VMIG-1. Loans bearing the designation MIG-3 or VMIG-3 are of favorable
quality with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
Loans bearing the designation MIG-4 or VMIG-4 are of adequate quality, carrying
specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.

Fitch IBCA uses its short-term ratings described above under "Corporate and
Tax-Exempt Commercial Paper Ratings" for tax-exempt notes.

A-4
<PAGE>

APPENDIX B

As stated in the Prospectuses, the Funds may enter into futures
transactions for hedging purposes. The following is a description of such
transactions.

I. INTEREST RATE FUTURES CONTRACTS

USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.

The Funds presently could accomplish a similar result to that which they
hope to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market, the protection
is more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.

DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.

Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
of the sale exceeds the price of the offsetting purchase, the Fund immediately
is paid the difference and thus realizes a gain. If the offsetting purchase
price exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by a Fund
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase

B-1
<PAGE>

price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.

Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.

A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through mortgage
backed securities; three-month United States Treasury Bills; and ninety-day
commercial paper. The Funds may trade in any interest rate futures contracts
for which there exists a public market, including, without limitation, the
foregoing instruments.

EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). Fleet wishes to fix the current
market value of this portfolio security until some point in the future. Assume
the portfolio security has a market value of 100, and Fleet believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio security does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.

In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.

Fleet could be wrong in its forecast of interest rates, and the equivalent
futures market price could rise above 98. In this case, the market value of the
portfolio securities, including the portfolio security being protected, would
increase. The benefit of this increase would be reduced by the loss realized on
closing out the futures contract sale.

If interest rate levels did not change, the Fund in the above example might
incur a loss of 2 points (which might be reduced by an offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.

B-2
<PAGE>

e.g., shorter term securities whose yields are greater than those available on
long-term bonds. A Fund's basic motivation would be to maintain for a time the
income advantage from investing in the short-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or part of an
expected increase in market price of the long-term bonds that the Fund may
purchase.

For example, assume that the market price of a long-term bond that the Fund
may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. Fleet wishes to fix the current market price
(and thus 10% yield) of the long-term bond until the time (four months away in
this example) when it may purchase the bond. Assume the long-term bond has a
market price of 100, and Fleet believes that, because of an anticipated fall in
interest rates, the price will have risen to 105 (and the yield will have
dropped to about 9 1/2%) in four months. The Fund might enter into futures
contracts purchases of Treasury bonds for an equivalent price of 98. At the
same time, the Fund would assign a pool of investments in short-term securities
that are either maturing in four months or earmarked for sale in four months,
for purchase of the long-term bond at an assumed market price of 100. Assume
these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the 5
point increase in the price that the Fund pays for the long-term bond would be
offset by the 5 point gain realized by closing out the futures contract
purchase.

Fleet could be wrong in its forecast of interest rates; long-term interest
rates might rise to above 10%; and the equivalent futures market price could
fall below 98. If short-term rates at the same time fall to 10% or below, it is
possible that the Fund would continue with its purchase program for long-term
bonds. The market price of available long-term bonds would have decreased. The
benefit of this price decrease, and thus yield increase, will be reduced by the
loss realized on closing out the futures contract purchase.

If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be
incurred.

II. MUNICIPAL BOND INDEX FUTURES CONTRACTS

A municipal bond index assigns relative values to the bonds included in the
index and the index fluctuates with changes in the market values of the bonds so
included. The Chicago Board of Trade has designed a futures contract based on
the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue
and general obligation bonds, and its composition is updated regularly as new
bonds meeting the criteria of the Index are issued and existing bonds mature.
The Index is intended to provide an accurate indicator of trends and changes in
the municipal bond market. Each bond in the Index is independently priced by
six dealer-to-dealer municipal bond brokers daily. The 40 prices then are
averaged and multiplied by a coefficient.

B-3
<PAGE>

The coefficient is used to maintain the continuity of the Index when its
composition changes. The Chicago Board of Trade, on which futures contracts
based on this Index are traded, as well as other U.S. commodities exchanges, are
regulated by the Commodity Futures Trading Commission. Transactions on such
exchange are cleared through a clearing corporation, which guarantees the
performance of the parties to each contract.

The Tax-Exempt Bond Fund, New Jersey Municipal Bond, New York Municipal
Bond Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal Bond Fund
and Rhode Island Municipal Bond Fund will sell index futures contracts in order
to offset a decrease in market value of their respective portfolio securities
that might otherwise result from a market decline. A Fund may do so either to
hedge the value of its portfolio as a whole, or to protect against declines
occurring prior to sales of securities, in the value of the securities to be
sold. Conversely, a Fund will purchase index futures contracts in anticipation
of purchases of securities. In a substantial majority of these transactions, a
Fund will purchase such securities upon termination of the long futures
position, but a long futures position may be terminated without a corresponding
purchase of securities.

Closing out a futures contract sale prior to the settlement date may be
effected by a Fund's entering into a futures contract purchase for the same
aggregate amount of the index involved and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly,
the closing out of a futures contract purchase is effected by a Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.

EXAMPLE OF A MUNICIPAL BOND INDEX FUTURES CONTRACT

Consider a portfolio manager holding $1 million par value of each of the
following municipal bonds on February 2 in a particular year.

<TABLE>
<CAPTION>
Current Price
(points and
Maturity thirty-seconds
Issue Coupon Issue Date Date of a point)
- ----- ------ ---------- -------- --------------
<S> <C> <C> <C> <C>
Ohio HFA 9 3/8 5/05/83 5/1/13 94-2
NYS Power 9 3/4 5/24/83 1/1/17 102-0
San Diego, CA IDR 10 6/07/83 6/1/18 100-14
Muscatine, IA Elec 10 5/8 8/24/83 1/1/08 103-16
Mass Health & Ed 10 9/23/83 7/1/16 100-12
</TABLE>

The current value of the portfolio is $5,003,750.

To hedge against a decline in the value of the portfolio, resulting from a
rise in interest rates, the portfolio manager can use the municipal bond index
futures contract. The current value of the Municipal Bond Index is 86-09.
Suppose the portfolio manager takes a position in the

B-4
<PAGE>

futures market opposite to his or her cash market position by selling 50
municipal bond index futures contracts (each contract represents $100,000 in
principal value) at this price.

On March 23, the bonds in the portfolio have the following values:
<TABLE>
<S> <C>
Ohio HFA 81-28
NYS Power 98-26
San Diego, CA IDB 98-11
Muscatine, IA Elec 99-24
Mass Health & Ed 97-18
</TABLE>
The bond prices have fallen, and the portfolio has sustained a loss of
$130,312. This would have been the loss incurred without hedging. However, the
Municipal Bond Index also has fallen, and its value stands at 83-27. Suppose
now the portfolio manager closes out his or her futures position by buying back
50 municipal bond index futures contracts at this price.

The following table provides a summary of transactions and the results of
the hedge.
<TABLE>
<CAPTION>
Cash Market Futures Market
----------- --------------
<S> <C> <C>
February 2 $5,003,750 long posi- Sell 50 Municipal Bond
tion in municipal futures contracts at
bonds 86-09

March 23 $4,873,438 long posi- Buy 50 Municipal Bond
tion in municipal futures contracts at
bonds 83-27
--------------- ----------------

$130,312 Loss $121,875 Gain
</TABLE>
While the gain in the futures market did not entirely offset the loss in
the cash market, the $8,437 loss is significantly lower than the loss which
would have been incurred without hedging.

The numbers reflected in this appendix do not take into account the effect
of brokerage fees or taxes.

III. MARGIN PAYMENTS

Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith

B-5
<PAGE>

deposit on the contract which is returned to the Fund upon termination of the
futures contract assuming all contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the broker, will be
made on a daily basis as the price of the underlying instruments fluctuates
making the long and short positions in the futures contract more or less
valuable, a process known as marking-to-the-market. For example, when a
particular Fund has purchased a futures contract and the price of the contract
has risen in response to a rise in the underlying instruments, that position
will have increased in value and the Fund will be entitled to receive from the
broker a variation margin payment equal to that increase in value. Conversely,
where the Fund has purchased a futures contract and the price of the future
contract has declined in response to a decrease in the underlying instruments,
the position would be less valuable and the Fund would be required to make a
variation margin payment to the broker. At any time prior to expiration of the
futures contract, Fleet may elect to close the position by taking an opposite
position, subject to the availability of a secondary market, which will operate
to terminate the Fund's position in the futures contract. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or gain.

IV. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS

There are several risks in connection with the use of futures by the Funds
as hedging devices. One risk arises because of the imperfect correlation
between movements in the price of the futures and movements in the price of the
instruments that are the subject of the hedge. The price of the futures may
move more than or less than the price of the instruments being hedged. If the
price of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, a Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Funds involved will
experience either a loss or gain on the futures, which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate
by the investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by
Fleet. It is also possible that, where a Fund had sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of instruments held in the Fund may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value in its
portfolio securities.

B-6
<PAGE>

because of concern as to possible further market decline or for other reasons,
the Fund will realize a loss on the futures contract that is not offset by a
reduction in the price of the instruments that were to be purchased.

In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with Galaxy's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.

In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions that could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the adviser may still not result in
a successful hedging transaction over a short time frame.

Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.

Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing

B-7
<PAGE>

house or other disruptions of normal activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.

Successful use of futures by the Funds is also subject to Fleet's ability
to predict correctly movements in the direction of the market. For example, if
a particular Fund has hedged against the possibility of a decline in the market
adversely affecting securities held by it and securities prices increase
instead, the Fund will lose part or all of the benefit to the increased value of
its securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Funds may have to sell
securities at a time when it may be disadvantageous to do so.

B-8
<PAGE>

RETAIL

THE GALAXY FUND

STATEMENT OF ADDITIONAL INFORMATION

Short-Term Bond Fund

Intermediate Government Income Fund

High Quality Bond Fund

February 28, 1998
(as revised October 30, 1998)

<PAGE>

This Statement of Additional Information is not a prospectus and should
be read in conjunction with the current prospectus (the "Prospectus") for
Retail A Shares and/or Retail B Shares of the Short-Term Bond, Intermediate
Government Income and High Quality Bond Funds, dated February 28, 1998, of
The Galaxy Fund ("Galaxy"), as it may from time to time be supplemented or
revised. This Statement of Additional Information is incorporated by
reference in its entirety into such Prospectus. No investment in shares of
the Funds should be made without reading the Prospectus. Copies of the
Prospectus may be obtained by writing Galaxy c/o First Data Distributors,
4400 Computer Drive, Westboro, Massachusetts 01581 or by calling Galaxy at
1-800-628-0414.

<PAGE>

Table of Contents
<TABLE>
<CAPTION>

Page
-----
<S> <C>
THE GALAXY FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Variable and Floating Rate Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Bank Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Asset-Backed Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Municipal Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
When-Issued Securities and Forward Commitment and Delayed Settlement
Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Stand-By Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Repurchase Agreements; Reverse Repurchase Agreements; Loans of Portfolio
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
U.S. Government Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Derivative Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Foreign Currency Exchange Transactions.. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Additional Investment Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 7
DESCRIPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ADDITIONAL INFORMATION CONCERNING TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Taxation of Certain Financial Instruments. . . . . . . . . . . . . . . . . . . . . . . . .13
State Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Shareholder and Trustee Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. . . . . . . . . . . . . . .20
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
PORTFOLIO TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
SHAREHOLDER SERVICES PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
DISTRIBUTION AND SERVICES PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
PERFORMANCE AND YIELD INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Yield and Performance of the Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
APPENDIX A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
APPENDIX B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-1
</TABLE>

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<PAGE>

THE GALAXY FUND

The Galaxy Fund ("Galaxy") is an open-end management investment company
currently authorized to offer shares of beneficial interest in thirty
investment portfolios.

This Statement of Additional Information relates to the Retail A Shares
and/or Retail B Shares of three of those investment portfolios: the
Short-Term Bond Fund, Intermediate Government Income Fund and High Quality
Bond Fund (the "Funds"). This Statement of Additional Information provides
additional investment information with respect to the Funds and should be
read in conjunction with the current Prospectus.

INVESTMENT OBJECTIVES AND POLICIES

VARIABLE AND FLOATING RATE OBLIGATIONS

The Funds may purchase variable and floating rate instruments as
described in the Prospectus. If such an instrument is not rated, Fleet
Investment Advisors Inc. ("Fleet"), the investment adviser to the Funds, must
determine that such instrument is comparable to rated instruments eligible
for purchase by a Fund and will consider the earning power, cash flows and
other liquidity ratios of the issuers and guarantors of such instruments and
will continuously monitor their financial status in order to meet payment on
demand. In determining average weighted portfolio maturity of each of these
Funds, a variable or floating rate instrument issued or guaranteed by the
U.S. Government or an agency or instrumentality thereof will be deemed to
have a maturity equal to the period remaining until the obligation's next
interest rate adjustment. Long-term variable and floating rate obligations
with a demand feature will be deemed to have a maturity equal to the longer
of the period remaining to the next interest rate adjustment or the demand
notice period.

BANK OBLIGATIONS

Investments by the Funds in non-negotiable time deposits are limited to
no more than 5% of each such Fund's total assets at the time of purchase.

ASSET-BACKED SECURITIES

Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of
assets representing the obligations of a number of different parties.

<PAGE>

asset-backed security is purchased at a premium, a prepayment rate that is
faster than expected will reduce yield to maturity, while a prepayment rate
that is slower than expected will have the opposite effect of increasing
yield to maturity. Conversely, if an asset-backed security is purchased at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments, will decrease, yield to maturity.

Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore
prepayment rates are influenced by a variety of economic and social factors.
In general, the collateral supporting non-mortgage asset-backed securities is
of shorter maturity than mortgage loans and is less likely to experience
substantial prepayments. Like other fixed income securities, when interest
rates rise, the value of an asset-backed security generally will decline;
however, when interest rates decline, the value of an asset-backed security
with prepayment features may not increase as much as that of other fixed
income securities.

Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing
or liquidating such securities. For these reasons, under certain
circumstances, asset-backed securities may be considered illiquid securities.

MUNICIPAL SECURITIES

The Funds may invest in Municipal Securities when such investments are
deemed appropriate by Fleet in light of the Funds' investment objectives. As
a result of the favorable tax treatment afforded such obligations under the
Internal Revenue Code of 1986, as amended, yields on municipal obligations
can generally be expected under normal market conditions to be lower than
yields on corporate and U.S. Government obligations, although from time to
time Municipal Securities have outperformed, on a total return basis,
comparable corporate and federal debt obligations as a result of prevailing
economic, regulatory or other circumstances.

Municipal Securities acquired by the Funds include debt obligations
issued by governmental entities to obtain funds for various public purposes,
including the construction of a wide range of public facilities, the
refunding of outstanding obligations, the payment of general operating
expenses, and the extension of loans to public institutions and facilities.
Private activity bonds that are issued by or on behalf of public authorities
to finance various privately operated facilities are "Municipal Securities"
if the interest paid thereon is exempt from regular federal income tax and
not treated as a specific tax preference item under the federal alternative
minimum tax.

The two principal categories of Municipal Securities include "general
obligation" and "revenue" issues. The Funds' portfolios may also include
"moral obligation" issues, which are normally issued by special purpose
authorities. There are, of course, variations in the quality of Municipal
Securities, both within a particular category and between categories, and the
yields on Municipal Securities depend upon a variety of factors, including
general market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a

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<PAGE>

particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of a nationally recognized statistical rating
organization ("NRSRO"), such as Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's Ratings Group ("S&P"), described in the Prospectus and
in Appendix A hereto, represent such rating services' opinion as to the
quality of Municipal Securities. It should be emphasized that these ratings
are general and are not absolute standards of quality. Municipal Securities
with the same maturity, interest rate and rating may have different yields.
Municipal Securities of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by a Fund, an
issue of Municipal Securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Fund.

The payment of principal and interest on most Municipal Securities
purchased by the Funds will depend upon the ability of the issuers to meet
their obligations. Each state, the District of Columbia, each of their
political subdivisions, agencies, instrumentalities and authorities and each
multistate agency of which a state is a member is a separate "issuer" as that
term is used in this Statement of Additional Information and the Prospectus.
The non-governmental user of facilities financed by private activity bonds is
also considered to be an "issuer." An issuer's obligations under its
Municipal Securities are subject to the provisions of bankruptcy, insolvency
and other laws affecting the rights and remedies of creditors, such as the
federal Bankruptcy Code and laws, if any, which may be enacted by federal or
state legislatures extending the time for payment of principal or interest,
or both, or imposing other constraints upon enforcement of such obligations
or upon the ability of municipalities to levy taxes. The power or ability of
an issuer to meet its obligations for the payment of interest on and
principal of its Municipal Securities may be materially adversely affected by
litigation or other conditions.

Among other instruments, the Funds may purchase short-term general
obligation notes, tax anticipation notes, bond anticipation notes, revenue
anticipation notes, tax-exempt commercial paper, construction loan notes and
other forms of short-term loans. Such instruments are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds
of bond placements or other revenues. In addition, the Funds may invest in
long-term tax-exempt instruments, such as municipal bonds and private
activity bonds to the extent consistent with the limitations set forth in the
Prospectus.

Private activity bonds are or have been issued to obtain funds to
provide, among other things, privately operated housing facilities, pollution
control facilities, convention or trade show facilities, mass transit,
airport, port or parking facilities and certain local facilities for water
supply, gas, electricity or sewage or solid waste disposal. Private activity
bonds are also issued to privately held or publicly owned corporations in the
financing of commercial or industrial facilities. State and local
governments are authorized in most states to issue private activity bonds for
such purposes in order to encourage corporations to locate within their
communities. The principal and interest on these obligations may be payable
from the general revenues of the users of such facilities.

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<PAGE>

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENT AND DELAYED SETTLEMENT
TRANSACTIONS

When a Fund agrees to purchase securities on a "when-issued," "forward
commitment" or "delayed settlement" basis, the Fund's custodian will set
aside cash or liquid portfolio securities equal to the amount of the
commitment in a separate account. In the event of a decline in the value of
the securities that the custodian has set aside, the Fund may be required to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. A
Fund's net assets may fluctuate to a greater degree if it sets aside
portfolio securities to cover such purchase commitments than if it sets aside
cash. Because a Fund sets aside liquid assets to satisfy its purchase
commitments in the manner described, its liquidity and ability to manage its
portfolio might be adversely affected in the event its commitments to
purchase "forward commitments," commitments to purchase "when-issued"
securities or commitments to purchase securities on a "delayed settlement"
basis exceeded 25% of the value of its assets.

When a Fund engages in "when-issued," "forward commitment" or "delayed
settlement" transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous for a
security. For purposes of determining the average weighted maturity of a
Fund's portfolio, the maturity of "when-issued" securities is calculated from
the date of settlement of the purchase to the maturity date.

STAND-BY COMMITMENTS

Under a "stand-by commitment," a dealer agrees to purchase from a Fund,
at the Fund's option, specified Municipal Securities at a specified price.
Stand-by commitments are exercisable by a Fund at any time before the
maturity of the underlying Municipal Security, and may be sold, transferred
or assigned by the Fund only with respect to the underlying instruments.

Although stand-by commitments are often available without the payment of
any direct or indirect consideration, if necessary or advisable, a Fund may
pay for a stand-by commitment either separately in cash or by paying a higher
price for securities that are acquired subject to the commitment. Where a
Fund pays any consideration directly or indirectly for a stand-by commitment,
its cost will be reflected as unrealized depreciation for the period during
which the commitment is held by the Fund.

The Funds will acquire stand-by commitments solely to facilitate
liquidity and do not intend to exercise their rights thereunder for trading
purposes. Stand-by commitments will be valued at zero in determining a Fund's
net asset value.

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<PAGE>

REPURCHASE AGREEMENTS; REVERSE REPURCHASE AGREEMENTS; LOANS OF PORTFOLIO
SECURITIES

Each Fund may enter into repurchase agreements. The repurchase price
under a repurchase agreement generally equals the price paid by a Fund plus
interest negotiated on the basis of current short-term rates (which may be
more or less than the rate on the securities underlying the repurchase
agreement). Securities subject to repurchase agreements will be held by a
Fund's custodian or sub-custodian in a segregated account or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to
be loans by a Fund under the Investment Company Act of 1940, as amended, (the
"1940 Act").

A Fund that loans portfolio securities would continue to accrue interest
on the securities loaned and would also earn income on the loans. Any cash
collateral received by a Fund would be invested in high quality, short-term
"money market" instruments.

U.S. GOVERNMENT SECURITIES

Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation,
direct obligations of the U.S. Treasury, and securities issued or guaranteed
by the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land
Banks, Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, Federal National Mortgage
Association, General Services Administration, Central Bank for Cooperatives,
Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks,
Resolution Trust Corporation and Maritime Administration.

DERIVATIVE SECURITIES

FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Short-Term Bond Fund may
buy and sell securities denominated in currencies other than the U.S. dollar,
and receive interest, dividends and sale proceeds in currencies other than
the U.S. dollar, the Fund may enter into foreign currency exchange
transactions to convert United States currency to foreign currency and
foreign currency to United States currency as well as convert foreign
currency to other foreign currencies. The Fund either enters into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies.

A forward foreign currency exchange contract is an obligation by the
Fund to purchase or sell a specific currency at a specified price and future
date, which may be any fixed number of days from the date of the contract.
Forward foreign currency exchange contracts establish an

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<PAGE>

exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward foreign currency exchange
contract generally has no deposit requirement and is traded at a net price
without commission. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of the Fund's
portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.

The Short-Term Bond Fund may enter into foreign currency hedging
transactions in an attempt to protect against changes in foreign currency
exchange rates between the trade and settlement dates of specific securities
transactions or changes in foreign currency exchange rates that would
adversely affect a portfolio position or an anticipated portfolio position.
Since consideration of the prospect for currency parities will be
incorporated into the Fund's long-term investment decisions, the Fund will
not routinely enter into foreign currency hedging transactions with respect
to portfolio security transactions; however, it is important to have the
flexibility to enter into foreign currency hedging transactions when it is
determined that the transactions would be in the Fund's best interest.
Although these transactions tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they tend to
limit any potential gain that might be realized should the value of the
hedged currency increase. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies
will change as a consequence of market movements in the value of those
securities between the date the forward contract is entered into and the date
it matures. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.

ADDITIONAL INVESTMENT LIMITATIONS

In addition to the investment limitations disclosed in the Prospectus,
the Funds are subject to the following investment limitations, which may be
changed with respect to a particular Fund only by a vote of the holders of a
majority of such Fund's outstanding shares (as defined under "Miscellaneous"
in the Prospectus).

Each Fund may not:

1. Purchase securities on margin (except such short-term credits as may
be necessary for the clearance of purchases), make short sales of
securities, or maintain a short position.

2. Act as an underwriter within the meaning of the Securities Act of
1933; except insofar as a Fund might be deemed to be an underwriter upon
disposition of restricted portfolio securities; and except to the extent
that the purchase of securities directly from the issuer thereof in
accordance with the Fund's investment objective, policies and limitations
may be deemed to be underwriting.

3. Purchase or sell real estate; except that each Fund may purchase
securities that are secured by real estate and may purchase securities of
issuers which deal in real estate or interests therein; however, the Funds
will not purchase or sell interests in real estate limited partnerships.

-6-

<PAGE>

4. Purchase or sell commodities or commodity contracts or invest in oil,
gas, or other mineral exploration or development programs or mineral
leases; provided however, that each Fund may enter into interest rate
futures contracts to the extent permitted under the Commodity Exchange Act
and the 1940 Act; and further provided that the Short-Term Bond Fund may
enter into forward currency contracts and foreign currency futures
contracts and related options to the extent permitted by their respective
investment objectives and policies.

5. Invest in or sell put options, call options, straddles, spreads, or
any combination thereof.

6. Invest in companies for the purpose of exercising management or
control.

In addition to the above limitations:

8. The Funds, with the exception of the Short-Term Bond Fund, may not
purchase foreign securities, except that the Intermediate Government Income
and High Quality Bond Funds may purchase certificates of deposit, bankers'
acceptances, or other similar obligations issued by U.S. branches of
foreign banks or foreign branches of U.S. banks; and provided, however,
that the Intermediate Government Income and High Quality Bond Funds may
also purchase obligations of Canadian Provincial Governments in accordance
with each Fund's investment objective and policies.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares of the Funds are sold on a continuous basis by First Data
Distributors, Inc. ("FD Distributors"), and FD Distributors has agreed to use
appropriate efforts to solicit all purchase orders. As described in the
Prospectus, Retail A Shares of the Funds and Retail B Shares of the
Short-Term Bond and High Quality Bond Funds ("CDSC Funds") are sold to
customers ("Customers") of FIS Securities, Inc., Fleet Brokerage Securities,
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks, and other qualified banks,
savings and loan associations and broker/dealers ("Institutions"). As
described in the Prospectus, Retail A Shares of the Funds and Retail B Shares
of the CDSC Funds may also be sold to individuals, corporations or other
entities, who submit a purchase application to Galaxy, purchasing either for
their own accounts or for the accounts of others ("Direct Investors").

-7-

<PAGE>

Retail A Shares of the Funds are sold to Direct Investors and Customers
at the public offering price based on a Fund's net asset value plus a
front-end sales charge as described in the applicable Prospectuses. A
deferred sales charge of up to 1.00% is assessed on certain redemptions of
Retail A Shares that are purchased with no initial sales charge as part of an
investment of $500,000 or more. Retail B Shares of the CDSC Funds are sold
to Direct Investors and Customers at the net asset value next determined
after a purchase order is received, but are subject to a contingent deferred
sales charge which is payable on redemption of such shares as described in
the Prospectus.

Retail A Shares of the Funds are offered for sale with a maximum
front-end sales charge of 3.75%, with certain exemptions as described in the
Prospectus. An illustration of the computation of the offering price per
share of Retail A Shares of the Funds, using the value of each Fund's net
assets attributable to such Shares and the number of outstanding Retail A
Shares of each Fund at the close of business on October 31, 1997 and the
maximum front-end sales charge of 3.75%, is as follows:

Intermediate
Short-Term Government Income
Bond Fund Fund
---------- -----------------
<S> <C> <C>
Net Assets. . . . . . . . . . . . . $27,961,156 $65,625,765

Outstanding Shares. . . . . . . . . 2,793,617 6,443,770

Net Asset Value Per
Share . . . . . . . . . . . . . . . $ 10.01 $ 10.18

Sales Charge (3.75% of
the offering price) . . . . . . . . $ 0.39 $ 0.40

Offering Price to Public. . . . . . $ 10.40 $ 10.58

High Quality
Bond Fund
--------------
<C>
Net Assets. . . . . . . . . . . . . $27,950,038

Outstanding Shares. . . . . . . . . 2,611,095

Net Asset Value Per
Share . . . . . . . . . . . . . . . $ 10.70

Sales Charge (3.75% of
the offering price) . . . . . . . . $ 0.42

Offering Price to Public. . . . . . $ 11.12
</TABLE>

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<PAGE>

If the Board of Trustees determines that conditions exist that make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy
may make payment wholly or partly in securities or other property. Such
redemptions will only be made in "readily marketable" securities. In such an
event, a shareholder would incur transaction costs in selling the securities
or other property.

Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized.

DESCRIPTION OF SHARES

Galaxy is a Massachusetts business trust. Galaxy's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares and
to classify or reclassify any unissued shares into one or more additional
classes by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized
the issuance of thirty classes of shares, each representing interests in one
of thirty separate investment portfolios: Money Market Fund, Government Fund,
U.S. Treasury Fund, Tax-Exempt Fund, Connecticut Municipal Money Market Fund,
Massachusetts Municipal Money Market Fund, Institutional Government Money
Market Fund, Prime Reserves, Government Reserves, Tax-Exempt Reserves, Equity
Value Fund, Equity Growth Fund, Equity Income Fund, International Equity
Fund, Small Company Equity Fund, MidCap Equity Fund, Asset Allocation Fund,
Growth and Income Fund, Small Cap Value Fund, Special Equity Fund, Short-Term
Bond Fund, Intermediate Government Income Fund, High Quality Bond Fund,
Corporate Bond Fund, Tax-Exempt Bond Fund, New Jersey Municipal Bond Fund,
New York Municipal Bond Fund, Connecticut Municipal Bond Fund, Massachusetts
Municipal Bond Fund and Rhode Island Municipal Bond Fund. As stated in the
Prospectus, two separate series of shares (Retail A Shares and Trust Shares)
of the Funds (plus a third series of shares, i.e. Retail B Shares, of the
CDSC Funds) are offered under separate Prospectuses to different categories
of investors.

Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Except as noted below with respect to the Shareholder
Services Plan (which is currently applicable only to Retail A Shares of a
Fund), the Distribution and Services Plan for Retail B Shares of a CDSC Fund,
and differing transfer agency fees, Trust Shares, Retail A Shares and Retail
B Shares bear pro rata the same

-9-

<PAGE>

expenses and are entitled equally to a Fund's dividends and distributions.
In the event of a liquidation or dissolution of Galaxy or an individual Fund,
shareholders of a particular Fund would be entitled to receive the assets
available for distribution belonging to such Fund, and a proportionate
distribution, based upon the relative asset values of Galaxy's respective
Funds, of any general assets of Galaxy not belonging to any particular Fund,
which are available for distribution. Shareholders of a Fund are entitled to
participate in the net distributable assets of the particular Fund involved
in liquidation, based on the number of shares of the Fund that are held by
each shareholder, except that currently each Fund's Retail A Shares would be
solely responsible for the Fund's payments to Service Organizations under the
Shareholder Services Plan and each CDSC Fund's Retail B Shares would be
solely responsible for the Fund's payments to FD Distributors and to Service
Organizations under the Distribution and Services Plan.

Holders of all outstanding shares of a particular Fund will vote
together in the aggregate and not by series on all matters, except that only
Retail A Shares and Trust Shares of a Fund will be entitled to vote on
matters submitted to a vote of shareholders pertaining to Galaxy's
Shareholder Services Plan for Retail A and Trust Shares and only Retail B
Shares of a CDSC Fund will be entitled to vote on matters submitted to a vote
of shareholders pertaining to Galaxy's Distribution and Services Plan for
Retail B Shares. Further, shareholders of all of the Funds, as well as those
of any other investment portfolio now or hereafter offered by Galaxy, will
vote together in the aggregate and not separately on a Fund-by-Fund basis,
except as otherwise required by law or when permitted by the Board of
Trustees. Rule 18f-2 under the 1940 Act provides that any matter required to
be submitted to the holders of the outstanding voting securities of an
investment company such as Galaxy shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each Fund affected by the matter. A particular Fund is
deemed to be affected by a matter unless it is clear that the interests of
each Fund in the matter are substantially identical or that the matter does
not affect any interest of the Fund. Under the Rule, the approval of an
investment advisory agreement or any change in an investment objective or a
fundamental investment policy would be effectively acted upon with respect to
a Fund only if approved by a majority of the outstanding shares of such Fund
(irrespective of series designation). However, the Rule also provides that
the ratification of the appointment of independent public accountants, the
approval of principal underwriting contracts, and the election of trustees
may be effectively acted upon by shareholders of Galaxy voting without regard
to class or series.

Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a)
sell and convey the assets of a

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<PAGE>

Fund to another management investment company for consideration which may
include securities issued by the purchaser and, in connection therewith, to
cause all outstanding shares of the Fund involved to be redeemed at a price
which is equal to their net asset value and which may be paid in cash or by
distribution of the securities or other consideration received from the sale
and conveyance; (b) sell and convert a Fund's assets into money and, in
connection therewith, to cause all outstanding shares of the Fund involved to
be redeemed at their net asset value; or (c) combine the assets belonging to
a Fund with the assets belonging to another Fund of Galaxy and, in connection
therewith, to cause all outstanding shares of any Fund to be redeemed at
their net asset value or converted into shares of another class of Galaxy's
shares at the net asset value. In the event that shares are redeemed in cash
at their net asset value, a shareholder may receive in payment for such
shares, due to changes in the market prices of the Fund's portfolio
securities, an amount that is more or less than the original investment. The
exercise of such authority by the Board of Trustees will be subject to the
provisions of the 1940 Act, and the Board of Trustees will not take any
action described in this paragraph unless the proposed action has been
disclosed in writing to the Fund's shareholders at least 30 days prior
thereto.

ADDITIONAL INFORMATION CONCERNING TAXES

IN GENERAL

Each Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended, (the "Code"), and each Fund intends to
qualify as a "regulated investment company" under the Code. By following
this policy, each Fund expects to eliminate or reduce to a nominal amount the
federal income taxes to which it may be subject. If for any taxable year a
Fund does not qualify for the special federal tax treatment afforded
regulated investment companies, all of the Fund's taxable income would be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders. In such event, a Fund's distributions to
shareholders (including amounts derived from interest on Municipal
Securities) would be taxable as ordinary income, to the extent of the current
and accumulated earnings and profits of the particular Fund, and would be
eligible for the dividends received deduction in the case of corporate
shareholders.

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<PAGE>

dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock, securities or foreign currencies, and
other income (including, but not limited to, gains from options, futures, or
forward contracts) derived with respect to the Fund's business of investing
in such stock, securities or currencies (the "Income Requirement"). The
Treasury Department may by regulation exclude from qualifying income foreign
currency gains which are not directly related to a Fund's principal business
of investing in stock or securities, or options and futures with respect to
stock or securities. Any income derived by a Fund from a partnership or trust
is treated for this purpose as derived with respect to the Fund's business of
investing in stock, securities or currencies, only to the extent that such
income is attributable to items of income which would have been qualifying
income if realized by the Fund in the same manner as by the partnership or
trust.

Substantially all of each Fund's net capital gain (excess of net
long-term capital gain over net short-term capital loss), if any, will be
distributed at least annually to Fund shareholders. A Fund will generally
have no tax liability with respect to such gains and the distributions will
be taxable to Fund shareholders who are not currently exempt from federal
income taxes as long-term capital gain, regardless of how long the
shareholders have held Fund shares and whether such gains are received in
cash or reinvested in additional shares.

Each Fund will designate the tax status of any distribution in a written
notice mailed to shareholders within 60 days after the close of its taxable
year. Shareholders should note that, upon the sale or exchange of Fund
shares, if the shareholder has not held such shares for more than six months,
any loss on the sale or exchange of those shares will be treated as long term
capital loss to the extent of the capital gain dividends received with
respect to the shares.

Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable
and the phase-out of personal exemptions, the maximum effective marginal rate
of tax for some taxpayers may be higher. An individual's long-term capital
gains on stocks and securities are taxable at a maximum nominal rate of 20%.
For corporations, long-term capital gains and ordinary income are both
taxable at a maximum average rate of 35% (a maximum effective marginal rate
of 39% applies in the case of corporations having taxable income between
$100,000 and $335,000).

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<PAGE>

or dividends, or (iii) has failed to certify to the Funds that he or she is
not subject to back up withholding when required to do so or that he or she
is an "exempt recipient."

Income received by the Funds from sources within foreign countries may
be subject to withholding and other foreign taxes. The payment of such taxes
will reduce the amount of dividends and distributions paid to a Fund's
shareholders. So long as a Fund qualifies as a regulated investment company,
certain distribution requirements are satisfied, and more than 50% of the
value of the Fund's assets at the close of the taxable year consists of stock
or securities of foreign corporations, the Fund may elect, for U.S. federal
income tax purposes, to treat foreign income taxes paid by the Fund that can
be treated as income taxes under U.S. income tax principles as paid by its
shareholders. A Fund may qualify for and make this election in some, but not
necessarily all, of its taxable years. If a Fund were to make an election,
an amount equal to the foreign income taxes paid by the Fund would be
included in the income of its shareholders, and each shareholder would be
entitled either (i) to credit their portions of this amount against their
U.S. tax due, if any, or (ii) if the shareholder itemizes deductions, to
deduct such portion from their U.S. taxable income, if any, should the
shareholder so choose. Shortly after any year for which it makes such an
election, a Fund will report to its shareholders, in writing, the amount per
share of such foreign tax that must be included in each shareholder's gross
income and the amount which will be available for deduction or credit.
Certain limitations are imposed on the extent to which the credit (but not
the deduction) for foreign taxes may be claimed.

Shareholders who choose to utilize a credit (rather than a deduction)
for foreign taxes will be subject to the limitation that the credit may not
exceed the shareholder's United States tax (determined without regard to the
availability of the credit) attributable to his or her total foreign source
taxable income. For this purpose, the portion of dividends and distributions
paid by the Fund from its foreign source income will be treated as foreign
source income. A Fund's gains and losses from the sale of securities
generally will be treated as derived from United States sources and certain
foreign currency gains and losses likewise will be treated as derived from
United States sources. The limitation on the foreign tax credit is applied
separately to foreign source "passive income," such as the portion of
dividends received from a Fund which qualifies as foreign source income.
Additional limitations apply to using the foreign tax credit to offset the
alternative minimum tax imposed on corporations and individuals. Because of
these limitations, shareholders may be unable to claim a credit for the full
amount of their proportionate shares of the foreign income taxes paid by a
Fund.

TAXATION OF CERTAIN FINANCIAL INSTRUMENTS

Special rules govern the federal income tax treatment of financial
instruments that may be held by the Funds. These rules may have a particular
impact on the amount of income or gain that the Funds must distribute to
their respective shareholders to comply with the Distribution Requirement,
and on the income or gain qualifying under the Income Requirement.

Generally, futures contracts and options on futures contracts held by
the Funds and certain foreign currency contracts entered into by the
Short-Term Bond Fund (as described above) (collectively, the "Instruments")
at the close of their taxable year are treated for federal

-13-

<PAGE>

income tax purposes as sold for their fair market value on the last business
day of such year, a process known as "mark-to-market." Forty percent of any
gain or loss resulting from such constructive sales will be treated as
short-term capital gain or loss, and 60% of such gain or loss will be treated
as long-term capital gain or loss without regard to the period a Fund has
held the Instruments ("the 40-60 rule"). The amount of any capital gain or
loss actually realized by a Fund in a subsequent sale or other disposition of
those Instruments is adjusted to reflect any capital gain or loss taken into
account by the Fund in a prior year as a result of the constructive sale of
the Instruments. Losses with respect to futures contracts to sell related
options, and certain foreign currency contracts, which are regarded as parts
of a "mixed straddle" because their values fluctuate inversely to the values
of specific securities held by the Funds, are subject to certain loss
deferral rules, which limit the amount of loss currently deductible on either
part of the straddle to the amount thereof that exceeds the unrecognized
gain, if any, with respect to the other part of the straddle, and to certain
wash sales regulations. With respect to certain Instruments, deductions for
interest and carrying charges may not be allowed. Notwithstanding the rules
described above, with respect to futures contracts that are part of a "mixed
straddle" to sell related options, and certain foreign currency contracts
that are properly identified as such, a Fund may make an election which will
exempt (in whole or in part) those identified futures contracts, options and
foreign currency contracts from the Rules of Section 1256 of the Code
including "the 40-60 rule" and "mark-to-market," but gains and losses will be
subject to such short sales, wash sales and loss deferral rules and the
requirement to capitalize interest and carrying charges. Under Temporary
Regulations, a Fund would be allowed (in lieu of the foregoing) to elect
either (1) to offset gains or losses from portions that are part of a mixed
straddle by separately identifying each mixed straddle to which such
treatment applies, or (2) to establish a mixed straddle account for which
gains and losses would be recognized and offset on a periodic basis during
the taxable year. Under either election, "the 40-60 rule" will apply to the
net gain or loss attributable to the Instruments, but in the case of a mixed
straddle account election, not more than 50% of any net gain may be treated
as long-term and no more than 40% of any net loss may be treated as
short-term.

A foreign currency contract must meet the following conditions in order
to be subject to the mark-to-market rules described above: (1) the contract
must require delivery of a foreign currency of a type in which regulated
futures contracts are traded or upon which the settlement value of the
contract depends; (2) the contract must be entered into at arm's length at a
price determined by reference to the price in the interbank market; and (3)
the contract must be traded in the interbank market. The Treasury Department
has broad authority to issue regulations under the provisions respecting
foreign currency contracts. As of the date of this Statement of Additional
Information, the Treasury Department has not issued any such regulations.
Other foreign currency contracts entered into by a Fund may result in the
creation of one or more straddles for federal income tax purposes, in which
case certain loss deferral, short sales, and wash sales rules and the
requirement to capitalize interest and carrying charges may apply.

Some of the non-U.S. dollar denominated investments that the Short-Term
Bond Fund may make, such as foreign securities, European Depository Receipts
and foreign currency contracts, may be subject to the provisions of Subpart J
of the Code, which govern the federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S

-14-

<PAGE>

dollar. The types of transactions covered by these provisions include the
following: (1) the acquisition of, or becoming the obligor under, a bond or
other debt instrument (including, to the extent provided in Treasury
regulations, preferred stock); (2) the accruing of certain trade receivables
and payables; and (3) the entering into or acquisition of any forward
contract, futures contract, option and similar financial instrument. The
disposition of a currency other than the U.S. dollar by a U.S. taxpayer also
is treated as a transaction subject to the special currency rules. However,
foreign currency-related regulated futures contracts and nonequity options
are generally not subject to the special currency rules if they are or would
be treated as sold for their fair market value at year-end under the
mark-to-market rules, unless an election is made to have such currency rules
apply. With respect to transactions covered by the special rules, foreign
currency gain or loss is calculated separately from any gain or loss on the
underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the taxpayer and which are
not part of a straddle. In accordance with Treasury regulations, certain
transactions that are part of a "Section 988 hedging transaction" (as defined
in the Code and Treasury regulations) may be integrated and treated as a
single transaction or otherwise treated consistently for purposes of the
Code. "Section 988 hedging transactions" are not subject to the
mark-to-market or loss deferral rules under the Code. Gain or loss
attributable to the foreign currency component of transactions engaged in by
the Fund, which is not subject to the special currency rules (such as foreign
equity investments other than certain preferred stocks), is treated as
capital gain or loss and is not segregated from the gain or loss on the
underlying transaction.

The Fund may be subject to U.S. federal income tax on a portion of any
"excess distribution" or a gain from the disposition of passive foreign
investment companies even if it distributes the income to its shareholders.

STATE TAXATION

-15-

<PAGE>

TRUSTEES AND OFFICERS

The trustees and executive officers of Galaxy, their addresses,
principal occupations during the past five years, and other affiliations are
as follows:

Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ----------------- ------------ ----------------------------
<S> <C> <C>

Dwight E. Vicks, Jr. Chairman & President & Director, Vicks
Vicks Lithograph & Trustee Lithograph & Printing Corporation (book
Printing Corporation manufacturing and commercial
Commercial Drive printing); Director, Utica
P.O. Box 270 Fire Insurance Company;
Yorkville, NY 13495 Trustee, Savings Bank of
Age 64 Utica; Director, Monitor Life
Insurance Company; Director,
Commercial Travelers Mutual
Insurance Company; Trustee,
The Galaxy VIP Fund; Trustee,
Galaxy Fund II.

John T. O'Neill(1) President, Executive Vice President and
Hasbro, Inc. Treasurer & CFO, Hasbro, Inc. (toy and
1027 Newport Drive Trustee game manufacturer); Trustee,
Pawtucket, RI 02862 The Galaxy VIP Fund; Trustee,
Age 53 Galaxy Fund II.

-16-

<PAGE>

Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ----------------- ------------ ----------------------------
<S> <C> <C>
James M. Seed Trustee Chairman and President, The Astra
The Astra Ventures, Inc. Projects, Incorporated (land development);
One Citizens Plaza President, The Astra Ventures,
Providence, RI 02903 Incorporated (previously,
Age 56 Buffinton Box Company --
manufacturer of cardboard
boxes); Commissioner, Rhode
Island Investment Commission;
Trustee the Galaxy VIP Fund;
Trustee, Galaxy Fund II.

Bradford S. Wellman(1) Trustee Private Investor; Vice
2468 Ohio Street President and Director, Acadia
Bangor, ME 04401 Management Company (investment
Age 66 services), from 1974 until
1990; Director, Essex County
Gas Company, until January
1994; Director, Maine Mutual
Fire Insurance Co.; Member,
Maine Finance Authority;
Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.

W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National Drinker Biddle & Reath LLP,
Bank Building Philadelphia, Pennsylvania.
1345 Chestnut Street
Philadelphia, PA 19107
Age 54

- -------------------
(1) An interested person within the definition set forth in Section 2(a)(19)
of the 1940 Act.

-17-

<PAGE>

No employee of First Data Investor Services Group, Inc., ("Investor
Services Group") receives any compensation from Galaxy for acting as an
officer. No person who is an officer, director or employee of Fleet, or any
of its affiliates, serves as a trustee, officer or employee of Galaxy. The
trustees and officers of Galaxy own less than 1% of its outstanding shares.

The following chart provides certain information about the fees received
by Galaxy's trustees in the most recently completed fiscal year.

-18-

<PAGE>
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits from Galaxy and
Aggregate Accrued as Fund
Name of Compensation from Part of Fund Complex* Paid to
Person/Position Galaxy Expenses Trustees
<S> <C> <C> <C>
Bradford S. Wellman $34,591 None $38,500
Trustee

Dwight E. Vicks, Jr. $38,184 None $42,500
Chairman & Trustee

Donald B. Miller** $34,574 None $38,500
Trustee

Rev. Louis DeThomasis $34,591 None $38,500
Trustee

John T. O'Neill $36,837 None $41,000
President, Treasurer &
Trustee

James M. Seed** $34,574 None $38,500
Trustee
</TABLE>
_____________

* The "Fund Complex" consists of The Galaxy Fund, The Galaxy VIP Fund and
Galaxy Fund II.

** Deferred compensation in the amounts of $35,777 and $40,992 accrued during
Galaxy's fiscal year ended October 31, 1997 for Messrs. Miller and Seed,
respectively.

SHAREHOLDER AND TRUSTEE LIABILITY

Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the
obligations of the trust. However, Galaxy's Declaration of Trust provides
that shareholders shall not be subject to any personal liability for the acts
or obligations of Galaxy, and that every note, bond, contract, order or other
undertaking made by Galaxy shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of any shareholder
held personally liable solely by reason of his or her being or having been a
shareholder and not because of his or her acts or omissions outside such
capacity or some other reason. The Declaration of Trust also provides that
Galaxy shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of Galaxy and shall satisfy any
judgment thereon. Thus, the risk of shareholder liability is limited to
circumstances in which Galaxy itself would be unable to meet its obligations.

-19-

<PAGE>

ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER AGENCY AGREEMENTS

For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Fleet reimbursed advisory fees of $65,354, $40,375 and
$2,300, respectively, with respect to the Short-Term Bond Fund; $60,356, $0
and $0, respectively, with respect to the Intermediate Government Income
Fund; and $34,946, $2,956 and $28,489, respectively, with respect to the High
Quality Bond Fund.

The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its

-20-

<PAGE>

duties under the advisory agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of Fleet in the performance of its duties or from reckless disregard by
it of its duties and obligations thereunder. Unless sooner terminated, the
advisory agreement will continue in effect with respect to a particular Fund
from year to year as long as such continuance is approved at least annually
(i) by the vote of a majority of trustees who are not parties to such
advisory agreement or interested persons (as defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of voting on
such approval; and (ii) by Galaxy's Board of Trustees, or by a vote of a
majority of the outstanding shares of such Fund. The term "majority of the
outstanding shares of such Fund" means, with respect to approval of an
advisory agreement, the vote of the lesser of (i) 67% or more of the shares
of the Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the outstanding shares of the Fund. The advisory agreement
may be terminated by Galaxy or by Fleet on sixty days' written notice, and
will terminate immediately in the event of its assignment.

Investor Services Group, a wholly-owned subsidiary of First Data
Corporation, serves as Galaxy's administrator. Under the administration
agreement, Investor Services Group has agreed to maintain office facilities
for Galaxy, furnish Galaxy with statistical and research data, clerical,
accounting, and bookkeeping services, certain other services such as internal
auditing services required by Galaxy, and compute the net asset value and net
income of the Funds. Investor Services Group prepares the Funds' annual and
semi-annual reports to the SEC, federal and state tax returns, and filings
with state securities commissions, arranges for and bears the cost of
processing share purchase and redemption orders, maintains the Funds'
financial accounts and records, and generally assists in all aspects of
Galaxy's operations.

Prior to March 31, 1995, Galaxy's administrator and transfer agent was
440 Financial Group of Worcester, Inc., a wholly-owned subsidiary of State
Mutual Life Assurance Company of America. On March 31, 1995, Investor
Services Group acquired all of the assets of 440 Financial Group of
Worcester, Inc.

CUSTODIAN AND TRANSFER AGENT

-21-

<PAGE>

security brokers and others relating to its duties; and (vi) make periodic
reports to the Board of Trustees concerning the Funds' operations. Chase
Manhattan is authorized to select one or more banks or trust companies to
serve as sub-custodian for the Funds, provided that Chase Manhattan shall
remain responsible for the performance of all of its duties under the
custodian agreement and shall be liable to the Funds for any loss which shall
occur as a result of the failure of a sub-custodian to exercise reasonable
care with respect to the safekeeping of the Funds' assets. In addition,
Chase Manhattan may employ sub-custodians for the Short-Term Bond Fund upon
prior approval by the Board of Trustees in accordance with the regulations of
the SEC, for the purpose of providing custodial services for the foreign
assets of those Funds held outside the United States. The assets of the
Funds are held under bank custodianship in compliance with the 1940 Act.

PORTFOLIO TRANSACTIONS

Debt securities purchased or sold by the Funds are generally traded in
the over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.

The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year.

Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal
year. During fiscal year ended

-22-

<PAGE>

October 31, 1997, the Galaxy bond funds did not acquire or sell securities of
its regular brokers and dealers.

Investment decisions for each Fund are made independently from those for
the other Funds and portfolios of Galaxy and for any other investment
companies and accounts advised or managed by Fleet. When a purchase or sale
of the same security is made at substantially the same time on behalf of a
Fund, another portfolio of Galaxy, and/or another investment company or
account, the transaction will be averaged as to price, and available
investments allocated as to amount, in a manner which Fleet believes to be
equitable to the Fund and such other portfolio, investment company or
account. In some instances, this investment procedure may adversely affect
the price paid or received by a Fund or the size of the position obtained or
sold by such Fund. To the extent permitted by law, Fleet may aggregate the
securities to be sold or purchased for a Fund with those to be sold or
purchased for Galaxy's other Funds and portfolios, or other investment
companies or accounts in order to obtain best execution.

SHAREHOLDER SERVICES PLAN

As stated in the Prospectus, Galaxy may enter into agreements
("Servicing Agreements") pursuant to its Shareholder Services Plan ("Services
Plan") with Institutions and other organizations (including Fleet Bank and
its affiliates) (collectively, "Service Organizations") pursuant to which
Service Organizations will be compensated by Galaxy for offering to provide
certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares and Trust Shares of a Fund. As of
October 31, 1997, Galaxy had entered into Servicing Agreements only with
Fleet Bank and affiliates.

Each Servicing Agreement between Galaxy and a Service Organization
relating to the Services Plan requires that, with respect to those Funds
which declare dividends on a daily basis, the Service Organization agree to
waive a portion of the servicing fee payable to it under the Services Plan to
the extent necessary to ensure that the fees required to be accrued with
respect to the Retail A Shares of such Funds on any day do not exceed the
income to be accrued to such Retail A Shares on that day.

For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, payments to Service Organizations totaled $45,148, $54,596
and $43,131, respectively, with respect to Retail A Shares of the Short-Term
Bond Fund; $122,743, $122,781 and $102,805, respectively, with respect to
Retail A Shares of the Intermediate Government Income Fund; and $39,826,
$45,938 and $35,749, respectively, with respect to Retail A Shares of the
High Quality Bond Fund.

Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Services Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid
under the Servicing Agreements and the purposes for which the expenditures
were made. In addition, the arrangements with Service Organizations must be
approved annually by a majority of Galaxy's trustees, including a majority of
the trustees who are not "interested

-23-

<PAGE>

persons" of Galaxy as defined in the 1940 Act and who have no direct or
indirect financial interest in such arrangements (the "Disinterested
Trustees").

The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors
that there is a reasonable likelihood that the arrangements will benefit the
Funds and their shareholders by affording Galaxy greater flexibility in
connection with the efficient servicing of the accounts of the beneficial
owners of Retail A Shares of the Funds. Any material amendment to Galaxy's
arrangements with Service Organizations must be approved by a majority of
Galaxy's Board of Trustees (including a majority of the Disinterested
Trustees). So long as Galaxy's arrangements with Service Organizations are
in effect, the selection and nomination of the members of Galaxy's Board of
Trustees who are not "interested persons" (as defined in the 1940 Act) of
Galaxy will be committed to the discretion of such Disinterested Trustees.

DISTRIBUTION AND SERVICES PLAN

Galaxy has adopted a Distribution and Services Plan (the "12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to Retail B Shares of
the Short-Term Bond and High Quality Bond Funds. The 12b-1 Plan is described
in the Prospectus.

Under the 12b-1 Plan for Retail B Shares, payments by Galaxy (i) for
distribution expenses may not exceed .65% (annualized) of the average daily
net assets attributable to each Fund's outstanding Retail B Shares, (ii) to
an Institution for shareholder liaison services and/or administrative support
services may not exceed .15% (annualized) and .15% (annualized),
respectively, of the average daily net assets attributable to each Fund's
outstanding Retail B Shares which are owned of record or beneficially by that
Institution's Customers for whom the Institution is the dealer of record or
shareholder of record or with whom it has a servicing relationship. As of
the date of this Statement of Additional Information, Galaxy intends to limit
the Funds' payments for shareholder liaison and administrative support
services under the 12b-1 Plan to an aggregate fee of not more than .15% (on
an annualized basis) of the average daily net asset value of Retail B Shares
owned of record or beneficially by Customers of Institutions.

Payments for distribution expenses under the 12b-1 Plan are subject to
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule defines distribution
expenses to include the cost of "any activity which is primarily intended to
result in the sale of Galaxy shares." The Rule provides, among other things,
that an investment company may bear such expenses only pursuant to a plan
adopted in accordance with the Rule. In accordance with the Rule, the 12b-1
Plan provides that a report of the amounts expended under the 12b-1 Plan, and
the purposes for which such expenditures were incurred, will be made to the
Board of Trustees for its review at least quarterly. The 12b-1 Plan provides
that it may not be amended to increase materially the costs which Retail B
Shares of a Fund may bear for distribution pursuant to the 12b-1 Plan without
shareholder approval, and that any other type of material amendment must be
approved by a majority of the Board of Trustees, and by a majority of the
Trustees who are neither "interested persons" (as defined in the 1940 Act) of
Galaxy nor have any direct or indirect financial interest

-24-

<PAGE>

in the operation of the 12b-1 Plan or in any related agreements, by vote cast
in person at a meeting called for the purpose of considering such amendments
(the "Disinterested Trustees").

For the fiscal year ended October 31, 1997, Retail B Shares of the
Short-Term Bond and High Quality Bond Funds bore the following distribution
and shareholder servicing fees under the 12b-1 Plan: $3,443 in distribution
fees and $788 in shareholder servicing fees with respect to Retail B Shares
of the Short-Term Bond Fund; and $7,645 in distribution fees and $1,729 in
shareholder servicing fees with respect to Retail B Shares of the High
Quality Bond Fund. For the fiscal year ended October 31, 1997, all amounts
paid under the 12b-1 Plan were attributable to payments to broker-dealers.
For the period from March 4, 1996 (date of initial public offering of Retail
B Shares) through October 31, 1996, Retail B Shares of the Short-Term Bond
and High Quality Bond Funds bore the following distribution and shareholder
servicing fees under the 12b-1 Plan: $822 in distribution fees and $190 in
shareholder servicing fees with respect to Retail B Shares of the Short-Term
Bond Fund; and $1,580 in distribution fees and $365 in shareholder servicing
fees with respect to Retail B Shares of the High Quality Bond Fund. For the
fiscal year ended October 31, 1996, all amounts paid under the 12b-1 Plan
were attributable to payments to broker-dealers.

Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Funds and holders of Retail B
Shares. The 12b-1 Plan is subject to annual reapproval by a majority of the
Disinterested Trustees and is terminable at any time with respect to any Fund
by a vote of a majority of such Trustees or by vote of the holders of a
majority of the Retail B Shares of the Fund involved. Any agreement entered
into pursuant to the 12b-1 Plan with a Service Organization is terminable
with respect to any Fund without penalty, at any time, by vote of a majority
of the Disinterested Trustees, by vote of the holders of a majority of the
Retail B Shares of such Fund, by FD Distributors or by the Service
Organization. An agreement will also terminate automatically in the event of
its assignment.

As long as the 12b-1 Plan is in effect, the nomination of the trustees
who are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of such Disinterested Trustees.

DISTRIBUTOR

First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of Investor Services Group, serves as Galaxy's distributor. On
March 31, 1995, Investor Services Group acquired all of the issued and
outstanding stock of FD Distributors. Prior to that time, FD Distributors
was a wholly-owned subsidiary of 440 Financial Group of Worcester, Inc. and
an indirect subsidiary of State Mutual Life Assurance Company of America.

Unless otherwise terminated, the Distribution Agreement between Galaxy
and FD Distributors, remains in effect until May 31, 1999, and thereafter
will continue from year to year upon annual approval by Galaxy's Board of
Trustees, or by the vote of a majority of the outstanding shares of Galaxy
and by the vote of a majority of the Board of Trustees of Galaxy who are not
parties to the Agreement or interested persons of any such party, cast in
person at a

-25-

<PAGE>

meeting called for the purpose of voting on such approval. The Agreement
will terminate in the event of its assignment, as defined in the 1940 Act.

FD Distributors is entitled to the payment of a front-end sales charge
on the sale of Retail A Shares of the Funds as described in the applicable
Prospectuses. For the fiscal year ended October 31, 1997, the Distributor
received front-end sales charges in connection with Retail A Share purchases
as follows: Short-Term Bond Fund -- $15,074; Intermediate Government Income
Fund -- $28,979; and High Quality Bond Fund -- $43,211. Of these amounts, FD
Distributors and affiliates of Fleet retained $0 and $15,074, respectively,
with respect to the Short-Term Bond Fund; $0 and $28,979, respectively, with
respect to the Intermediate Government Income Fund; and $0 and $43,211,
respectively, with respect to the High Quality Bond Fund.

FD Distributors is also entitled to the payment of contingent deferred
sales charges upon the redemption of Retail B Shares of the CDSC Funds. For
the fiscal year ended October 31, 1997, FD Distributors received contingent
deferred sales charges in connection with Retail B Share redemptions as
follows: Short-Term Bond Fund -- $3,662; and High Quality Bond Fund --
$5,970. All such amounts were paid to affiliates of Fleet.

The following table shows all sales charges, commissions and other
compensation received by FD Distributors directly or indirectly from the
Funds during the fiscal year ended October 31, 1997:

Intermediate $28,979.34 N/A $0 $105,181
Government
Income

High Quality $49,180.72 $5,969.93 $0 $49,750
Bond
</TABLE>
______________________

(1) Represents amounts received from front-end sales charges on Retail A Shares
and commissions received in connection with sales of Retail B Shares.

(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1997, which includes fees accrued in the fiscal year ended October 31,
1996 which were paid in 1997 (see "Shareholder Services Plan" and
"Distribution and Services Plan" above).

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<PAGE>

AUDITORS

PricewaterhouseCoopers LLP, independent certified public accountants,
with offices at One Post Office Square, Boston, Massachusetts 02109, serve as
auditors to Galaxy. The financial highlights for the Funds included in the
Prospectus and the financial statements for the Funds contained in Galaxy's
Annual Report to Shareholders and incorporated by reference into this
Statement of Additional Information for the respective fiscal periods ended
October 31 of each calendar year have been audited by PricewaterhouseCoopers
LLP for the periods included in their report thereon which appears therein.

COUNSEL

PERFORMANCE AND YIELD INFORMATION

YIELD AND PERFORMANCE OF THE FUNDS

The Funds' 30-day (or one month) standard yields described in their
Prospectuses are calculated separately for each series of shares in each Fund
in accordance with the method prescribed by the SEC for mutual funds:

YIELD = 2[((a-b) +1 )(6) - 1]

Where: a = dividends and interest earned by a Fund during the period;

b = expenses accrued for the period (net of reimbursements);

c = average daily number of shares outstanding during the
period, entitled to receive dividends; and

d = maximum offering price per share on the last day of the
period.

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<PAGE>

to obligations purchased during the month, the purchase price (plus actual
accrued interest) and dividing the result by 360 and multiplying the quotient
by the market value of the obligation (including actual accrued interest) in
order to determine the interest income on the obligation for each day of the
subsequent month that the obligation is held by the Fund. For purposes of
this calculation, it is assumed that each month contains 30 days. The
maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date. With respect to debt obligations purchased at a discount or
premium, the formula generally calls for amortization of the discount or
premium. The amortization schedule will be adjusted monthly to reflect
changes in the market value of such debt obligations. Expenses accrued for
the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts in proportion to the length of the base
period and the Fund's mean (or median) account size. Undeclared earned
income will be subtracted from the offering price per share (variable "d" in
the formula).

Based on the foregoing calculation, the standard yields for Retail A
Shares of the Short-Term Bond, Intermediate Government Income and High
Quality Bond Funds for the 30-day period ended October 31, 1997 were 4.82%,
5.15% and 5.32%, respectively.

Based on the foregoing calculation, the standard yields for Retail B
Shares of the Short-Term Bond and High Quality Bond Funds for the 30-day
period ended October 31, 1997 were 4.35% and 4.95%, respectively.

-28-

<PAGE>

T = [(ERV/P) - 1](1/n)

Where: T = average annual total return;

ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10
year (or other) periods at the end of the applicable
period (or a fractional portion thereof);

P = hypothetical initial payment of $1,000; and

n = period covered by the computation, expressed in years.

Aggregate Total Return = [(ERV/P) - 1]

The calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date, (2) all recurring fees charged to
all shareholder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size in the Fund
during the periods is reflected. The ending redeemable value (variable "ERV"
in the formula) is determined by assuming complete redemption of the
hypothetical investment after deduction of all nonrecurring charges at the
end of the measuring period. In addition, the Funds' average annual return
and aggregate total returns will reflect the deduction of the maximum sales
load charged in connection with purchases of Retail A shares or redemptions
of Retail B shares, as the case may be.

Aggregate total return for Retail A Shares of the Intermediate
Government Income Fund for the period September 1, 1988 (inception) to
October 31, 1997 was 84.83%. From September 1, 1988 (inception) to October
31, 1997, the average annual total return for Retail A Shares of the
Intermediate Government Income Fund was 6.93%. For the one-year and
five-year periods ended October 31, 1997, the average annual total returns
for Retail A Shares of the Intermediate Government Income Fund were 3.33% and
4.32%, respectively.

Aggregate total returns for Retail A Shares of the High Quality Bond
Fund from December 14, 1990 (inception) to October 31, 1997 was 65.35%. From
December 14, 1990 (inception) to October 31, 1997, the average annual total
return for Retail A Shares of the High Quality Bond Fund was 7.58%. For the
one-year and five-year periods ended October 31, 1997, the average annual
total returns for Retail A Shares of the High Quality Bond Fund were 4.14%
and 6.38%, respectively.

Aggregate total return for Retail A Shares of the Short-Term Bond Fund
from December 30, 1991 (inception) to October 31, 1997 was 29.95%. From
December 30, 1991

-29-

<PAGE>

(inception) to October 31, 1997, average annual total return for Retail A
Shares of the Short-Term Bond Fund was 4.59%. For the one-year and five-year
periods ended October 31, 1997, the average annual total returns for Retail A
Shares of the Short-Term Bond Fund were 1.67% and 4.32%, respectively.

Aggregate total returns for Retail B Shares of the Short-Term Bond and
High Quality Bond Funds from March 4, 1996 (date of initial public offering)
through October 31,1997 were 3.25% and 4.83%, respectively. From March 4,
1996 (date of initial public offering) through October 31, 1997, average
annual total returns for Retail B Shares of the Short-Term Bond and High
Quality Bond Funds were 1.95% and 2.88%, respectively. For the one-year
period ended October 31, 1997, the average annual returns for Retail B Shares
of the Short-Term Bond and High Quality Bond Funds were -0.01% and 2.59%,
respectively.

As stated in the Prospectus, the Funds may also calculate total return
quotations without deducting the maximum sales load imposed on purchases of
Retail A Shares or redemptions of Retail B Shares. The effect of not
deducting the sales charge will be to increase the total return reflected.

MISCELLANEOUS

As used in the Prospectus, "assets belonging to a particular series of a
Fund" means the consideration received by Galaxy upon the issuance of shares
in that particular series of the Fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale of such investments, any funds or payments derived
from any reinvestment of such proceeds and a portion of any general assets of
Galaxy not belonging to a particular series or Fund. In determining the net
asset value of a particular series of a Fund, assets belonging to the
particular series of the Fund are charged with the direct liabilities in
respect of that series and with a share of the general liabilities of Galaxy,
which are allocated in proportion to the relative asset values of the
respective series and Funds at the time of allocation. Subject to the
provisions of Galaxy's Declaration of Trust, determinations by the Board of
Trustees as to the direct and allocable liabilities, and the allocable
portion of any general assets with respect to a particular series or Fund,
are conclusive.

-30-

<PAGE>

Avenue, Rochester, New York 14638 (16.78%); Norstar Trust Company, Gales &
Co., Funds Control, Account 00000000064, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (77.92%); Norstar Trust Company, Gales &
Co., Funds Control, Account 00000011551, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (5.27%); Equity Growth Fund -- Norstar
Trust Company, Gales & Co., Funds Control, Account 00000030718, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (13.66%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000010017, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (16.01%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000082, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (70.42%); Equity Income
Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account
00000000037, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (13.70%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000003748, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (34.36%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000016771, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (51.84%); International Equity Fund -- Norstar Trust Company, Gales &
Co., Funds Control, Account 00000004088, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (11.59%); Norstar Trust Company, Gales &
Co., Funds Control, Account 00000000876, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (39.24%); Norstar Trust Company, Gales &
Co., Funds Control, Account 00000000073, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (47.07%); Growth and Income Fund -- Norstar
Trust Company, Gales & Co., Funds Control, Account 05000503793, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (66.30%); Norstar Trust
Company, Gales & Co., Funds Control, Account 05000603873, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (29.85%); Asset
Allocation Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account
00000002598, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (14.30%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000000073, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (80.32%); Small Company Equity Fund -- Norstar Trust Company, Gales &
Co., Funds Control, Account 00000006102, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (5.76%); Norstar Trust Company, Gales &
Co., Funds Control, Account 00000001492, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (15.90%); Norstar Trust Company, Gales &
Co., Funds Control, Account 00000000046, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (70.60%); Small Cap Value Fund -- Norstar
Trust Company, Gales & Co., Funds Control, Account 06000503917, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (6.32%); Norstar Trust
Company, Gales & Co., Funds Control, Account 05000503999, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (71.98%); Norstar Trust
Company, Gales & Co., Funds Control, Account 05000503953, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (11.25%); Short-Term
Bond Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account
00000000064, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (41.78%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000001090, Attn: Julie Hogestyn, One East Avenue, Rochester, New York,
14638 (16.05%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000008627, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (42.06%); Intermediate Government Income Fund -- Norstar Trust Company,
Gales & Co., Funds Control, Account 00000007183, Attn: Julie Hogestyn, One
East Avenue, Rochester, New York 14638 (29.57%); Norstar Trust Company, Gales
& Co., Funds Control, Account

-31-

<PAGE>

00000000037, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (28.12%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000038408, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (42.32%); Swarovski North America Ret Plan, c/o Norstar Trust Co.,
Gates & Co., 159 East Main St., Rochester, NY 14638 (5.72%); High Quality
Bond Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account
00000006095, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (11.82%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000001465, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (21.18%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000000037, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (67.00%); Corporate Bond Fund -- Norstar Trust Company, Gales & Co.,
Funds Control, Account 00000000046, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (53.41%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000006102, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (34.28%); Tax-Exempt Bond Fund -- Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000670, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (20.10%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000028, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (37.86%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000005899, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (42.04%); New York
Municipal Bond Fund -- Norstar Trust Company, Gales & Co., Funds Control,
Account 00000005292, Attn: Julie Hogestyn, One East Avenue, Rochester, New
York 14638 (10.50%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000000019, Attn: Julie Hogestyn, One East Avenue, Rochester, New
York 14638 (13.66%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000001107, Attn: Julie Hogestyn, One East Avenue, Rochester, New
York 14638 (75.75%); Connecticut Municipal Bond Fund -- Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000037, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (20.74%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000019, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (78.60%); and
Massachusetts Municipal Bond Fund --Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000073, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (36.98%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000019, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (63.02%).

-32-

<PAGE>

Ave., Rochester, NY 14638 (33.61%); James R. McCulloch, c/o Microfibre, P.O.
Box 1208, Pawtucket, RI 02860 (7.65%); Gerald M. Gannon, 293 Promenade Ave.,
Warwick, RI 02886-8324 (5.81%).

As of January 28, 1998, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding
Retail B Shares of each of Galaxy's investment portfolios were as follows:
Money Market Fund -- Charles I. Boynton Insurance, 72 River Park Street,
Needham, MA 02194, Account 00920380973, (25.72%); Fleet Bank of
Massachusetts, Customer if the IRA, FBO Norris K. Smith, Jr., 9262 Versailles
Rd., Angola, NY 14006, Account 05100347130, (6.06%); Peter Daniel Mendelsohn,
540 East 6th Street, Apt. 2B, New York, NY 10009, Account 05100353961,
(6.85%); Thomas A. Dowd, Myrna L. Dowd(JTWROS) 9 Cypress Ave., Shrewsbury, MA
01546, Account 06100563501, (17.13%); Mario J. Vidal, Customer Nathan S.
Vidal, 106 Aquidneck Street, New Bedford, MA 02744, Account 06100567151,
(8.54%); Barbara A. Saganich, 4 St. James Circle, Acton, MA 01720, Account
05100663842, (5.09%); High Quality Bond Fund -- E.L. Bradley and Co., Inc.,
16 Helen Rd., Needham, MA 02192, Account 05100649206, (7.78%); Short-Term
Bond Fund -- Colonial Marble Co., Inc., 25 Garvey Street, P.O. Box 187,
Everett, MA 02149, Account 00970037797, (7.17%); Wilbur J. Wade, Jr., 122
Snyder Road, Fort Plain, NY 13339, Account 05100596030, (5.58%); and
Tax-Exempt Bond Fund -- Katrina A. Seltzer, 121 Schuyler Street, Boonville,
NY 13309, Account 051001743724, (12.25%); David Fendler, 72 Brinkerhoff Ave.,
Stamford, CT 06905, Account 05100255354, (25.74%); Joseph R. Copeland, 201
College Street, Springfield, MA 01109, Account 05100388896, (12.97%).

FINANCIAL STATEMENTS

Galaxy's Annual Report to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1997 have been filed with the Securities and
Exchange Commission. The financial statements in such Annual Report (the
"Financial Statements") are incorporated by reference into this Statement of
Additional Information. The Financial Statements included in the Annual
Report for the Funds for the fiscal year ended October 31, 1997 have been
audited by Galaxy's independent accountants, PricewaterhouseCoopers LLP,
whose report thereon also appears in such Annual Report and is incorporated
herein by reference. The Financial Statements in such Annual Report have
been incorporated herein by reference in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.

-33-

<PAGE>

APPENDIX A

DESCRIPTION OF SECURITIES RATINGS

The following is a description of the securities ratings of Duff &
Phelps Credit Rating Co. ("D&P"), Fitch IBCA, Inc. ("Fitch IBCA"), Standard &
Poor's Ratings Group, Division of McGraw Hill ("S&P"), Moody's Investors
Service, Inc. ("Moody's"), IBCA Limited and Thomson BankWatch, Inc.
("Thomson").

CORPORATE AND TAX-EXEMPT BOND RATINGS

The four highest ratings of D&P for tax-exempt and corporate
fixed-income securities are AAA, AA, A and BBB. Securities rated AAA are of
the highest credit quality. The risk factors are considered to be
negligible, being only slightly more than for risk-free U.S. Treasury debt.
Securities rated AA are of high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions. Securities that are rated "A" have protection factors
that are average but adequate. However, risk factors are more variable and
greater in periods of economic stress. Securities that are rated "BBB" have
below average protection factors but are still considered sufficient for
prudent investment. Considerable variability in risk is present during
economic cycles. The AA, A and BBB ratings may be modified by an addition of
a plus (+) or minus (-) sign to show relative standing within these major
rating categories.

The four highest ratings of Fitch IBCA for tax-exempt and corporate
bonds are AAA, AA, A and BBB. Plus (+) and minus (-) signs are used with a
rating symbol to indicate the relative position of a credit within the rating
category. AAA bonds are considered to be investment grade and of the highest
credit quality. The obligor is judged to have an exceptionally strong
ability to pay interest and repay principal, which is very unlikely to be
affected by reasonably foreseeable events. AA bonds are considered to be
investment grade and of very high credit quality. The obligor's ability to
pay interest and repay principal is very strong, although not quite as strong
as bonds rated AAA. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated F-1+. A bonds are considered to be
investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings. BBB bonds are considered to be investment grade
and of good credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds, and therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.

The four highest ratings of S&P for tax-exempt and corporate bonds are
AAA, AA, A and BBB. Bonds rated AAA bear the highest rating assigned by S&P
to a debt obligation and the AAA rating indicates in its opinion an extremely
strong capacity to pay interest and repay principal. Bonds rated AA by S&P
are judged by it to have a very strong capacity to pay interest

A-1

<PAGE>

and repay principal, and they differ from AAA issues only in small degree.
Bonds rated A are considered to have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds of a
higher rated category. Bonds rated BBB are regarded as having an adequate
capacity to pay interest and repay principal. Whereas such bonds normally
exhibit adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for higher rated
categories. The AA, A and BBB ratings may be modified by an addition of a
plus (+) or minus (-) sign to show relative standing within these major
rating categories.

The four highest ratings of Moody's for tax-exempt and corporate bonds
are Aaa, Aa, A and Baa. Tax-exempt and corporate bonds rated Aaa are judged
to be of the "best quality." The rating of Aa is assigned to bonds which are
of "high quality by all standards." Aa bonds are rated lower than Aaa bonds
because margins of protection may not be as large or fluctuations of
protective elements may be of greater amplitude or there may be other
elements which make the long-term risks appear somewhat larger. Bonds that
are rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
that suggest a susceptibility to impairment sometime in the future. Bonds
that are rated Baa are considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well. Moody's may modify a rating of Aa,
A or Baa by adding numerical modifiers of 1, 2 or 3 to show relative standing
within these categories. The foregoing ratings are sometimes presented in
parentheses preceded with a "con" indicating the bonds are rated
conditionally. Such parenthetical rating denotes the probable credit stature
upon completion of construction or elimination of the basis of the condition.

CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS

A-2

<PAGE>

Fitch IBCA's short-term ratings apply to tax-exempt and corporate debt
obligations that are payable on demand or have original maturities of up to
three years. The four highest ratings of Fitch IBCA for short-term
securities are F-1+, F-1, F-2 and F-3. F-1+ securities possess exceptionally
strong credit quality. Issues assigned this rating are regarded as having
the strongest degree of assurance for timely payment. F-1 securities possess
very strong credit quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated F-1+. F-2
securities possess good credit quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payment, but the margin of safety
is not as great as the F-1+ and F-1 categories. F-3 securities possess fair
credit quality. Issues assigned this rating have characteristics suggesting
that the degree of assurance for timely payment is adequate; however,
near-term adverse changes could cause these securities to be rated below
investment grade.

Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Issuers rated Prime-1 (or related supporting
institutions) in the opinion of Moody's "have a superior capacity for
repayment of short-term promissory obligations." Principal repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance
on debt and ample asset protection; broad margins in earning coverage of
fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity. Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of short-term promissory
obligations. This capacity will normally be evidenced by many of the
characteristics of Prime-1 rated issues, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is maintained. Issuers
rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. Issuers rated
Not Prime do not fall within any of the Prime rating categories.

A-3

<PAGE>

TBW-1 represents the highest rating category and indicates a very high degree
of likelihood that principal and interest will be paid on a timely basis.
The designation TBW-2 represents the second highest rating category and
indicates that while the degree of safety regarding timely payment of
principal and interest is strong, the relative degree of safety is not as
high as for issues rated TBW-1. The designation TBW-3 represents the lowest
investment grade category and indicates that while more susceptible to
adverse developments (both internal and external) than obligations with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.

TAX-EXEMPT NOTE RATINGS

Fitch IBCA uses its short-term ratings described above under "Corporate
and Tax-Exempt Commercial Paper Ratings" for tax-exempt notes.

A-4

<PAGE>

APPENDIX B

As stated in the Prospectus, the Funds may enter into futures
transactions for hedging purposes. The following is a description of such
transactions.

I. INTEREST RATE FUTURES CONTRACTS

B-1

<PAGE>

price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.

B-2

<PAGE>

e.g., shorter term securities whose yields are greater than those available
on long-term bonds. A Fund's basic motivation would be to maintain for a
time the income advantage from investing in the short-term securities; the
Fund would be endeavoring at the same time to eliminate the effect of all or
part of an expected increase in market price of the long-term bonds that the
Fund may purchase.

II. MARGIN PAYMENTS

Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker or in a
segregated account with Galaxy's custodian an amount of cash or cash
equivalents, known as initial margin, based on the value of the contract.
The nature of initial margin in futures transactions is different from that
of margin in security transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon termination
of the futures contract

B-3

<PAGE>

assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as marking-to-the-market. For example, when a particular Fund
has purchased a futures contract and the price of the contract has risen in
response to a rise in the underlying instruments, that position will have
increased in value and the Fund will be entitled to receive from the broker a
variation margin payment equal to that increase in value. Conversely, where
the Fund has purchased a futures contract and the price of the future
contract has declined in response to a decrease in the underlying
instruments, the position would be less valuable and the Fund would be
required to make a variation margin payment to the broker. At any time prior
to expiration of the futures contract, Fleet may elect to close the position
by taking an opposite position, subject to the availability of a secondary
market, which will operate to terminate the Fund's position in the futures
contract. A final determination of variation margin is then made, additional
cash is required to be paid by or released to the Fund, and the Fund realizes
a loss or gain.

III. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS

There are several risks in connection with the use of futures by the
Funds as hedging devices. One risk arises because of the imperfect
correlation between movements in the price of the futures and movements in
the price of the instruments that are the subject of the hedge. The price of
the futures may move more than or less than the price of the instruments
being hedged. If the price of the futures moves less than the price of the
instruments which are the subject of the hedge, the hedge will not be fully
effective but, if the price of the instruments being hedged has moved in an
unfavorable direction, a Fund would be in a better position than if it had
not hedged at all. If the price of the instruments being hedged has moved in
a favorable direction, this advantage will be partially offset by the loss on
the futures. If the price of the futures moves more than the price of the
hedged instruments, the Funds involved will experience either a loss or gain
on the futures, which will not be completely offset by movements in the price
of the instruments which are the subject of the hedge. To compensate for the
imperfect correlation of movements in the price of instruments being hedged
and movements in the price of futures contracts, a Fund may buy or sell
futures contracts in a greater dollar amount than the dollar amount of
instruments being hedged if the volatility over a particular time period of
the prices of such instruments has been greater than the volatility over such
time period of the futures, or if otherwise deemed to be appropriate by the
investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of
the instruments being hedged is less than the volatility over such time
period of the futures contract being used, or if otherwise deemed to be
appropriate by Fleet. It is also possible that, where a Fund had sold
futures to hedge its portfolio against a decline in the market, the market
may advance and the value of instruments held in the Fund may decline. If
this occurred, the Fund would lose money on the futures and also experience a
decline in value in its portfolio securities.

B-4

<PAGE>

realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.

Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not be sold
until the futures contract can be terminated. In such circumstances, an
increase in the price of the securities, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is
no guarantee that the price of the securities will in fact correlate with the
price movements in the futures contract and thus provide an offset on a
futures contract.

Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation
limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once
the daily limit has been reached in the contract, no trades may be entered
into at a price beyond the limit, thus preventing the liquidation of open
futures positions. The trading of futures contracts is also subject to the
risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm or clearing

B-5

<PAGE>

house or other disruptions of normal activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.

Successful use of futures by the Funds is also subject to Fleet's
ability to predict correctly movements in the direction of the market. For
example, if a particular Fund has hedged against the possibility of a decline
in the market adversely affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if the Fund has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market.
The Funds may have to sell securities at a time when it may be
disadvantageous to do so.

B-6

<PAGE>

RETAIL

THE GALAXY FUND

STATEMENT OF ADDITIONAL INFORMATION

Growth and Income Fund

Small Cap Value Fund

February 28, 1998
(as revised October 30, 1998)

<PAGE>

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the current prospectus (the "Prospectus") for Retail A
Shares and/or Retail B Shares of the Growth and Income and Small Cap Value Funds
of The Galaxy Fund ("Galaxy"), dated February 28, 1998, as it may from time to
time be supplemented or revised. This Statement of Additional Information is
incorporated by reference in its entirety into such Prospectus. No investment
in shares of the Funds should be made without reading the Prospectus. Copies of
the Prospectus may be obtained by writing Galaxy c/o First Data Distributors,
Inc., 4400 Computer Drive, Westboro, Massachusetts 01581-5108 or by calling
Galaxy at 1-800-628-0414. Capitalized terms used herein but not otherwise
defined have the same meanings as in the Prospectus.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----

<S> <C>
THE GALAXY FUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . .1
Types Of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Money Market Instruments . . . . . . . . . . . . . . . . . . . . . . . . .1
U.S. Government Obligations. . . . . . . . . . . . . . . . . . . . . . . .2
When-Issued And Delayed Settlement Transactions. . . . . . . . . . . . . .2
Restricted And Illiquid Securities . . . . . . . . . . . . . . . . . . . .3
Repurchase Agreements, Reverse Repurchase Agreements And Lending Of . . .
Portfolio Securities. . . . . . . . . . . . . . . . . . . . . . . . . .4
Derivative Securities. . . . . . . . . . . . . . . . . . . . . . . . . . .5
Put And Call Options . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Stock Index Futures And Options. . . . . . . . . . . . . . . . . . . . . .5
Restrictions On The Use Of Futures Contracts And Options . . . . . . . . .6
Indexed Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Swap Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Foreign Currency Exchange Transactions . . . . . . . . . . . . . . . . . .7
Portfolio Securities Generally . . . . . . . . . . . . . . . . . . . . . .8
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Additional Investment Limitations. . . . . . . . . . . . . . . . . . . . .9
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . 12
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ADDITIONAL INFORMATION CONCERNING TAXES. . . . . . . . . . . . . . . . . . 16
In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Taxation of Certain Financial Instruments. . . . . . . . . . . . . . . . 17
State Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Shareholder and Trustee Liability. . . . . . . . . . . . . . . . . . . . 23
ADVISORY, ADMINISTRATION, CUSTODIAN AND
TRANSFER AGENCY AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . 24
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . 26
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SHAREHOLDER SERVICES PLAN. . . . . . . . . . . . . . . . . . . . . . . . . 28
DISTRIBUTION AND SERVICES PLAN . . . . . . . . . . . . . . . . . . . . . . 29
DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
PERFORMANCE AND YIELD INFORMATION. . . . . . . . . . . . . . . . . . . . . 32
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-1
</TABLE>
<PAGE>

THE GALAXY FUND

The Galaxy Fund ("Galaxy") is an open-end management investment company
currently authorized to offer shares of beneficial interest in thirty investment
portfolios. This Statement of Additional Information provides additional
investment information with respect to the Retail A Shares and Retail B Shares
of the Growth and Income Fund and the Retail A Shares of the Small Cap Value
Fund (collectively, the "Funds"), and should be read in conjunction with the
current Prospectus for the Funds.

The Growth and Income and Small Cap Value Funds commenced operations on
December 14, 1992 as separate investment portfolios (the "Predecessor Growth and
Income Fund" and "Predecessor Small Cap Value Fund", respectively, and
collectively, the "Predecessor Funds") of The Shawmut Funds, which was organized
as a Massachusetts business trust. On December 4, 1995, the Predecessor Funds
were reorganized as new portfolios of Galaxy. Prior to the reorganization, the
Predecessor Funds offered and sold shares of beneficial interest that were
similar to Galaxy's Trust Shares and Retail A Shares.

INVESTMENT OBJECTIVES AND POLICIES

TYPES OF INVESTMENTS

The Growth and Income Fund invests principally in a professionally-managed
and diversified portfolio of common stocks of companies with prospects for above
average growth and dividends or of companies where significant fundamental
changes are taking place. The Growth and Income Fund will seek to invest in
equity securities of companies that are projected to show earnings growth
superior to the Standard & Poor's 500 Composite Stock Index. Although the
Growth and Income Fund may invest in other securities and in money market
instruments, it is the Growth and Income Fund's policy, under normal market
conditions, to invest at least 65% of its total assets in equity securities.
The securities in which the Growth and Income Fund may invest include foreign
securities, as described in the Prospectuses.

The Small Cap Value Fund invests primarily in a diversified portfolio of
equity securities of companies that have a market value capitalization of up to
$1 billion to achieve long-term capital appreciation and current income. Under
normal circumstances, the Small Cap Value Fund will invest at least 65% of its
total assets in equity securities of companies that have a market value
capitalization of up to $1 billion. In addition, the Small Cap Value Fund may
invest as described below, and as described in the Prospectuses.

MONEY MARKET INSTRUMENTS

The Funds may invest in the following money market instruments:

<PAGE>

- prime commercial paper (rated A-1 by Standard & Poor's Ratings Group,
Prime-1 by Moody's Investors Service, Inc., or F-1 by Fitch IBCA,
Inc.)

U.S. GOVERNMENT OBLIGATIONS

The types of U.S. Government obligations in which the Funds may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. Government agencies or instrumentalities. These securities are backed
by:

- the full faith and credit of the U.S. Treasury;

- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;

- the discretionary authority of the U.S. Government to purchase certain
obligations of agencies or instrumentalities; or

- the credit of the agency or instrumentality issuing the obligations.

Examples of U.S. Government agencies and instrumentalities that are permissible
investments and may not always receive financial support from the U.S.
Government are:

- Federal Farm Credit Banks;

- Federal Home Loan Banks;

- Federal National Mortgage Association; and

- Federal Home Loan Mortgage Corporation.

WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS

When a Fund agrees to purchase securities on a "when-issued" or "delayed
settlement" basis, the Fund's custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account. In the
event of a decline in the value of the securities that the custodian has set
aside, the Fund may be required to place additional assets in the separate
account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitment. A Fund's net assets may fluctuate to a greater
degree if it sets aside portfolio securities to cover such purchase commitments
than if it sets aside cash.

- 2 -
<PAGE>

When a Fund engages in when-issued or delayed settlement transactions, it
relies on the seller to consummate the trade. Failure of the seller to do so may
result in the Fund's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous for a security. For purposes of determining
the average weighted maturity of a Fund's portfolio, the maturity of when-issued
securities is calculated from the date of settlement of the purchase to the
maturity date.

RESTRICTED AND ILLIQUID SECURITIES

The Funds may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933. Section 4(2) commercial paper is restricted as to disposition under
federal securities law and is generally sold to institutional investors, such as
the Funds, who agree that they are purchasing the paper for investment purposes
and not with a view to public distribution. Any resale by the purchaser must be
in an exempt transaction. Section 4(2) commercial paper is normally resold to
other institutional investors like the Funds through or with the assistance of
the issuer or investment dealers who make a market in Section 4(2) commercial
paper, thus providing liquidity. The Funds believe that Section 4(2) commercial
paper and possibly certain other restricted securities that meet the criteria
for liquidity established by Galaxy's Board of Trustees are quite liquid. The
Funds intend, therefore, to treat the restricted securities that meet the
criteria for liquidity established by the Board of Trustees, including Section
4(2) commercial paper (as determined by Fleet), as liquid and not subject to the
investment limitation applicable to illiquid securities. In addition, because
Section 4(2) commercial paper is liquid, the Funds do not intend to subject such
paper to the limitation applicable to restricted securities.

The ability of the Board of Trustees to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange Commission
(the "SEC") staff position set forth in the adopting release for Rule 144A (the
"Rule") under the Securities Act of 1933, as amended. The Rule is a
non-exclusive, safe-harbor for certain secondary market transactions involving
securities subject to restrictions on resale under federal securities laws. The
Rule provides an exemption from registration for resales of otherwise restricted
securities to qualified institutional buyers. The Rule was expected to further
enhance the liquidity of the secondary market for securities eligible for resale
under the Rule. Galaxy, on behalf of the Funds, believes that the staff of the
SEC has left the question of determining the liquidity of all restricted
securities (eligible for resale under Rule 144A) for determination to the Board
of Trustees. The Board of Trustees considers the following criteria in
determining the liquidity of certain restricted securities:

- the frequency of trades and quotes for the security;

- the number of dealers willing to purchase or sell the security and the
number of other potential buyers;

- 3 -
<PAGE>

- dealer undertakings to make a market in the security; and

- the nature of the security and the nature of the marketplace trades.

Investing in Rule 144A securities could have the effect of increasing the level
of a Fund's illiquidity to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these securities. The Funds
expect that less than 5% of their respective net assets will be invested in Rule
144A securities during the current fiscal year.

REPURCHASE AGREEMENTS, REVERSE REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO
SECURITIES

Each Fund may enter into repurchase agreements, which are arrangements in
which banks, broker/dealers and other recognized financial institutions sell
U.S. Government securities or other securities to the Funds and agree at the
time of sale to repurchase them at a mutually agreed upon time and price within
one year from the date of acquisition. A Fund requires its custodian to take
possession of the securities subject to a repurchase agreement and these
securities are marked to market daily. To the extent that the original seller
does not repurchase the securities from a Fund, the Fund could receive less than
the repurchase price on any sale of such securities. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of such
securities by a Fund might be delayed pending court action. The Funds believe
that, under the regular procedures normally in effect for custody of a Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Funds will only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker/dealers, which
are deemed by Fleet to be creditworthy pursuant to guidelines established by the
Board of Trustees.

The Funds may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase agreement,
a Fund transfers possession of a portfolio instrument to another person, such as
a financial institution, broker or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable a Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.

When effecting reverse repurchase agreements, liquid assets of a Fund in a
dollar amount sufficient to make payment for the obligations to be purchased are
segregated at the trade date. These securities are marked to market daily and
are maintained until the transaction is settled.

The collateral received when the Funds lend portfolio securities must be
valued daily and, should the market value of the loaned securities increase, the
borrower must furnish additional

- 4 -
<PAGE>

collateral to the Funds. During the time portfolio securities are on loan, the
borrower pays a Fund any dividends or interest paid on such securities. Loans
are subject to termination at the option of the Funds or the borrower. The
Funds may pay reasonable administrative and custodial fees in connection with a
loan and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker.

DERIVATIVE SECURITIES

PUT AND CALL OPTIONS

Each Fund may purchase and sell put options on its portfolio securities as
described in the Prospectus.

STOCK INDEX FUTURES AND OPTIONS

The Funds may utilize stock index futures contracts and options on stocks,
stock indices and stock index futures contracts for the purposes of managing
cash flows into and out of a Fund's portfolio and potentially reducing
transactional costs. The Funds may not use stock index futures contracts and
options for speculative purposes.

As a means of reducing fluctuations in the net asset value of shares of the
Funds, the Funds may attempt to hedge all or a portion of their respective
portfolios through the purchase of listed put options on stocks, stock indices
and stock index futures contracts. These options will be used as a form of
forward pricing to protect portfolio securities against decreases in value
resulting from market factors, such as an anticipated increase in interest
rates. A purchased put option gives the Funds, in return for a premium, the
right to sell the underlying security to the writer (seller) at a specified
price during the term of the option. Put options on stock indices are similar
to put options on stocks except for the delivery requirements. Instead of
giving the Funds the right to make delivery of stock at a specified price, a put
option on a stock index gives the Funds, as holders, the right to receive an
amount of cash upon exercise of the option.

The Funds may also write covered call options. As the writer of a call
option, the Funds have the obligation upon exercise of the option during the
option period to deliver the underlying security upon payment of the exercise
price.

Each Fund may only: (1) buy listed put options on stock indices and stock
index futures contracts; (2) buy listed put options on securities held in its
portfolio; and (3) sell listed call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment of
further consideration (or has segregated cash in the amount of any such
additional consideration). A Fund will maintain its positions in securities,
option rights, and segregated cash subject to puts and calls until the options
are exercised, closed or expired. A Fund may also enter into stock index
futures contracts. A stock index futures contract is a bilateral agreement
which obligates the seller to deliver (and the purchaser to take delivery of) an
amount of cash equal to a specific dollar amount times the difference between
the value of a

- 5 -
<PAGE>

specific stock index at the close of trading of the contract and the price at
which the agreement is originally made. There is no physical delivery of the
stocks constituting the index, and no price is paid upon entering into a futures
contract.

In general, option contracts are closed out prior to their expiration.
Each Fund, when purchasing or selling a futures contract, will initially be
required to deposit in a segregated account in the broker's name with the Fund's
custodian an amount of cash or liquid portfolio securities approximately equal
to 5% - 10% of the contract value. This amount is known as "initial margin",
and it is subject to change by the exchange or board of trade on which the
contract is traded. Subsequent payments to and from the broker are made on a
daily basis as the price of the index or the securities underlying the futures
contract fluctuates. These payments are known as "variation margins", and the
fluctuation in value of the long and short positions in the futures contract is
a process referred to as "marking to market". A Fund may decide to close its
position on a contract at any time prior to the contract's expiration. This is
accomplished by the Fund taking an opposite position at the then prevailing
price, thereby terminating its existing position in the contract. Because the
initial margin resembles a performance bond or good-faith deposit on the
contract, it is returned to the Fund upon the termination of the contract,
assuming that all contractual obligations have been satisfied. Therefore, the
margin utilized in futures contracts is readily distinguishable from the margin
employed in security transactions, since the margin employed in futures
contracts does not involve the borrowing of funds to finance the transaction.

RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS

Neither Fund will enter into futures contracts to the extent that,
immediately thereafter, the sum of its initial margin deposits on open contracts
exceeds 5% of the market value of its total assets. Further, each Fund will
enter into stock index futures contracts only for bona fide hedging purposes or
such other purposes permitted under Part 4 of the regulations promulgated by the
Commodity Futures Trading Commission. Also, neither Fund may enter into stock
index futures contracts and options to the extent that the value of such
contracts would exceed 20% of the Fund's total net assets and may not purchase
put options to the extent that more than 5% of the value of the Fund's total
assets would be invested in premiums on open put option positions.

INDEXED SECURITIES

The Funds may invest in indexed securities whose value is linked to foreign
currencies, interest rates, commodities, indices or other financial indicators.
Most indexed securities are short- to intermediate-term fixed income securities
whose values at maturity or interest rates rise or fall according to the change
in one or more specified underlying instruments. Indexed securities may be
positively or negatively indexed (i.e., their value may increase or decrease if
the underlying instrument appreciates), and may have return characteristics
similar to direct investments in the underlying instrument or to one or more
options on the underlying instrument. Indexed securities may be more volatile
than the underlying instrument itself.

- 6 -
<PAGE>

SWAP AGREEMENTS

As one way of managing their exposure to different types of investments,
the Funds may enter into interest rate swaps, currency swaps, and other types of
swap agreements such as caps, collars, and floors. In a typical interest rate
swap, one party agrees to make regular payments equal to a floating interest
rate times a "notional principal amount," in return for payments equal to a
fixed rate times the same amount, for a specified period of time. If a swap
agreement provides for payments in different currencies, the parties might agree
to exchange notional principal amount as well. Swaps may also depend on other
prices or rates, such as the value of an index or mortgage prepayment rates.

In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right
to receive payments to the extent that a specified interest rate exceeds an
agreed upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an agreed
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.

Swap agreements will tend to shift the Funds' investment exposure from one
type of investment to another. For example, if a Fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of a Fund's
investments and its share price and yield.

Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and may have a considerable impact on
the Funds' performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Funds may also suffer losses
if they are unable to terminate outstanding swap agreements or reduce their
exposure through offsetting transactions.

FOREIGN CURRENCY EXCHANGE TRANSACTIONS

Because the Funds may buy and sell securities denominated in currencies
other than the U.S. dollar, and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Funds may enter into foreign currency
exchange transactions to convert United States currency to foreign currency and
foreign currency to United States currency as well as convert foreign currency
to other foreign currencies. A Fund either enters into these transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or uses forward contracts to purchase or sell foreign
currencies.

- 7 -
<PAGE>

The Funds may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated portfolio position. Since consideration of the prospect for
currency parities will be incorporated into a Fund's long-term investment
decisions, neither Fund will routinely enter into foreign currency hedging
transactions with respect to portfolio security transactions; however, it is
important to have the flexibility to enter into foreign currency hedging
transactions when it is determined that the transactions would be in the Fund's
best interest. Although these transactions tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they tend
to limit any potential gain that might be realized should the value of the
hedged currency increase. The precise matching of the forward contract amounts
and the value of the securities involved will not generally be possible because
the future value of these securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.

PORTFOLIO SECURITIES GENERALLY

Subsequent to its purchase by a Fund an issue of securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or Fleet, pursuant to guidelines
established by the Board, will promptly consider such an event in determining
whether the Fund involved should continue to hold the obligation. The Board of
Trustees or Fleet may determine that it is appropriate for the Fund to continue
to hold the obligation if retention is in accordance with the interests of the
particular Fund and applicable regulations of the Securities and Exchange
Commission.

PORTFOLIO TURNOVER

- 8 -
<PAGE>

portfolio turnover involves correspondingly greater brokerage commission
expenses and other transaction costs, which must be ultimately borne by the
Fund's shareholders.

ADDITIONAL INVESTMENT LIMITATIONS

In addition to the investment limitations disclosed in the Prospectus, the
Funds are subject to the following investment limitations, which may be changed
with respect to a particular Fund only by a vote of the holders of a majority of
such Fund's outstanding shares (as defined under "Miscellaneous" in the
Prospectus):

1. Neither Fund may sell any securities short or purchase any securities
on margin, but each Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of portfolio
securities. A deposit or payment by a Fund of initial or variation
margin in connection with futures contracts or related options
transactions is not considered the purchase of a security on margin.

2. Neither Fund may issue senior securities except that each Fund may
borrow money or engage in reverse repurchase agreements in amounts up
to one-third of the value of its total assets, including the amounts
borrowed; and except to the extent that each Fund may enter into
futures contracts. Neither Fund will borrow money or engage in
reverse repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure to facilitate
management of the portfolio by enabling a Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. Neither Fund will purchase any
securities while borrowings in excess of 5% of its total assets are
outstanding.

3. Neither Fund may mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, a Fund may only
mortgage, pledge, or hypothecate assets having a market value not
exceeding 10% of the value of its total assets at the time of
purchase. For purposes of this limitation, the following will not be
deemed to be pledges of a Fund's assets: (a) the deposit of assets in
escrow in connection with the writing of covered put or call options
and the purchase of securities on a when-issued basis; and (b)
collateral arrangements with respect to: (i) the purchase and sale of
stock options (and options on stock indices) and (ii) initial or
variation margin for futures contracts. Margin deposits from the
purchase and sale of futures contracts and related options are not
deemed to be a pledge.

4. Neither Fund may purchase or sell real estate or real estate limited
partnerships, although each Fund may invest in securities of issuers
whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real
estate.

- 9 -
<PAGE>

5. Neither Fund may purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that a Fund may
engage in transactions involving financial futures contracts or
options on financial futures contracts.

6. Neither Fund may underwrite any issue of securities, except as a Fund
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies and limitations.

7. Neither Fund may lend any of its assets except that a Fund may lend
portfolio securities up to one-third the value of its total assets.
This limitation shall not prevent a Fund from purchasing or holding
money market instruments, repurchase agreements, obligations of the
U.S. Government, its agencies or instrumentalities, variable rate
demand notes, bonds, debentures, notes, certificates of indebtedness,
or certain debt instruments as permitted by its investment objective,
policies and limitations or Galaxy's Declaration of Trust.

8. With respect to securities comprising 75% of the value of its total
assets, neither Fund will purchase securities issued by any one issuer
(other than cash, cash items, or securities issued or guaranteed by
the government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized by such
securities) if, as a result, more than 5% of the value of its total
assets would be invested in the securities of that issuer. Neither
Fund will acquire more than 10% of the outstanding voting securities
of any one issuer.

9. Neither Fund will invest 25% of more of the value of its total assets
in any one industry (other than securities issued by the U.S.
Government, its agencies or instrumentalities). However, a Fund may
invest as temporary investments more than 25% of the value of its
assets in cash or cash items, securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, or instruments
secured by these money market instruments, such as repurchase
agreements.

The following limitations may be changed by Galaxy's Board of Trustees
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.

10. Each Fund will limit its investments in other investment companies to
not more than 3% of the total outstanding voting stock of any
investment company; will invest no more than 5% of its total assets in
any one investment company; and will invest no more than 10% of its
total assets in investment companies in general. However, these
limitations are not applicable if the securities are acquired in a
merger, consolidation, reorganization or acquisition of assets.

- 10 -
<PAGE>

The Funds will purchase the securities of other investment companies
only in open market transactions involving only customary broker's
commissions. It should be noted that investment companies incur
certain expenses such as management fees, and therefore any investment
by a Fund in shares of another investment company would be subject to
such duplicate expenses.

11. Neither Fund may purchase or retain the securities of any issuer if
the officers and Trustees of Galaxy or Fleet, owning individually more
than 1/2 of 1% of the issuer's securities, together own more than 5%
of the issuer's securities.

12. Neither Fund may purchase or sell interests in oil, gas, or other
mineral exploration or development programs or leases; except that the
Funds may purchase the securities of issuers which invest in or
sponsor such programs.

13. Neither Fund may purchase put options on securities, unless the
securities are held in the Fund's portfolio and not more than 5% of
the value of the Fund's total assets would be invested in premiums on
open put option positions.

14. Neither Fund may write call options on securities, unless the
securities are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment. Neither Fund
may write call options in excess of 5% of the value of its total
assets.

15. Neither Fund may invest more than 5% of the value of its total assets
in securities of issuers which have records of less than three years
of continuous operations, including the operation of any predecessor.

16. Neither Fund will invest more than 15% of the value of its net assets
in illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed
time deposits with maturities over seven days, and certain securities
not determined by the Board of Trustees to be liquid.

17. Neither Fund may invest more than 15% of its total assets in
securities subject to restrictions on resale under the Securities Act
of 1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which
meet the criteria for liquidity as established by the Board of
Trustees.

18. Neither Fund may invest in companies for the purpose of exercising
management or control.

- 11 -
<PAGE>

19. Neither Fund may invest more than 5% of its net assets in warrants.
No more than 2% of this 5% may be warrants which are not listed on the
New York Stock Exchange.

Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in violation of
such restriction.

For purposes of their respective policies and limitations, the Funds
consider certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items".

The Funds do not intend to borrow money in excess of 5% of the value of
their respective net assets during the next twelve months.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares of the Funds are sold on a continuous basis by First Data
Distributors, Inc. ("FD Distributors"), and FD Distributors has agreed to use
appropriate efforts to solicit all purchase orders. As described in the
Prospectus, Retail A Shares of the Funds and Retail B Shares of the Growth and
Income Fund are sold to customers ("Customers") of FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks, and
other qualified banks, savings and loan associations and broker/dealers
("Institutions"). As described in the Prospectus, Retail A Shares of the Funds
and Retail B Shares of the Growth and Income Fund may also be sold to
individuals, corporations or other entities, who submit a purchase application
to Galaxy, purchasing either for their own accounts or for the accounts of
others ("Direct Investors").

Retail A Shares of the Funds are sold to Direct Investors and Customers at
the public offering price based on a Fund's net asset value plus a front-end
sales charge as described in the Prospectus. Retail B Shares of the Growth and
Income Fund are sold to Direct Investors and Customers at the net asset value
next determined after a purchase order is received but are subject to a
contingent deferred sales charge which is payable on redemption of such shares
as described in the Prospectus.

Retail A Shares of the Funds are offered for sale with a maximum front-end
sales charge of 3.75%, with certain exceptions as described in the Prospectus.
An illustration of the computation of the offering price per share of the Funds,
using the value of each Fund's net assets and number of outstanding Retail A
Shares at the close of business on October 31, 1997, is as follows:

- 12 -
<PAGE>

Growth and Small Cap
Income Fund Value Fund
------------- ------------
<S> <C> <C>
Net Assets . . . . . . . . . . $141,884,090 $63,658,475

Outstanding Shares . . . . . . 8,734,857 3,480,451

Net Asset Value Per
Share. . . . . . . . . . . . . $ 16.24 $ 18.29

Sales Charge (3.75% of
the offering price). . . . . . $ 0.63 $ 0.71
Offering Price to
Public . . . . . . . . . . . . $ 16.87 $ 19.00

</TABLE>

If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy may
make payment wholly or partly in securities or other property. Such redemptions
will only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property.

Galaxy may suspend the right of redemption or postpone the date of payment
for shares for more than seven days during any period when (a) trading in the
markets the Funds normally utilize is restricted, or an emergency, as defined by
the rules and regulations of the Securities and Exchange Commission (the "SEC")
exists making disposal of a Fund's investments or determination of its net asset
value not reasonably practicable; (b) the New York Stock Exchange is closed
(other than customary weekend and holiday closings); or (c) the SEC by order has
permitted such suspension.

Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized.

DESCRIPTION OF SHARES

- 13 -
<PAGE>

Market Fund, Prime Reserves, Government Reserves, Tax-Exempt Reserves, Equity
Value Fund, Equity Growth Fund, Equity Income Fund, International Equity Fund,
Small Company Equity Fund, MidCap Equity Fund, Asset Allocation Fund, Small Cap
Value Fund, Growth and Income Fund, Strategic Equity Fund, Short-Term Bond Fund,
Intermediate Government Income Fund, High Quality Bond Fund, Corporate Bond
Fund, Tax-Exempt Bond Fund, New Jersey Municipal Bond Fund, New York Municipal
Bond Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal Bond Fund
and Rhode Island Municipal Bond Fund. As stated in the Prospectus, two separate
series of shares (Retail A Shares and Trust Shares) of the Funds (plus a third
series of shares, i.e. Retail B Shares, of the Growth and Income Fund) are
offered under separate Prospectuses to different categories of investors.

Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Each series of shares (i.e., Retail A Shares, Retail B Shares
and Trust Shares) bear pro rata the same expenses and are entitled equally to a
Fund's dividends and distributions except as follows. Each series will bear the
expenses of any distribution and/or shareholder servicing plans applicable to
such series. For example, as described below, holders of Retail A Shares of a
Fund will bear the expenses of the Shareholder Services Plan for Retail A Shares
and Trust Shares (which is currently applicable only to Retail A Shares) and
holders of Retail B Shares of the Growth and Income Fund will bear the expenses
of the Distribution and Services Plan for Retail B Shares. In addition, each
series may incur differing transfer agency fees and may have differing sales
charges. In the event of a liquidation or dissolution of Galaxy or an
individual Fund, shareholders of a particular Fund would be entitled to receive
the assets available for distribution belonging to such Fund, and a
proportionate distribution, based upon the relative asset values of Galaxy's
respective Funds, of any general assets of Galaxy not belonging to any
particular Fund, which are available for distribution. Shareholders of a Fund
are entitled to participate in the net distributable assets of the particular
Fund involved in liquidation based on the number of shares of the Fund that are
held by each shareholder, except that each series of a Fund would be solely
responsible for the Fund's payments under any distribution and/or shareholder
servicing plan applicable to such series.

Holders of all outstanding shares of a particular Fund will vote together
in the aggregate and not by series on all matters, except that only shares of a
particular series will be entitled to vote on matters submitted to shareholders
pertaining to any distribution and/or shareholder servicing plan for such series
(e.g., only Retail A Shares and Trust Shares of a Fund will be entitled to vote
on matters submitted to a vote of shareholders pertaining to Galaxy's
Shareholder Services Plan for Retail A Shares and Trust Shares and only Retail B
Shares of the Growth and Income Fund will be entitled to vote on matters
submitted to a vote of shareholders pertaining to Galaxy's Distribution and
Services Plan for Retail B Shares. Further, shareholders of all of the Funds,
as well as those of any other investment portfolio now or hereafter offered by
Galaxy, will vote together in the aggregate and not separately on a Fund-by-Fund
basis, except as otherwise required by law or when permitted by the Board of
Trustees. Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding

- 14 -
<PAGE>

voting securities of an investment company such as Galaxy shall not be deemed to
have been effectively acted upon unless approved by the holders of a majority of
the outstanding shares of each Fund affected by the matter. A particular Fund
is deemed to be affected by a matter unless it is clear that the interests of
each Fund in the matter are substantially identical or that the matter does not
affect any interest of the Fund. Under the Rule, the approval of an investment
advisory agreement or any change in an investment objective or fundamental
investment policy would be effectively acted upon with respect to a Fund only if
approved by a majority of the outstanding shares of such Fund (irrespective of
series designation). However, the Rule also provides that the ratification of
the appointment of independent public accountants, the approval of principal
underwriting contracts, and the election of trustees may be effectively acted
upon by shareholders of Galaxy voting without regard to class or series.

Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and, accordingly, the holders of more than 50% in the aggregate of Galaxy's
outstanding shares may elect all of the trustees, irrespective of the votes of
other shareholders.

Galaxy does not intend to hold annual shareholder meetings except as may be
required by the 1940 Act. Galaxy's Declaration of Trust provides that a meeting
of shareholders shall be called by the Board of Trustees upon a written request
of shareholders owning at least 10% of the outstanding shares of Galaxy entitled
to vote.

Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration that may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price that is equal to their net asset value and that may be paid
in cash or by distribution of the securities or other consideration received
from the sale and conveyance; (b) sell and convert a Fund's assets into money
and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another Fund of Galaxy and, in
connection therewith, to cause all outstanding shares of any Fund to be redeemed
at their net asset value or converted into shares of another class of Galaxy's
shares at the net asset value. In the event that shares are redeemed in cash at
their net asset value, a shareholder may receive in payment for such shares, due
to changes in the market prices of the Fund's portfolio securities, an amount
that is more or less than the original investment. The exercise of such
authority by the Board of Trustees will be subject to the provisions of the 1940
Act, and the Board of Trustees will not take any action described in this
paragraph unless the proposed action has been disclosed in writing to the Fund's
shareholders at least 30 days prior thereto.

- 15 -
<PAGE>

ADDITIONAL INFORMATION CONCERNING TAXES

IN GENERAL

The following summarizes certain additional tax considerations generally
affecting the Funds and their shareholders that are not described in the Funds'
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or their shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning. Potential
investors should consult their tax advisers with specific reference to their own
tax situation.

Each Fund of Galaxy is treated as a separate corporate entity under the
Internal Revenue Code of 1986, as amended, (the "Code"), and each Fund intends
to qualify as a "regulated investment company" under the Code. By following
this policy, each Fund expects to eliminate or reduce to a nominal amount the
federal income taxes to which it may be subject. If for any taxable year a Fund
does not qualify for the special federal tax treatment afforded regulated
investment companies, all of the Fund's taxable income would be subject to tax
at regular corporate rates without any deduction for distributions to
shareholders. In such event, a Fund's distributions to shareholders would be
taxable as ordinary income, to the extent of the current and accumulated
earnings and profits of the particular Fund, and would be eligible for the
dividends received deduction in the case of corporate shareholders.

Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its exempt-interest income, if any, net of
certain deductions for such year (the "Distribution Requirement"). In addition,
each Fund must satisfy certain requirements with respect to the source of its
income for a taxable year. At least 90% of the gross income of each Fund must
be derived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign
currencies, and other income (including, but not limited to, gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies (the "Income Requirement").
The Treasury Department may by regulation exclude from qualifying income foreign
currency gains which are not directly related to a Fund's principal business of
investing in stock or securities, or options and futures with respect to stock
or securities. Any income derived by a Fund from a partnership or trust is
treated for this purpose as derived with respect to the Fund's business of
investing in stock, securities or currencies, only to the extent that such
income is attributable to items of income which would have been qualifying
income if realized by the Fund in the same manner as by the partnership or
trust.

Substantially all of each Fund's net realized long-term capital gains, if
any, will be distributed at least annually to Fund shareholders. A Fund will
generally have no tax liability with respect to such gains and the distributions
will be taxable to Fund shareholders who are not currently exempt from federal
income taxes as long-term capital gains, regardless of how long

- 16 -
<PAGE>

the shareholders have held Fund shares and whether such gains are received in
cash or reinvested in additional shares.

Each Fund will designate the tax status of any distributions in a written
notice mailed to shareholders within 60 days after the close of its taxable
year. Shareholders should note that, upon the sale or exchange of Fund shares,
if the shareholder has not held such shares for more than six months, any loss
on the sale or exchange of those shares will be treated as long-term capital
loss to the extent of the capital gain dividends received with respect to the
shares.

Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable and
the phase-out of personal exemptions, the maximum effective marginal rate of tax
for some taxpayers may be higher. An individual's long-term capital gains on
stocks and securities are taxable at a maximum nominal rate of 20%. For
corporations, long-term capital gains and ordinary income are both taxable at a
maximum average rate of 35% (a maximum effective marginal rate of 39% applies in
the case of corporations having taxable income between $100,000 and $335,000).

A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to currently distribute specified percentages of their ordinary
taxable income and capital gain net income (excess of capital gains over capital
losses). Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain net income
prior to the end of each calendar year to avoid liability for this excise tax.

The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to backup withholding due to prior failure to properly
include on his or her return payments of taxable interest or dividends, or (iii)
has failed to certify to the Funds that he or she is not subject to back up
withholding when required to do so or that he or she is an "exempt recipient."

Shareholders are subject to federal income tax on dividends received as
cash or additional shares.

Capital gains experienced by the Funds could result in an increase in
dividends. Capital losses could result in a decrease in dividends.

TAXATION OF CERTAIN FINANCIAL INSTRUMENTS

Special rules govern the federal income tax treatment of financial
instruments that may be held by the Funds. These rules may have a particular
impact on the amount of income or gain that the Funds must distribute to their
respective shareholders to comply with the Distribution Requirement and on the
income or gain qualifying under the Income Requirement described above.

- 17 -
<PAGE>

Generally, futures contracts and options on futures contracts held by the
Funds and certain foreign currency contracts entered into by the Funds (as
described above) (collectively, the "Instruments") at the close of their taxable
year are treated for federal income tax purposes as sold for their fair market
value on the last business day of such year, a process known as
"mark-to-market." Forty percent of any gain or loss resulting from such
constructive sales will be treated as short-term capital gain or loss, and 60%
of such gain or loss will be treated as long-term capital gain or loss without
regard to the period a Fund has held the Instruments ("the 40-60 rule"). The
amount of any capital gain or loss actually realized by a Fund in a subsequent
sale or other disposition of those Instruments is adjusted to reflect any
capital gain or loss taken into account by the Fund in a prior year as a result
of the constructive sale of the Instruments. Losses with respect to futures
contracts to sell, related options and certain foreign currency contracts, which
are regarded as parts of a "mixed straddle" because their values fluctuate
inversely to the values of specific securities held by the Funds, are subject to
certain loss deferral rules, which limit the amount of loss currently deductible
on either part of the straddle to the amount thereof that exceeds the
unrecognized gain, if any, with respect to the other part of the straddle, and
to certain wash sales regulations. With respect to certain Instruments,
deductions for interest and carrying charges may not be allowed.
Notwithstanding the rules described above, with respect to futures contracts
that are part of a "mixed straddle" to sell related options, and certain foreign
currency contracts that are properly identified as such, a Fund may make an
election which will exempt (in whole or in part) those identified futures
contracts, options and foreign currency contracts from the Rules of Section 1256
of the Code including "the 40-60 rule" and "mark-to-market," but gains and
losses will be subject to such short sales, wash sales and loss deferral rules
and the requirement to capitalize interest and carrying charges. Under
Temporary Regulations, a Fund would be allowed (in lieu of the foregoing) to
elect either (1) to offset gains or losses from portions which are part of a
mixed straddle by separately identifying each mixed straddle to which such
treatment applies, or (2) to establish a mixed straddle account for which gains
and losses would be recognized and offset on a periodic basis during the taxable
year. Under either election, "the 40-60 rule" will apply to the net gain or
loss attributable to the Instruments, but in the case of a mixed straddle
account election, not more than 50% of any net gain may be treated as long-term,
and no more than 40% of any net loss may be treated as short-term.

Certain foreign currency contracts entered into by a Fund may be subject to
the "mark-to-market" process, but gain or loss will be treated as 100% ordinary
income or loss. A foreign currency contract must meet the following conditions
in order to be subject to the mark-to-market rules described above: (1) the
contract must require delivery of, or settlement by reference to the value of, a
foreign currency of a type in which regulated futures contracts are traded; (2)
the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts.
As of the date of this Statement of Additional Information, the Treasury
Department has not issued any such regulations. Other foreign currency
contracts entered into by an Equity Fund may result in the creation of one or
more straddles for federal

- 18 -
<PAGE>

income tax purposes, in which case certain loss deferral, short sales, and wash
sales rules and the requirement to capitalize interest and carrying charges may
apply.

Some of the non-U.S. dollar denominated investments that a Fund may make,
such as foreign securities, European Depository Receipts, Global Depository
Receipts and foreign currency contracts, may be subject to the provisions of
Subpart J of the Code, which govern the federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by these provisions include the
following: (1) the acquisition of, or becoming the obligor under, a bond or
other debt instrument (including, to the extent provided in Treasury
regulations, preferred stock); (2) the accruing of certain trade receivables and
payables; and (3) the entering into or acquisition of any forward contract,
futures contract, option and similar financial instrument. The disposition of a
currency other than the U.S. dollar by a U.S. taxpayer also is treated as a
transaction subject to the special currency rules. However, foreign
currency-related regulated futures contracts and non-equity options are
generally not subject to the special currency rules if they are or would be
treated as sold for their fair market value at year-end under the mark-to-market
rules, unless an election is made to have such currency rules apply. With
respect to transactions covered by the special rules, foreign currency gain or
loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. A taxpayer may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts, futures contracts and options that
are capital assets in the hands of the taxpayer and which are not part of a
straddle. In accordance with Treasury regulations, certain transactions that
are part of a "Section 988 hedging transaction" (as defined in the Code and
Treasury regulations) may be integrated and treated as a single transaction or
otherwise treated consistently for purposes of the Code. "Section 988 hedging
transactions" are not subject to the mark-to-market or loss deferral rules under
the Code. Gain or loss attributable to the foreign currency component of
transactions engaged in by the Equity Funds, which is not subject to the special
currency rules (such as foreign equity investments other than certain preferred
stocks), is treated as capital gain or loss and is not segregated from the gain
or loss on the underlying transaction.

A Fund may be subject to U.S. federal income tax on a portion of any
"excess distribution" or a gain from the disposition of stock in a passive
foreign investment company even if the Fund distributes the income to its
shareholders. To avoid such tax, a Fund may instead elect to treat such a
company as a "qualified electing fund" or to mark such stock to market as of the
end of the year; under either of these alternative approaches the Fund may
recognize taxable income in a year without receiving any corresponding amount of
cash.

STATE TAXATION

- 19 -
<PAGE>

treatment of a Fund and its shareholders under such laws may differ from their
treatment under federal income tax laws. Under state or local law,
distributions of net investment income may be taxable to shareholders as
dividend income even though a substantial portion of such distributions may be
derived from interest on U.S. Government obligations which, if realized
directly, would be exempt from such income taxes. Shareholders are advised to
consult their tax advisers concerning the application of state and local taxes.

TRUSTEES AND OFFICERS

The trustees and executive officers of Galaxy, their addresses, principal
occupations during the past five years, and other affiliations are as follows:

Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
---------------- ------------ ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & Trustee President & Director, Vicks
Vicks Lithograph & Lithograph & Printing
Printing Corporation Corporation (book
Commercial Drive manufacturing and commercial
P.O. Box 270 printing); Director, Utica
Yorkville, NY 13495 Fire Insurance Company;
Age 64 Trustee, Savings Bank of
Utica; Director, Monitor Life
Insurance Company; Director,
Commercial Travelers Mutual
Insurance Company; Trustee,
The Galaxy VIP Fund; Trustee,
Galaxy Fund II.

John T. O'Neill(1) President, Treasurer & Executive Vice President and
Hasbro, Inc. Trustee CFO, Hasbro, Inc. (toy and
1027 Newport Avenue game manufacturer); Trustee,
Pawtucket, RI 02862 The Galaxy VIP Fund; Trustee,
Age 53 Galaxy Fund II.

- 20 -
<PAGE>

Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
---------------- ------------ ----------------------
<S> <C> <C>

James M. Seed Trustee Chairman and President, The
The Astra Ventures, Astra Projects, Incorporated
Inc. (land development); President,
One Citizens Plaza The Astra Ventures,
Providence, RI 02903 Incorporated (previously,
Age 56 Buffinton Box Company -
manufacturer of cardboard
boxes); Commissioner, Rhode
Island Investment Commission;
Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.

W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National Drinker Biddle & Reath LLP,
Bank Building Philadelphia, Pennsylvania.
1345 Chestnut Street
Philadelphia, PA 19107
Age 54

- 21 -
<PAGE>

Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
---------------- ------------ ----------------------
<S> <C> <C>

Jylanne Dunne Vice President Vice President, First Data
First Data Services and Investor Services Group, Inc.,
Group, Inc. Assistant 1990 to present.
4400 Computer Drive Treasurer
Westboro, MA 01581-5108
Age 38

</TABLE>

- ----------------

(1) An interested person within the definition set forth in Section 2(a)(19) of
the 1940 Act.

Effective March 5, 1998, each trustee receives an annual aggregate fee of
$40,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus an
additional $2,500 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $750 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates. The Chairman of the Boards
of the Trusts is entitled to an additional annual aggregate fee in the amount of
$4,000, and the President and Treasurer of the Trusts is entitled to an
additional annual aggregate fee of $2,500 for their services in these respective
capacities. The foregoing trustees' and officers' fees are allocated among the
portfolios of the Trusts based on their relative net assets. Prior to March 5,
1998, (i) each trustee received an annual aggregate fee of $29,000 for his
services as a trustee of the Trusts, plus an additional $2,250 for each
in-person Galaxy Board meeting attended and $1,500 for each in-person Galaxy VIP
or Galaxy II Board meeting attended not held concurrently with an in-person
Galaxy Board meeting, and (ii) the President and Treasurer of the Trusts
received the same fees as they are currently paid for their services in these
capacities.

Effective March 1, 1996, each trustee became entitled to participate in The
Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation Plans
(the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments.
Deferral of trustees' fees will have no effect on a portfolio's assets,
liabilities, and net income per share, and will not obligate the Trusts to
retain the services of any trustee or obligate a portfolio to any level of
compensation to the trustee. The Trusts may invest in underlying securities
without shareholder approval.

- 22 -
<PAGE>

No employee of First Data Investor Services Group, Inc. ("Investor Services
Group"), receives any compensation from Galaxy for acting as an officer. No
person who is an officer, director or employee of Fleet, or any of its
affiliates, serves as a trustee, officer or employee of Galaxy. The trustees
and officers of Galaxy own less than 1% of its outstanding shares.

The following chart provides certain information about the fees received by
Galaxy's trustees for the fiscal year ended October 31, 1997:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pension or Total
Retirement Compensation
Benefits from Galaxy and
Aggregate Accrued as Fund
Compensation from Part of Fund Complex*Paid to
Name of Person/Position Galaxy Expenses Trustees
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $34,591 None $38,500
Trustee
- --------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $38,184 None $42,500
Chairman and Trustee
- --------------------------------------------------------------------------------
Donald B. Miller** $34,574 None $38,500
Trustee
- --------------------------------------------------------------------------------
Rev. Louis DeThomasis $34,591 None $38,500
Trustee
- --------------------------------------------------------------------------------
John T. O'Neill $36,837 None $41,000
President, Treasurer
and Trustee
- --------------------------------------------------------------------------------
James M. Seed** $34,574 None $38,500
Trustee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

</TABLE>

- ---------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy Fund
II.

** Deferred compensation (including interest) in the amounts of $35,777 and
$40,992 accrued during Galaxy's fiscal year ended October 31, 1997 for
Messrs. Miller and Seed, respectively.

SHAREHOLDER AND TRUSTEE LIABILITY

- 23 -

<PAGE>

liability for the acts or obligations of Galaxy, and that every note, bond,
contract, order or other undertaking made by Galaxy shall contain a provision to
the effect that the shareholders are not personally liable thereunder. The
Declaration of Trust provides for indemnification out of the trust property of
any shareholder held personally liable solely by reason of his or her being or
having been a shareholder and not because of his or her acts or omissions
outside such capacity or some other reason. The Declaration of Trust also
provides that Galaxy shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of Galaxy, and shall satisfy
any judgment thereon. Thus, the risk of shareholder liability is limited to
circumstances in which Galaxy itself would be unable to meet its obligations.

The Declaration of Trust states further that no trustee, officer or agent
of Galaxy shall be personally liable for or on account of any contract, debt,
claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.

With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.

ADVISORY, ADMINISTRATION, CUSTODIAN AND
TRANSFER AGENCY AGREEMENTS

Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the Funds
as described in the Prospectus. Fleet has also agreed to pay all expenses
incurred by it in connection with its activities under the advisory agreement
other than the cost of securities (including brokerage commissions) purchased
for the Funds. See "Expenses" in the Prospectus.

For the fiscal year ended October 31, 1997, Fleet received advisory fees
(net of reimbursements) of $1,370,449 and $2,361,898 with respect to the Small
Cap Value Fund and Growth and Income Fund, respectively, and reimbursed expenses
of $103,101 and $306,295 with respect to the Small Cap Value Fund and Growth and
Income Fund, respectively.

For the period from December 4, 1995 to October 31, 1996, Fleet received
advisory fees (net of reimbursements) of $1,079,665 and $1,690,599 with respect
to the Small Cap Value Fund

- 24 -
<PAGE>

and Growth and Income Fund, respectively, and reimbursed expenses of $63,394 and
$99,656 with respect to the Small Cap Value Fund and Growth and Income Fund,
respectively.

For the period from November 1, 1995 to December 3, 1995, Shawmut Bank,
N.A. ("Shawmut"), the investment adviser for the Predecessor Funds, earned the
following advisory fees: $128,152 and $207,833 with respect to the Predecessor
Small Cap Value Fund and Predecessor Growth and Income Fund, respectively.

For the fiscal year ended October 31, 1995, Shawmut earned the following
advisory fees: Predecessor Growth and Income Fund, $2,067,505, of which $365,382
was voluntarily waived; and Predecessor Small Cap Value Fund, $1,304,952, of
which $304,915 was voluntarily waived.

The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its duties under the advisory agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Fleet in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. Unless sooner terminated, the advisory agreement will
continue in effect with respect to a particular Fund until August 10, 1998, and
thereafter from year to year as long as such continuance is approved at least
annually (i) by the vote of a majority of trustees who are not parties to such
advisory agreement or interested persons (as defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of voting on such
approval; and (ii) by Galaxy's Board of Trustees, or by a vote of a majority of
the outstanding shares of such Fund. The term "majority of the outstanding
shares of such Fund" means, with respect to approval of an advisory agreement,
the vote of the lesser of (i) 67% or more of the shares of the Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund. The advisory agreement may be terminated by Galaxy or by
Fleet on sixty days' written notice, and will terminate immediately in the event
of its assignment.

Investor Services Group serves as Galaxy's administrator. Under the
administration agreement, Investor Services Group has agreed to maintain office
facilities for Galaxy, furnish Galaxy with statistical and research data,
clerical, accounting, and bookkeeping services, certain other services such as
internal auditing services required by Galaxy, and compute the net asset value
and net income of the Funds. Investor Services Group prepares the Funds' annual
and semi-annual reports to the SEC, federal and state tax returns, and filings
with state securities commissions, arranges for and bears the cost of processing
share purchase and redemption orders, maintains the Funds' financial accounts
and records and generally assists in all aspects of Galaxy's operations.

Prior to March 31, 1995, Galaxy's administrator and transfer agent was 440
Financial Group of Worcester, Inc., a wholly-owned subsidiary of State Mutual
Life Assurance Company of America. On March 31, 1995, Investor Services Group,
a wholly-owned subsidiary of First Data Corporation, acquired all of the assets
of 440 Financial Group of Worcester, Inc.

- 25 -
<PAGE>

For the fiscal year ended October 31, 1997, Investor Services Group
received administration fees of $160,350 and $290,324 with respect to the Small
Cap Value Fund and Growth and Income Fund, respectively.

For the period December 4, 1991 through October 31, 1996, Investor Services
Group received administration fees of $129,102 and $203,187 with respect to the
Small Cap Value Fund and Growth and Income Fund, respectively.

For the fiscal year ended October 31, 1995, Federated earned the following
administrative fees: Predecessor Small Cap Value Fund, $131,149, none of which
was voluntarily waived; and Predecessor Growth and Income Fund, $207,280, none
of which was voluntarily waived.

CUSTODIAN AND TRANSFER AGENT

The Chase Manhattan Bank ("Chase Manhattan") serves as custodian to the
Funds pursuant to a Global Custody Agreement. Under its custody agreement,
Chase Manhattan has agreed to: (i) maintain a separate account or accounts in
the name of each Fund; (ii) hold and disburse portfolio securities on account of
each Fund; (iii) collect and make disbursements of money on behalf of each Fund;
(iv) collect and receive all income and other payments and distributions on
account of each Fund's portfolio securities; (v) respond to correspondence from
security brokers and others relating to its duties; and (vi) make periodic
reports to the Board of Trustees concerning the Funds' operations. Chase
Manhattan is authorized to select one or more banks or trust companies to serve
as sub-custodian for the Funds, provided that Chase Manhattan shall remain
responsible for the performance of all of its duties under the custodian
agreement and shall be liable to the Funds for any loss which shall occur as a
result of the failure of a sub-custodian to exercise reasonable care with
respect to the safekeeping of the Funds' assets. In addition, Chase Manhattan
may employ sub-custodians for the Funds upon prior approval by the Board of
Trustees in accordance with the regulations of the SEC, for the purpose of
providing custodial services for the foreign assets of those Funds held outside
the United States. The assets of the Funds are held under bank custodianship in
compliance with the 1940 Act.

Investor Services Group also serves as Galaxy's transfer agent and dividend
disbursing agent pursuant to a Transfer Agency and Services Agreement ("Transfer
Agency Agreement"). Under the Transfer Agency Agreement, Investor Services
Group has agreed to: (i) issue and redeem shares of each Fund; (ii) transmit all
communications by each Fund to its shareholders of record, including reports to
shareholders, dividend and distribution notices and proxy materials for meetings
of shareholders; (iii) respond to correspondence by security brokers and others

- 26 -
<PAGE>

relating to its duties; (iv) maintain shareholder accounts; and (v) make
periodic reports to the Board of Trustees concerning Galaxy's operations.

PORTFOLIO TRANSACTIONS

Transactions in equity securities on U.S. stock exchanges involve the
payment of negotiated brokerage commissions. On U.S. stock exchanges on which
commissions are negotiated, the cost of transactions may vary among different
brokers. Transactions in the over-the-counter market are generally principal
transactions with dealers and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over-the-counter
transactions, Fleet will normally deal directly with the dealers who make a
market in the securities involved except in those circumstances where better
prices and execution are available elsewhere or as described below.

For the fiscal year ended October 31, 1997, the Growth and Income and Small
Cap Value Funds paid $851,919 and $173,335, respectively, in brokerage
commissions on brokerage transactions.

The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year.

In purchasing or selling securities for the Funds, Fleet will seek to
obtain the best net price and the most favorable execution of orders. To the
extent that the execution and price offered by more than one broker/dealer are
comparable, Fleet may effect transactions in portfolio securities with
broker/dealers who provide research, advice or other services such as market
investment literature.

Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to, Fleet,
Investor Services Group, or their affiliates, and will not give preference to
affiliates and correspondent banks of Fleet with respect to such transactions.

Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal year.
At October 31, 1997, the Growth and Income Fund held 42,000 shares of common
stock of Chase Manhattan Corp. (value $4,845,750) and 39,000 shares of common
stock of J.P. Morgan & Co. Inc. (value $4,280,250), Chase Manhattan & J.P.
Morgan are considered "regular broker dealers" of Galaxy. Chase

- 27 -
<PAGE>

Manhattan Corp. and J.P. Morgan & Co., Inc. are the parents of Chase Securities,
Inc. and J.P. Morgan respectively.

SHAREHOLDER SERVICES PLAN

As stated in the Prospectus for the Funds, Galaxy may enter into agreements
("Servicing Agreements") pursuant to its Shareholder Services Plan ("Services
Plan") with Institutions and other organizations (including Fleet Bank and its
affiliates) (collectively, "Service Organizations") pursuant to which Service
Organizations will be compensated by Galaxy for offering to provide certain
administrative and support services to Customers who are the beneficial owners
of Retail A Shares and Trust Shares of the Funds. As of October 31, 1997,
Galaxy had entered into Servicing Agreements only with Fleet Bank and
affiliates.

Each Servicing Agreement between Galaxy and a Service Organization relating
to the Services Plan described above requires that, with respect to those Funds
which declare dividends on a daily basis, the Service Organization agrees to
waive a portion of the servicing fee payable to it under the Services Plan to
the extent necessary to ensure that the fees required to be accrued with respect
to the Retail A Shares of such Funds on any day do not exceed the income to be
accrued to such shares on that day.

For the fiscal year ended October 31, 1997, payments to Service
Organizations totaled $324,069 with respect to Retail A Shares of the Growth and
Income Fund, and $130,739 with respect to Retail A Shares of the Small Cap Value
Fund.

For the period December 4, 1995 through October 31, 1996, payments to
Service Organizations totaled $154,838 with respect to Retail A Shares of the
Growth and Income Fund, and $79,503 with respect to Retail A Shares of the Small
Cap Value Fund.

Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of the Funds. Pursuant to the Plan, the Board of Trustees
reviews, at least quarterly, a written report of the

- 28 -
<PAGE>

amounts paid under the Servicing Agreements and the purposes for which the
expenditures were made. In addition, the arrangements with Service
Organizations must be approved annually by a majority of Galaxy's trustees,
including a majority of the trustees who are not "interested persons" of Galaxy
as defined in the 1940 Act and who have no direct or indirect financial interest
in such arrangements (the "Disinterested Trustees").

The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.

DISTRIBUTION AND SERVICES PLAN

Galaxy has adopted a Distribution and Services Plan (the "12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to Retail B Shares of the
Growth and Income Fund. The 12b-1 Plan is described in the Prospectus.

Under the 12b-1 Plan, payments by Galaxy (i) for distribution expenses may
not exceed .65% (annualized) of the average daily net assets attributable to the
Fund's outstanding Retail B Shares, (ii) to an Institution for shareholder
liaison services and/or administrative support services may not exceed .25%
(annualized) and .25% (annualized), respectively, of the average daily net
assets attributable to the Fund's outstanding Retail B Shares which are owned of
record or beneficially by that Institution's Customers for whom the Institution
is the dealer of record or shareholder of record or with whom it has a servicing
relationship. As of the date of this Statement of Additional Information,
Galaxy intends to limit the Fund's payments for shareholder liaison and
administrative support services under the 12b-1 Plan to an aggregate fee of not
more than .30% (on an annualized basis) of the average daily net asset value of
Retail B Shares owned of record or beneficially by Customers of Institutions.

- 29 -
<PAGE>

which Retail B Shares of the Growth and Income Fund may bear for distribution
pursuant to the 12b-1 Plan without shareholder approval, and that any other type
of material amendment must be approved by a majority of the Board of Trustees,
and by a majority of the trustees who are neither "interested persons" (as
defined in the 1940 Act) of Galaxy nor have any direct or indirect financial
interest in the operation of the 12b-1 Plan or in any related agreements, by
vote cast in person at a meeting called for the purpose of considering such
amendments (the "Disinterested Trustees").

For the fiscal year ended October 31, 1997, Retail B Shares of the Growth
and Income Fund bore $122,300 in distribution fees and $54,046 in shareholder
servicing fees under the 12b-1 Plan. For the fiscal year ended October 31,
1997, all amounts paid under the 12b-1 Plan were attributable to payments to
broker-dealers.

For the period from March 4, 1996 (date of initial public offering of
Retail B Shares) through October 31, 1996, Retail B Shares of the Growth and
Income Fund bore $7,070 in distribution fees and $3,263 in shareholder servicing
fees under the 12b-1 Plan. For the fiscal year ended October 31, 1996, all
amounts paid under the 12b-1 Plan were attributable to payments to
broker-dealers.

Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Growth and Income Fund and
holders of Retail B Shares. The 12b-1 Plan is subject to annual reapproval by a
majority of the Disinterested Trustees and is terminable at any time with
respect to the Fund by a vote of a majority of such Trustees or by vote of the
holders of a majority of the Retail B Shares of the Fund. Any agreement entered
into pursuant to the 12b-1 Plan with a Service Organization is terminable with
respect to the Fund without penalty, at any time, by vote of a majority of the
Disinterested Trustees, by vote of the holders of a majority of the Retail B
Shares of a Fund, by FD Distributors or by the Service Organization. An
agreement will also terminate automatically in the event of its assignment.

Investment Shares of the Predecessor Funds were subject to a Plan adopted
pursuant to Rule 12b-1 under the 1940 Act (the "Shawmut Plan"). The Shawmut
Plan permitted the payment of fees to administrators (including broker/dealers
and depository institutions such as commercial banks and savings and loan
associations) for distribution and administrative services. The Shawmut Plan was
designed to stimulate administrators to provide distribution and administrative
support services to the Predecessor Funds and their shareholders.

For the fiscal year ended October 31, 1995, the Predecessor Growth and
Income and Predecessor Small Cap Value Funds paid $166,932 and $111,535,
respectively, in 12b-1 fees, of which $83,466 and $55,768, respectively, was
voluntarily waived.

- 30 -
<PAGE>

DISTRIBUTOR

First Data Distributors, Inc., a wholly-owned subsidiary of Investor
Services Group, serves as Galaxy's Distributor. On March 31, 1995, Investor
Services Group acquired all of the issued and outstanding stock of FD
Distributors. Prior to that time, FD Distributors was a wholly-owned subsidiary
of 440 Financial Group of Worcester, Inc. and an indirect subsidiary of State
Mutual Life Assurance Company of America.

Unless otherwise terminated, the Distribution Agreement between Galaxy and
FD Distributors, remains in effect until May 31, 1999, and will continue from
year to year upon annual approval by Galaxy's Board of Trustees, or by the vote
of a majority of the outstanding shares of Galaxy and by the vote of a majority
of the Board of Trustees of Galaxy who are not parties to the Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval. The Agreement will terminate in the event
of its assignment, as defined in the 1940 Act.

FD Distributors is entitled to the payment of a front-end sales charge on
the sale of Retail A Shares of the Funds as described in the Prospectus. For
the fiscal year ended October 31, 1997, FD Distributors received front-end sales
charges in connection with Retail A Share purchases as follows: Growth and
Income Fund -- $988,216; and Small Cap Value Fund -- $300,152. For the period
December 4, 1995 through October 31, 1996, FD Distributors received front-end
sales charges in connection with Retail A Share purchases as follows: Growth
and Income Fund -- $279,670; and Small Cap Value Fund -- $34,022. During these
periods, FD Distributors and affiliates of Fleet retained fees of $0 and
$988,216 for the Growth and Income Fund and $0 and $300,152 for the Small Cap
Value Fund, respectively.

FD Distributors is also entitled to the payment of contingent deferred
sales charges upon the redemption of Retail B Shares of the Growth and Income
Fund. For the fiscal year ended October 31, 1997, FD Distributors received
$49,278 in contingent deferred sales charges in connection with redemptions of
Retail B Shares of the Growth and Income Fund. All such amounts were paid over
to affiliates of Fleet. For the period from March 4, 1996 (date of the initial
public offering of Retail B Shares) through October 31, 1996, FD Distributors
received $2,815 in contingent deferred sales charges in connection with
redemptions of Retail B Shares of the Growth and Income Fund. All such amounts
were paid over to affiliates of Fleet.

The following table shows all sales charges, commissions and other
compensation received by FD Distributors directly or indirectly from the Funds
during the fiscal year ended October 31, 1997:

- 31 -
<PAGE>

Brokerage
Net Compensation Commissions in
Underwriting on Redemption Connection
Discounts and and with Fund Other
Fund Commissions(1) Repurchase(2) Transactions Compensation(3)
----- --------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Growth and Income $1,037,494 $49,278 $0 $122,722

Small Cap Value $ 300,152 N/A $458,524

</TABLE>

- --------------------------------------------------------------------------------
(1) Represents amounts received from front-end sales charges on Retail A Shares
and commissions received in connection with sales of Retail B Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such amounts
were paid to affiliates of Fleet.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1997, which includes fees accrued in the fiscal year ended October 31, 1996
which were paid in 1997 (see "Shareholder Services Plan" and "Distribution
and Services Plan" above).

AUDITORS

PricewaterhouseCoopers LLP, independent certified public accountants, with
offices at One Post Office Square, Boston, Massachusetts 02109, serve as
auditors to Galaxy. The financial highlights for the Funds for the fiscal year
ended October 31, 1997 included in the Prospectus and the financial statements
for the fiscal year ended October 31, 1997 contained in Galaxy's Annual Report
to Shareholders and incorporated by reference into the Statement of Additional
Information have been audited by PricewaterhouseCoopers LLP for the periods
included in their report which appears therein

COUNSEL

Drinker Biddle & Reath LLP (of which W. Bruce McConnel III, Secretary of
Galaxy, is a partner), 1345 Chestnut Street, Suite 1100, Philadelphia, PA
19107, are counsel to Galaxy and will pass upon certain legal matters on its
behalf.

PERFORMANCE AND YIELD INFORMATION

The Growth and Income and Small Cap Value Funds' 30-day (or one month)
standard yields described in the Prospectus are calculated separately for each
series of shares in each Fund in accordance with the method prescribed by the
SEC for mutual funds:

6
YIELD = 2[((a+b) + 1) -1]

- 32 -
<PAGE>

Where: a = dividends and interest earned by a Fund during the period;

b = expenses accrued for the period (net of reimbursements);

c = average daily number of shares outstanding during the period,
entitled to receive dividends; and

d = maximum offering price per share on the last day of the period.

For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market value of such debt obligations. Expenses accrued
for the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts and to the particular series of shares in
proportion to the length of the base period and the Fund's mean (or median)
account size. Undeclared earned income will be subtracted from the offering
price per share (variable "d" in the formula). The Funds' maximum offering
price per Retail A Share for purposes of the formula will include the maximum
sales load imposed by the Funds -- currently 3.75% of the per share offering
price.

Interest earned on tax-exempt obligations that are issued without original
issue discount and have a current market discount is calculated by using the
coupon rate of interest instead of the yield to maturity. In the case of
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have discounts based on current

- 33 -
<PAGE>

market value that are less than the then-remaining portion of the original issue
discount (market premium), the yield to maturity is based on the market value.

With respect to mortgage or other receivables-backed obligations that are
expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay downs are
accounted for as an increase or decrease to interest income during the period,
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.

Based on the foregoing calculations, for the 30-day period ended
October 31, 1997, (i) the yields for Retail A Shares of the Growth and Income
and Small Cap Value Funds were 1.00% and -0.17%, respectively, and (ii) the
yield for Retail B Shares of the Growth and Income Fund was 0.24%.

Each Fund that advertises its "average annual total return" computes such
return separately for each series of shares by determining the average annual
compounded rate of return during specified periods that equates the initial
amount invested to the ending redeemable value of such investment according to
the following formula:

1/n
T = [(ERV/P) - 1]

Where: T = average annual total return;

ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the l, 5 or 10 year
(or other) periods at the end of the applicable period
(or a fractional portion thereof);

P = hypothetical initial payment of $1,000 less any
applicable sales charge; and

n = period covered by the computation, expressed in years.

Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:

Aggregate Total Return = [(ERV/P) - 1]

The calculations are made assuming that (1) all dividends and capital gain
distributions are reinvested on the reinvestment dates at the price per share
existing on the reinvestment date

- 34 -
<PAGE>

(reflecting any sales load charged upon such reinvestment), (2) all recurring
fees charged to all shareholder accounts are included, and (3) for any account
fees that vary with the size of the account, a mean (or median) account size in
the Fund during the periods is reflected. The ending redeemable value (variable
"ERV" in the formula) is determined by assuming complete redemption of the
hypothetical investment after deduction of all nonrecurring charges at the end
of the measuring period. In addition, the Funds' Retail A Shares average annual
total return and aggregate total return quotations will reflect the deduction of
the maximum sales load charged in connection with the purchase of Retail A
Shares or redemptions of Retail B Shares.

The average annual total returns for the one-year period ended October 31,
1997 and for the period from February 12, 1993 (date of initial public offering)
to October 31, 1997 were 25.20% and 17.22%, respectively, for Retail A Shares of
the Growth and Income Fund and 38.24% and 20.22%, respectively, for Retail A
Shares of the Small Cap Value Fund.

The aggregate total returns for Retail A Shares of the Growth and Income
Fund and Small Cap Value Fund for the period from February 12, 1993 (date of
initial public offering) to October 31, 1997 were 111.56% and 138.24%,
respectively.

The average annual total return for the one-year period ended October 31,
1997 and for the period from March 4, 1996 (date of initial public offering) to
October 31, 1997 were 24.11% and 19.24%, respectively, for Retail B Shares of
the Growth and Income Fund. The aggregate total return for Retail B Shares of
the Growth and Income Fund for the period from March 4, 1996 (date of initial
public offering) to October 31, 1997 was 33.93%.

As stated in the Funds' Prospectuses, the Funds may also calculate total
return quotations without deducting the maximum sales charge imposed on
purchases of Retail A Shares or redemptions of Retail B Shares. The effect of
not deducting the sales charge will be to increase the total return reflected.

MISCELLANEOUS

As used in the Prospectus, "assets belonging to a Fund" or "assets
belonging to a particular series of a Fund" means the consideration received by
Galaxy upon the issuance of shares in that particular Fund or that particular
series of the Fund, together with all income, earnings, profits, and proceeds
derived from the investment thereof, including any proceeds from the sale of
such investments, any funds or payments derived from any reinvestment of such
proceeds and a portion of any general assets of Galaxy not belonging to a
particular series or Fund. In determining the net asset value of a particular
Fund or series of a Fund, assets belonging to the particular Fund or series of
the Fund are charged with the direct liabilities in respect of that Fund or
series and with a share of the general liabilities of Galaxy, which are
allocated in proportion to the relative asset values of the respective series
and Funds at the time of allocation. Subject to the provisions of Galaxy's
Declaration of Trust, determinations by the

- 35 -
<PAGE>

Board of Trustees as to the direct and allocable liabilities, and the allocable
portion of any general assets with respect to a particular series or Fund, are
conclusive.

- 36 -
<PAGE>

Control, Account 00000006102, Attn: Julie Hogestyn, One East Avenue, Rochester,
New York 14638 (5.76%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000001492, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (15.90%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000000046, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(70.60%); Small Cap Value Fund -- Norstar Trust Company, Gales & Co., Funds
Control, Account 06000503917, Attn: Julie Hogestyn, One East Avenue, Rochester,
New York 14638 (6.32%); Norstar Trust Company, Gales & Co., Funds Control,
Account 05000503999, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (71.98%); Norstar Trust Company, Gales & Co., Funds Control, Account
05000503953, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(11.25%); Short-Term Bond Fund -- Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000064, Attn: Julie Hogestyn, One East Avenue, Rochester,
New York 14638 (41.78%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000001090, Attn: Julie Hogestyn, One East Avenue, Rochester, New
York, 14638 (16.05%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000008627, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(42.06%); Intermediate Government Income Fund -- Norstar Trust Company, Gales &
Co., Funds Control, Account 00000007183, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (29.57%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000037, Attn: Julie Hogestyn, One East Avenue, Rochester,
New York 14638 (28.12%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000038408, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (42.32%); Swarovski North America Ret Plan, c/o Norstar Trust Co., Gates &
Co., 159 East Main St., Rochester, NY 14638 (5.72%); High Quality Bond Fund --
Norstar Trust Company, Gales & Co., Funds Control, Account 00000006095, Attn:
Julie Hogestyn, One East Avenue, Rochester, New York 14638 (11.82%); Norstar
Trust Company, Gales & Co., Funds Control, Account 00000001465, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (21.18%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000037, Attn: Julie Hogestyn,
One East Avenue, Rochester, New York 14638 (67.00%); Corporate Bond Fund --
Norstar Trust Company, Gales & Co., Funds Control, Account 00000000046, Attn:
Julie Hogestyn, One East Avenue, Rochester, New York 14638 (53.41%); Norstar
Trust Company, Gales & Co., Funds Control, Account 00000006102, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (34.28%); Tax-Exempt Bond
Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account 00000000670,
Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638 (20.10%);
Norstar Trust Company, Gales & Co., Funds Control, Account 00000000028, Attn:
Julie Hogestyn, One East Avenue, Rochester, New York 14638 (37.86%); Norstar
Trust Company, Gales & Co., Funds Control, Account 00000005899, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (42.04%); New York
Municipal Bond Fund -- Norstar Trust Company, Gales & Co., Funds Control,
Account 00000005292, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (10.50%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000000019, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(13.66%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000001107, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(75.75%); Connecticut Municipal Bond Fund -- Norstar Trust Company, Gales & Co.,
Funds Control, Account 00000000037, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638

- 37 -
<PAGE>

(20.74%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000000019, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(78.60%); and Massachusetts Municipal Bond Fund -- Norstar Trust Company, Gales
& Co., Funds Control, Account 00000000073, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (36.98%); Norstar Trust Company, Gales & Co.,
Funds Control, Account 00000000019, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (63.02%).

As of January 28, 1998, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Retail A
Shares of each of Galaxy's investment portfolios (including shares of the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) were as follows: Tax-Exempt Money Market Fund -- Hope H. Van Beuren,
P.O. Box 4098, Middletown, RI 02842 (15.35%); Massachusetts Municipal Money
Market Fund -- Fleet New York, Fleet Investment Services, 160 East Main St.,
NY/RO/TO3C, Rochester, NY 14638 (44.97%); Connecticut Municipal Money Market
Fund -- Fleet New York, Fleet Investment Services, 159 East Main St.,
NY/RO/TO3C, Rochester, NY 14638 (30.56%); International Equity Fund -- Credit
Suisse First Boston Corp., 11 Madison Ave., 4th Floor, Attn: Mark Gorton, New
York, NY 10010 (8.56%); Massachusetts Municipal Bond Fund -- New England Realty
Associates, Robert Bilse, Ronald Brown, Howard Brown & Carl Vajeri, 39 Brighton
Ave., Boston, MA 02128 (5.73%); and Rhode Island Municipal Bond Fund -- Norstar
Trust Company, Gales & Co., Funds Control, Attn: Julie Hogestyn, One East Ave.,
Rochester, NY 14638 (33.61%); James R. McCulloch, c/o Microfibre, P.O. Box 1208,
Pawtucket, RI 02860 (7.65%); Gerald M. Gannon, 293 Promenade Ave., Warwick, RI
02886-8324 (5.81%).

- 38 -
<PAGE>

FINANCIAL STATEMENTS

Galaxy's Annual Report to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1997 has been filed with the Securities and
Exchange Commission. The financial statements in such Annual Report (the
"Financial Statements") are incorporated by reference into this Statement of
Additional Information. The Financial Statements included in the Annual Report
for the Funds for the fiscal year ended October 31, 1997 have been audited by
Galaxy's independent accountants, PricewaterhouseCoopers LLP, whose report
thereon also appear in such Annual Report and is incorporated herein by
reference. The Financial Statements in such Annual Report have been
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

- 39 -
<PAGE>
APPENDIX A

DESCRIPTION OF SECURITIES RATINGS

The following is a description of the securities ratings of Duff & Phelps
Credit Rating Co. ("D&P"), Fitch IBCA, Inc. ("Fitch IBCA"), Standard & Poor's
Ratings Group, ("S&P"), Moody's Investors Service, Inc. ("Moody's") and Thomson
BankWatch ("Thomson").

CORPORATE AND TAX-EXEMPT BOND RATINGS

The five highest ratings of D&P for tax-exempt and corporate fixed-income
securities are AAA, AA, A, BBB and BB. Securities rated AAA are of the highest
credit quality. The risk factors are considered to be negligible, being only
slightly more than for risk-free U.S. Treasury debt. Securities rated AA are of
high credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions. Securities that
are rated "A" have protection factors that are average but adequate. However,
risk factors are more variable and greater in periods of economic stress.
Securities that are rated "BBB" have below average protection factors but are
still considered sufficient for prudent investment. Considerable variability in
risk is present during economic cycles. Securities that are rated BB are
considered to be below investment grade but are deemed likely to meet
obligations when due. The AA, A, BBB and BB ratings may be modified by an
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.

A-1
<PAGE>

The five highest ratings of S&P for tax-exempt and corporate bonds are AAA,
AA, A, BBB and BB. Bonds rated AAA bear the highest rating assigned by S&P to a
debt obligation and the AAA rating indicates in its opinion an extremely strong
capacity to pay interest and repay principal. Bonds rated AA by S&P are judged
by it to have a very strong capacity to pay interest and repay principal, and
they differ from AAA issues only in small degree. Bonds rated A are considered
to have a strong capacity to pay interest and repay principal although they are
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than bonds of a higher rated category. Bonds rated BBB are
regarded as having an adequate capacity to pay interest and repay principal.
Whereas such bonds normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than for higher rated categories. Bonds rated BB have less near-term
vulnerability to default than other speculative issues. However, such bonds
face major ongoing uncertainties or exposure to adverse business, financial or
economic conditions which could lend to inadequate capacity to meet timely
interest and principal payments. The AA, A, BBB and BB ratings may be modified
by an addition of a plus (+) or minus (-) sign to show relative standing within
these major rating categories.

CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS

A-2
<PAGE>

certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
Duff 1 minus indicates high certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk factors are
very small. Duff 2 indicates good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small. Duff 3 indicates satisfactory liquidity and other protection
factors qualify such issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected. Duff 4
indicates speculative investment characteristics.

Fitch IBCA's short-term ratings apply to tax-exempt and corporate debt
obligations that are payable on demand or have original maturities of up to
three years. The four highest ratings of Fitch for short-term securities are
F-1+, F-1, F-2 and F-3. F-1+ securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment. F-1 securities possess very strong
credit quality. Issues assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+. F-2 securities
possess good credit quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as the F-1+ and F-1 categories. F-3 securities possess fair credit quality.
Issues assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.

S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market. Issues
assigned A-1 ratings, in S&P's opinion, indicate that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics will be denoted with a plus (+)
designation. Issues rated A-2 by S&P indicate that capacity for timely payment
on these issues is satisfactory. However, the relative degree of safety is not
as high as for issues designated A-1. Issues rated A-3 have an adequate
capacity for timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes and circumstances than obligations carrying the
higher designations. Issues rated B are regarded as having only a speculative
capacity for timely payment.

A-3
<PAGE>

rated issues, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained. Issuers rated Prime-3 (or related supporting
institutions) have an acceptable capacity for repayment of short-term promissory
obligations. Issuers rated Not Prime do not fall within any of the Prime rating
categories.

Thomson commercial paper ratings assess the likelihood of an untimely or
incomplete payment of principal or interest of debt having a maturity of one
year or less, which is issued by a bank holding company or an entity within the
holding company structure. The designation TBW-1 represents the highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis. The designation TBW-2 represents the
second highest rating category and indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1. The designation
TBW-3 represents the lowest investment grade category and indicates that while
more susceptible to adverse developments (both internal and external) than
obligations with higher ratings, the capacity to service principal and interest
in a timely fashion is considered adequate.

TAX-EXEMPT NOTE RATINGS

A S&P rating reflects the liquidity concerns and market access risks unique
to notes due in three years or less. Notes rated SP-1 are issued by issuers
that exhibit very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics are given
a plus (+) designation. Notes rated SP-2 are issued by issuers that exhibit
satisfactory capacity to pay principal and interest. Notes rated SP-3 are
issued by issuers that exhibit speculative capacity to pay principal and
interest.

Moody's ratings for state and municipal notes and other short-term loans
are designated MIG and variable rate demand obligations are designated VMIG.
Such ratings recognize the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG-1 or VMIG-1 are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing. Loans bearing the designation MIG-2 or VMIG-2 are of high quality,
with margins of protection ample although not so large as with loans rated MIG-1
or VMIG-1. Loans bearing the designation MIG-3 or VMIG-3 are of favorable
quality with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
Loans bearing the designation MIG-4 or VMIG-4 are of adequate quality, carrying
specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.

Fitch IBCA uses its short-term ratings described above under "Corporate and
Tax-Exempt Commercial Paper Ratings" for tax-exempt notes.

A-4
<PAGE>

APPENDIX B

As stated in the Prospectus, the Growth and Income and Small Cap Value
Funds may enter into futures transactions for hedging purposes. The following
is a description of such transactions.

I. INTEREST RATE FUTURES CONTRACTS

USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.

The Funds presently could accomplish a similar result to that which they
hope to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market, the protection
is more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.

DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by the Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.

Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
of the sale exceeds the price of the offsetting purchase, the Fund immediately
is paid the difference and thus realizes a gain. If the offsetting purchase
price exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected

B-1
<PAGE>

by a Fund entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the Fund realizes a gain, and if the purchase price
exceeds the offsetting sale price, the Fund realizes a loss.

Interest rate futures contracts are traded in an auction environment on the
floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.

A public market now exists in futures contracts covering various financial
instruments including long-term United States Treasury Bonds and Notes;
Government National Mortgage Association (GNMA) modified pass-through mortgage
backed securities; three-month United States Treasury Bills; and ninety-day
commercial paper. The Funds may trade in any interest rate futures contracts
for which there exists a public market, including, without limitation, the
foregoing instruments.

EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). Fleet wishes to fix the current
market value of this portfolio security until some point in the future. Assume
the portfolio security has a market value of 100, and Fleet believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio security does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.

In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.

Fleet could be wrong in its forecast of interest rates, and the equivalent
futures market price could rise above 98. In this case, the market value of the
portfolio securities, including the portfolio security being protected, would
increase. The benefit of this increase would be reduced by the loss realized on
closing out the futures contract sale.

If interest rate levels did not change, the Fund in the above example might
incur a loss of 2 points (which might be reduced by an offsetting transaction
prior to the settlement date). In each transaction, transaction expenses would
also be incurred.

B-2
<PAGE>

EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term bonds
but wishes to defer for a time the purchase of long-term bonds in light of the
availability of advantageous interim investments, e.g., shorter term securities
whose yields are greater than those available on long-term bonds. A Fund's
basic motivation would be to maintain for a time the income advantage from
investing in the short-term securities; the Fund would be endeavoring at the
same time to eliminate the effect of all or part of an expected increase in
market price of the long-term bonds that the Fund may purchase.

For example, assume that the market price of a long-term bond that the Fund
may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. Fleet wishes to fix the current market price
(and thus 10% yield) of the long-term bond until the time (four months away in
this example) when it may purchase the bond. Assume the long-term bond has a
market price of 100, and Fleet believes that, because of an anticipated fall in
interest rates, the price will have risen to 105 (and the yield will have
dropped to about 9 1/2%) in four months. The Fund might enter into futures
contracts purchases of Treasury bonds for an equivalent price of 98. At the
same time, the Fund would assign a pool of investments in short-term securities
that are either maturing in four months or earmarked for sale in four months,
for purchase of the long-term bond at an assumed market price of 100. Assume
these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the 5
point increase in the price that the Fund pays for the long-term bond would be
offset by the 5 point gain realized by closing out the futures contract
purchase.

Fleet could be wrong in its forecast of interest rates; long-term interest
rates might rise to above 10%; and the equivalent futures market price could
fall below 98. If short-term rates at the same time fall to 10% or below, it is
possible that the Fund would continue with its purchase program for long-term
bonds. The market price of available long-term bonds would have decreased. The
benefit of this price decrease, and thus yield increase, will be reduced by the
loss realized on closing out the futures contract purchase.

If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be
incurred.

II. MARGIN PAYMENTS

B-3
<PAGE>

initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as marking-to-the-market. For example, when a particular Fund has
purchased a futures contract and the price of the contract has risen in response
to a rise in the underlying instruments, that position will have increased in
value and the Fund will be entitled to receive from the broker a variation
margin payment equal to that increase in value. Conversely, where the Fund has
purchased a futures contract and the price of the future contract has declined
in response to a decrease in the underlying instruments, the position would be
less valuable and the Fund would be required to make a variation margin payment
to the broker. At any time prior to expiration of the futures contract, Fleet
may elect to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.

III. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS

B-4
<PAGE>

Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.

In instances involving the purchase of futures contracts by a Fund, an
amount of cash and liquid portfolio securities, equal to the market value of the
futures contracts, will be deposited in a segregated account with Galaxy's
custodian and/or in a margin account with a broker to collateralize the position
and thereby insure that the use of such futures is unleveraged.

In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions that could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the adviser may still not result in
a successful hedging transaction over a short time frame.

Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity

B-5
<PAGE>

exchanges which limit the amount of fluctuation in a futures contract price
during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures positions. The trading of futures
contracts is also subject to the risk of trading halts, suspensions, exchange or
clearing house equipment failures, government intervention, insolvency of a
brokerage firm or clearing house or other disruptions of normal activity, which
could at times make it difficult or impossible to liquidate existing positions
or to recover excess variation margin payments.

B-6

<PAGE>

RETAIL

THE GALAXY FUND

Statement of Additional Information

Equity Value Fund

Equity Growth Fund

Equity Income Fund

International Equity Fund

Small Company Equity Fund

MidCap Equity Fund

Asset Allocation Fund

Strategic Equity Fund

February 28, 1998
(as revised October 30, 1998)

<PAGE>

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the current prospectuses (the "Prospectuses") for
the Retail A Shares and/or Retail B Shares of the Equity Value, Equity
Growth, Equity Income, International Equity, Small Company Equity, MidCap
Equity, Asset Allocation and Strategic Equity Funds, each dated February 28,
1998, of The Galaxy Fund ("Galaxy"), as they may from time to time be
supplemented or revised. This Statement of Additional Information is
incorporated by reference in its entirety into each such Prospectus. No
investment in shares of the Funds should be made without reading the
Prospectuses. Copies of the Prospectuses may be obtained by writing Galaxy
c/o First Data Distributors, Inc., 4400 Computer Drive, Westboro,
Massachusetts 01581-5108 or by calling Galaxy at 1-800-628-0414.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
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<S> <C>
THE GALAXY FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Variable and Floating Rate Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Bank Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Asset-Backed Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
When-Issued Securities and Delayed Settlement Transactions . . . . . . . . . . . . . . . . 2
Repurchase Agreements; Reverse Repurchase Agreements; Loans Of Portfolio Securities. . . . 2
U.S. Government Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Derivative Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Put and Call Options -- Equity Growth, Equity Income, Small Company Equity
and Asset Allocation Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Covered Call Options -- Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity and Asset Allocation Funds . . . . . . . . 5
Options On Foreign Stock Indexes -- International Equity Fund. . . . . . . . . . . . . . . 6
Put and Call Options-- Midcap Equity and Strategic Equity Funds. . . . . . . . . . . . . . 6
Stock Index Futures and Options-- Midcap Equity and Strategic Equity Funds . . . . . . . . 6
Restrictions On Use Of Futures Contracts and Options -- Midcap Equity and
Strategic Equity Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Indexed Securities-- Midcap Equity and Strategic Equity Funds. . . . . . . . . . . . . . . 8
Swap Agreements-- Midcap Equity and Strategic Equity Funds . . . . . . . . . . . . . . . . 8
Foreign Currency Exchange Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Additional Investment Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 11
DESCRIPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ADDITIONAL INFORMATION CONCERNING TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Taxation of Certain Financial Instruments. . . . . . . . . . . . . . . . . . . . . . . . . 18
State Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Shareholder and Trustee Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ADVISORY, SUB-ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER
AGENCY AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PORTFOLIO TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SHAREHOLDER SERVICES PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
DISTRIBUTION AND SERVICES PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
PERFORMANCE AND YIELD INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
APPENDIX A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
APPENDIX B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-1
</TABLE>

<PAGE>

THE GALAXY FUND

The Galaxy Fund ("Galaxy") is an open-end management investment company
which is currently authorized to offer shares of beneficial interest in
thirty investment portfolios.

This Statement of Additional Information relates to the Retail A Shares
and/or Retail B Shares of eight of those investment portfolios: the Equity
Value Fund, Equity Growth Fund, Equity Income Fund, International Equity
Fund, Small Company Equity Fund, MidCap Equity Fund, Asset Allocation Fund
and Strategic Equity Fund (the "Funds"). This Statement of Additional
Information provides additional investment information with respect to the
Funds and should be read in conjunction with the current Prospectuses. As of
the date of this Statement of Additional Information, the MidCap Equity Fund
had not commenced investment operations.

INVESTMENT OBJECTIVES AND POLICIES

VARIABLE AND FLOATING RATE OBLIGATIONS

The Funds may purchase variable and floating rate instruments in
accordance with their investment objectives and policies as described in
their Prospectuses. If such an instrument is not rated, Fleet Investment
Advisors Inc. ("Fleet"), the investment adviser to the Funds, or Oechsle
International Advisors, L.P. ("Oechsle"), the sub-adviser to the
International Equity Fund, must determine that such instrument is comparable
to rated instruments eligible for purchase by the Funds and will consider the
earning power, cash flows and other liquidity ratios of the issuers and
guarantors of such instruments and will continuously monitor their financial
status in order to meet payment on demand. In determining average weighted
portfolio maturity of each of these Funds, a variable or floating rate
instrument issued or guaranteed by the U.S. Government or an agency or
instrumentality thereof will be deemed to have a maturity equal to the period
remaining until the obligation's next interest rate adjustment. Long-term
variable and floating rate obligations with a demand feature will be deemed
to have a maturity equal to the longer of the period remaining to the next
interest rate adjustment or the demand notice period.

BANK OBLIGATIONS

Investments by the Funds in non-negotiable time deposits are limited to
no more than 5% of each such Fund's total assets at the time of purchase.

ASSET-BACKED SECURITIES

Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of
assets representing the obligations of a number of different parties.

<PAGE>

The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount
of the obligations may be prepaid at any time because the underlying assets
(i.e. loans) generally may be prepaid at any time. As a result, if an
asset-backed security is purchased at a premium, a prepayment rate that is
faster than expected will reduce yield to maturity, while a prepayment rate
that is slower than expected will have the opposite effect of increasing
yield to maturity. Conversely, if an asset-backed security is purchased at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments, will decrease, yield to maturity.

Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore
prepayment rates are influenced by a variety of economic and social factors.
In general, the collateral supporting non-mortgage asset-backed securities is
of shorter maturity than mortgage loans and is less likely to experience
substantial prepayments. Like other fixed income securities, when interest
rates rise, the value of an asset-backed security generally will decline;
however, when interest rates decline, the value of an asset-backed security
with prepayment features may not increase as much as that of other fixed
income securities.

Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing
or liquidating such securities. For these reasons, under certain
circumstances, asset-backed securities may be considered illiquid securities.

WHEN-ISSUED SECURITIES AND DELAYED SETTLEMENT TRANSACTIONS

REPURCHASE AGREEMENTS; REVERSE REPURCHASE AGREEMENTS; LOANS OF PORTFOLIO
SECURITIES

Each Fund may enter into repurchase agreements. The repurchase price
under a repurchase agreement generally equals the price paid by a Fund plus
interest negotiated on the

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<PAGE>

basis of current short-term rates (which may be more or less than the rate on
the securities underlying the repurchase agreement). Securities subject to a
repurchase agreement will be held by a Fund's custodian or sub-custodian in a
segregated account or in the Federal Reserve/Treasury book-entry system.
Repurchase agreements are considered to be loans by a Fund under the
Investment Company Act of 1940, as amended, (the "1940 Act").

A Fund that loans portfolio securities would continue to accrue interest
on the securities loaned and would also earn income on the loans. Any cash
collateral received by the Funds would be invested in high quality,
short-term "money market" instruments.

U.S. GOVERNMENT SECURITIES

Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation,
direct obligations of the U.S. Treasury, and securities issued or guaranteed
by the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land
Banks, Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, Federal National Mortgage
Association, General Services Administration, Central Bank for Cooperatives,
Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks,
Resolution Trust Corporation and Maritime Administration.

DERIVATIVE SECURITIES

PUT AND CALL OPTIONS -- EQUITY GROWTH, EQUITY INCOME,
SMALL COMPANY EQUITY AND ASSET ALLOCATION FUNDS

The Equity Growth, Equity Income, Small Company Equity and Asset
Allocation Funds may purchase put and call options issued by the Options
Clearing Corporation which are listed on a national securities exchange.
Such options may relate to particular securities or to various stock indexes,
except that a Fund may not write covered call options on an index. A Fund
may not purchase options unless immediately after any such transaction the
aggregate amount of premiums paid for put or call options does not exceed 5%
of its total assets. Purchasing options is a specialized investment technique
that may entail the risk of a complete loss of the amounts paid as premiums
to the writer of the option.

In order to close out call or put option positions, a Fund will be
required to enter into a "closing purchase transaction" -- the purchase of a
call or put option (depending upon the position being closed out) on the same
security with the same exercise price and expiration date as the option that
it previously wrote. When a portfolio security subject to a call option is
sold, a

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<PAGE>

Fund will effect a closing purchase transaction to close out any existing
call option on that security. If a Fund is unable to effect a closing
purchase transaction, it will not be able to sell the underlying security
until the option expires or a Fund delivers the underlying security upon
exercise.

In contrast to an option on a particular security, an option on an index
provides the holder with the right to make or receive a cash settlement upon
exercise of the option. The amount of this settlement will be equal to the
difference between the closing price of the index at the time of exercise and
the exercise price of the option expressed in dollars, times a specified
multiple.

When a Fund purchases a put or call option, the premium paid by it is
recorded as an asset of the Fund. The amount of this asset will be
subsequently marked-to-market to reflect the current value of the option
purchased. The current value of the traded option is the last sale price or,
in the absence of a sale, the average of the closing bid and asked prices.
If an option purchased by a Fund expires unexercised, the Fund realizes a
loss equal to the premium paid. If a Fund enters into a closing sale
transaction on an option purchased by it, the Fund will realize a gain if the
premium received by the Fund on the closing transaction is more than the
premium paid to purchase the option, or a loss if it is less.

There are several risks associated with transactions in options on
securities. For example, there are significant differences between the
securities and options markets which could result in an imperfect correlation
between the markets, causing a given transaction not to achieve its
objectives. In addition, a liquid secondary market for particular options,
whether traded over-the-counter or on a national securities exchange may be
absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an
exchange on opening transactions, closing transactions or both; trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; unusual or
unforeseen circumstances may interrupt normal operations on an exchange; the
facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or one or more exchanges
could, for economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class or series
of options), in which event the secondary market on that exchange (or in that
class or series of options) would cease to exist, although outstanding
options that had been issued by the Options Clearing Corporation as a result
of trades on that exchange would continue to be exercisable in accordance
with their terms. A Fund will likely be unable to control losses by closing
its position where a liquid secondary market does not exist. Moreover,
regardless of how much the market price of the underlying security increases
or decreases, the option buyer's risk is limited to the amount of the
original investment for the purchase of the option. However, options may be
more volatile than their underlying securities, and therefore, on a
percentage basis, an investment in options may be subject to greater
fluctuation than an investment in the underlying securities.

A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.

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<PAGE>

COVERED CALL OPTIONS -- EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME,
INTERNATIONAL EQUITY, SMALL COMPANY EQUITY AND ASSET ALLOCATION FUNDS

The Equity Value, Equity Growth, Equity Income, International Equity,
Small Company Equity and Asset Allocation Funds may write listed covered call
options. A listed call option gives the purchaser of the option the right to
buy from a clearing corporation, and obligates the writer to sell to the
clearing corporation, the underlying security at the stated exercise price at
any time prior to the expiration of the option, regardless of the market
price of the security. The premium paid to the writer is consideration for
undertaking the obligations under the option contract. If an option expires
unexercised, the writer realizes a gain in the amount of the premium. Such a
gain may be offset by a decline in the market price of the underlying
security during the option period.

A Fund may terminate its obligation to sell prior to the expiration date
of the option by executing a closing purchase transaction, which is effected
by purchasing on an exchange an option of the same series (I.E., same
underlying security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to
realize a profit on an outstanding call option, to prevent an underlying
security from being called, to permit the sale of the underlying security or
to permit the writing of a new call option containing different terms on such
underlying security. The cost of such a liquidating purchase plus
transaction costs may be greater than the premium received upon the original
option, in which event the writer will have incurred a loss in the
transaction. An option position may be closed out only on an exchange that
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option. A covered option writer, unable to effect a closing
purchase transaction, will not be able to sell the underlying security until
the option expires or the underlying security is delivered upon exercise. The
writer in such circumstances will be subject to the risk of market decline of
the underlying security during such period. A Fund will write an option on a
particular security only if Fleet and/or Oechsle believes that a liquid
secondary market will exist on an exchange for options of the same series,
which will permit the Fund to make a closing purchase transaction in order to
close out its position.

When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included as a deferred
credit in the liability section of the Fund's statement of assets and
liabilities. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The
current value of the traded option is the last sale price or, in the absence
of a sale price, the average of the closing bid and asked prices. If an
option expires on the stipulated expiration date or if a Fund enters into a
closing purchase transaction, it will realize a gain (or loss if the cost of
a closing purchase transaction exceeds the net premium received when the
option is sold), and the deferred credit related to such option will be
eliminated. If an option is exercised, the Fund may deliver the underlying
security from its portfolio and purchase the underlying security in the open
market. In either event, the proceeds of the sale will be increased by the
net premium originally received, and the Fund will realize a gain or loss.
Premiums from expired call options written by a Fund and net gains from
closing purchase transactions are treated as short-term capital gains for

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<PAGE>

federal income tax purposes, and losses on closing purchase transactions are
treated as short-term capital losses.

OPTIONS ON FOREIGN STOCK INDEXES -- INTERNATIONAL EQUITY FUND

The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price movements in the
portion of the securities portfolio of the International Equity Fund
correlate with price movements of the stock index selected. Because the
value of an index option depends upon movements in the level of the index
rather than the price of a particular stock, whether the Fund realizes a gain
or loss from the purchase or writing of options on an index is dependent upon
movements in the level of stock prices in the stock market generally or, in
the case of certain indexes, in an industry or market segment, rather than
movements in the price of a particular stock. Accordingly, successful use by
the Fund of options on stock indexes will be subject to Fleet's and/or
Oechsle's ability to predict correctly movements in the direction of the
stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual
stocks. There can be no assurance that such judgment will be accurate or
that the use of these portfolio strategies will be successful. The Fund will
engage in stock index options transactions that are determined to be
consistent with its efforts to control risk.

When the Fund writes an option on a stock index, the Fund will establish
a segregated account with its custodian or with a foreign sub-custodian in
which the Fund will deposit cash or other liquid assets in an amount equal to
the market value of the option, and will maintain the account while the
option is open.

PUT AND CALL OPTIONS -- MIDCAP EQUITY AND STRATEGIC EQUITY FUNDS

The MidCap Equity and Strategic Equity Funds may purchase and sell put
options on their portfolio securities as described in the Prospectuses.

STOCK INDEX FUTURES AND OPTIONS -- MIDCAP EQUITY AND STRATEGIC EQUITY FUNDS

The MidCap Equity and Strategic Equity Funds may utilize stock index
futures contracts and options on stocks, stock indices and stock index
futures contracts for the purposes of managing cash flows into and out of
their respective portfolios and potentially reducing transactional costs.
The Funds may not use stock index futures contracts and options for
speculative purposes.

As a means of reducing fluctuations in the net asset value of shares of
the Funds, the Funds may attempt to hedge all or a portion of their
respective portfolios through the purchase of listed put options on stocks,
stock indices and stock index futures contracts. These options will be used
as a form of forward pricing to protect portfolio securities against
decreases in value resulting from market factors, such as an anticipated
increase in interest rates. A purchased put option gives a Fund, in return
for a premium, the right to sell the underlying security to the writer
(seller) at a specified price during the term of the option. Put options on
stock indices are similar to put options on stocks except for the delivery
requirements. Instead of giving a Fund the right

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<PAGE>

to make delivery of stock at a specified price, a put option on a stock index
gives the Fund, as holder, the right to receive an amount of cash upon
exercise of the option.

The Funds may also write covered call options. As the writer of a call
option, a Fund has the obligation upon exercise of the option during the
option period to deliver the underlying security upon payment of the exercise
price.

The Funds may only: (1) buy listed put options on stock indices and
stock index futures contracts; (2) buy listed put options on securities held
in their respective portfolios; and (3) sell listed call options either on
securities held in their respective portfolios or on securities which they
have the right to obtain without payment of further consideration (or have
segregated cash in the amount of any such additional consideration). A Fund
will maintain its positions in securities, option rights, and segregated cash
subject to puts and calls until the options are exercised, closed or expired.
A Fund may also enter into stock index futures contracts. A stock index
futures contract is a bilateral agreement which obligates the seller to
deliver (and the purchaser to take delivery of) an amount of cash equal to a
specific dollar amount times the difference between the value of a specific
stock index at the close of trading of the contract and the price at which
the agreement is originally made. There is no physical delivery of the
stocks constituting the index, and no price is paid upon entering into a
futures contract.

In general, option contracts are closed out prior to their expiration.
A Fund, when purchasing or selling a futures contract, will initially be
required to deposit in a segregated account in the broker's name with the
Fund's custodian an amount of cash or liquid portfolio securities
approximately equal to 5% - 10% of the contract value. This amount is known
as "initial margin," and it is subject to change by the exchange or board of
trade on which the contract is traded. Subsequent payments to and from the
broker are made on a daily basis as the price of the index or the securities
underlying the futures contract fluctuates. These payments are known as
"variation margins," and the fluctuation in value of the long and short
positions in the futures contract is a process referred to as "marking to
market." A Fund may decide to close its position on a contract at any time
prior to the contract's expiration. This is accomplished by the Fund taking
an opposite position at the then prevailing price, thereby terminating its
existing position in the contract. Because the initial margin resembles a
performance bond or good-faith deposit on the contract, it is returned to the
Fund upon the termination of the contract, assuming that all contractual
obligations have been satisfied. Therefore, the margin utilized in futures
contracts is readily distinguishable from the margin employed in security
transactions, since the margin employed in futures contracts does not involve
the borrowing of funds to finance the transaction.

RESTRICTIONS ON USE OF FUTURES CONTRACTS AND OPTIONS -- MIDCAP EQUITY AND
STRATEGIC EQUITY FUNDS

Neither the MidCap Equity Fund nor the Strategic Equity Fund will enter
into futures contracts to the extent that, immediately thereafter, the sum of
its initial margin deposits on open contracts exceeds 5% of the market value
of its total assets. Further, a Fund will enter into stock index futures
contracts only for bona fide hedging purposes or such other purposes
permitted under Part 4 of the regulations promulgated by the Commodity
Futures Trading Commission.

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<PAGE>

Also, a Fund may not enter into stock index futures contracts and options to
the extent that the value of such contracts would exceed 20% of the Fund's
total net assets and may not purchase put options to the extent that more
than 5% of the value of the Fund's total assets would be invested in premiums
on open put option positions.

INDEXED SECURITIES -- MIDCAP EQUITY AND STRATEGIC EQUITY FUNDS

The MidCap Equity and Strategic Equity Funds may invest in indexed
securities whose value is linked to foreign currencies, interest rates,
commodities, indices or other financial indicators. Most indexed securities
are short- to intermediate-term fixed income securities whose values at
maturity or interest rates rise or fall according to the change in one or
more specified underlying instruments. Indexed securities may be positively
or negatively indexed (i.e., their value may increase or decrease if the
underlying instrument appreciates), and may have return characteristics
similar to direct investments in the underlying instrument or to one or more
options on the underlying instrument. Indexed securities may be more
volatile than the underlying instrument itself.

SWAP AGREEMENTS -- MIDCAP EQUITY AND STRATEGIC EQUITY FUNDS

As one way of managing their exposure to different types of investments,
the MidCap Equity and Strategic Equity Funds may enter into interest rate
swaps, currency swaps, and other types of swap agreements such as caps,
collars, and floors. In a typical interest rate swap, one party agrees to
make regular payments equal to a floating interest rate times a "notional
principal amount," in return for payments equal to a fixed rate times the
same amount, for a specified period of time. If a swap agreement provides
for payments in different currencies, the parties might agree to exchange
notional principal amount as well. Swaps may also depend on other prices or
rates, such as the value of an index or mortgage prepayment rates.

Swap agreements will tend to shift a Fund's investment exposure from one
type of investment to another. For example, if a Fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement
would tend to decrease the Fund's exposure to U.S. interest rates and
increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on how
they are used, swap agreements may increase or decrease the overall
volatility of a Fund's investments and its share price and yield.

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<PAGE>

subject to risks related to the counterparty's ability to perform, and may
decline in value if the counterparty's creditworthiness deteriorates. The
Funds may also suffer losses if they are unable to terminate outstanding swap
agreements or reduce their exposure through offsetting transactions.

FOREIGN CURRENCY EXCHANGE TRANSACTIONS

Because the Funds may buy and sell securities denominated in currencies
other than the U.S. dollar, and receive interest, dividends and sale proceeds
in currencies other than the U.S. dollar, the Funds may enter into foreign
currency exchange transactions to convert United States currency to foreign
currency and foreign currency to United States currency as well as convert
foreign currency to other foreign currencies. A Fund either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies.

A forward foreign currency exchange contract is an obligation by a Fund
to purchase or sell a specific currency at a specified price and future date,
which may be any fixed number of days from the date of the contract. Forward
foreign currency exchange contracts establish an exchange rate at a future
date. These contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward foreign currency exchange contract generally has no
deposit requirement and is traded at a net price without commission. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of a Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.

The Funds may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes
in foreign currency exchange rates that would adversely affect a portfolio
position or an anticipated portfolio position. Since consideration of the
prospect for currency parities will be incorporated into a Fund's long-term
investment decisions, the Funds will not routinely enter into foreign
currency hedging transactions with respect to portfolio security
transactions; however, it is important to have the flexibility to enter into
foreign currency hedging transactions when it is determined that the
transactions would be in the Fund's best interest. Although these
transactions tend to minimize the risk of loss due to a decline in the value
of the hedged currency, at the same time they tend to limit any potential
gain that might be realized should the value of the hedged currency increase.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value
of these securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the date the
forward contract is entered into and the date it matures. The projection of
currency market movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.

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<PAGE>

ADDITIONAL INVESTMENT LIMITATIONS

Each Fund may not:

1. Purchase securities on margin (except such short-term credits as may
be necessary for the clearance of purchases), make short sales of
securities, or maintain a short position.

2. Act as an underwriter within the meaning of the Securities Act of
1933; except insofar as a Fund might be deemed to be an underwriter
upon disposition of restricted portfolio securities; and except to
the extent that the purchase of securities directly from the issuer
thereof in accordance with the Fund's investment objective, policies
and limitations may be deemed to be underwriting.

3. Purchase or sell real estate; except that each Fund may purchase
securities that are secured by real estate, and the Funds may purchase
securities of issuers which deal in real estate or interests therein;
however, the Funds will not purchase or sell interests in real estate
limited partnerships.

4. Purchase or sell commodities or commodity contracts or invest in oil,
gas, or other mineral exploration or development programs or mineral
leases; provided however, that (i) the Equity Value, Equity Growth,
Equity Income, International Equity, Small Company Equity and Asset
Allocation Funds may enter into forward currency contracts and
foreign currency futures contracts and related options to the extent
permitted by their respective investment objectives and policies, and
(ii) the MidCap Equity and Strategic Equity Funds may engage in
transactions involving financial futures contracts or options on
financial futures contracts.

5. Invest in or sell put options, call options, straddles, spreads, or
any combination thereof; provided, however, that each of the Equity
Value, Equity Growth, Equity Income, International Equity, Small
Company Equity and Asset Allocation Funds may write covered call
options with respect to its portfolio securities that are traded on
a national securities exchange, and may enter into closing purchase
transactions with respect to such options if, at the time of the
writing of such options, the aggregate value of the securities
subject to the options written by the Fund does not exceed 25% of
the value of its total assets; and further provided that (i) the
Equity Growth, Equity Income, International Equity, Small Company
Equity and Asset Allocation Funds may purchase put and call options
to the extent permitted by their investment objectives and policies,
and (ii) the MidCap Equity and Strategic Equity Funds may buy and sell
options, including without

-10-
<PAGE>

limit buying or writing puts and calls, based on any type of security,
index or currency, including options on foreign exchanges and options
not traded on exchanges.

6. Invest in companies for the purpose of exercising management or
control.

7. Purchase securities of other investment companies except in connection
with a merger, consolidation, reorganization, or acquisition of
assets; provided, however, that the Funds may acquire such securities
in accordance with the 1940 Act; and further provided, that each of
the MidCap Equity and Strategic Equity Funds may from time to time,
on a temporary basis, invest exclusively in one other investment
company similar to the respective Fund.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares of the Funds are sold on a continuous basis by First Data
Distributors, Inc. ("FD Distributors"), and FD Distributors has agreed to use
appropriate efforts to solicit all purchase orders. As described in the
Prospectuses, Retail A Shares of the Funds and Retail B Shares of the Equity
Value, Equity Growth, Small Company Equity, MidCap Equity, Asset Allocation
and Strategic Equity Funds ("CDSC Funds") are sold to customers ("Customers")
of FIS Securities, Inc., Fleet Brokerage Securities, Inc., Fleet Securities,
Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its affiliates,
their correspondent banks, and other qualified banks, savings and loan
associations and broker/dealers ("Institutions"). As described in the
Prospectuses, Retail A Shares of the Funds and Retail B Shares of the CDSC
Funds may also be sold to individuals, corporations or other entities, who
submit a purchase application to Galaxy, purchasing either for their own
accounts or for the accounts of others ("Direct Investors").

Retail A Shares of the Funds are sold to Direct Investors and Customers
at the public offering price based on a Fund's net asset value plus a
front-end sales charge as described in the Prospectuses. A deferred sales
charge of up to 1.00% is assessed on certain redemptions of Retail A Shares
that are purchased with no initial sales charge as part of an investment of
$500,000 or more. Retail B Shares of the CDSC Funds are sold to Direct
Investors and Customers at the net asset value next determined after a
purchase order is received, but are subject to a contingent deferred sales
charge which is payable on redemption of such shares as described in the
Prospectuses.

Retail A Shares of the Funds are offered for sale with a maximum
front-end sales charge of 3.75%, with certain exemptions as described in the
Prospectuses. An illustration of the computation of the offering price per
share of Retail A Shares of the Funds, using the value of each Fund's net
assets attributable to such Shares and the number of outstanding Retail A
Shares of each Fund at the close of business on October 31, 1997 (with
respect to the MidCap Equity Fund and Strategic Equity Fund, based on the
projected value of each Fund's net assets and the projected number of
outstanding Retail A Shares of each Fund on the date such Shares are first

-11-
<PAGE>

offered for sale to public investors) and the maximum front-end sales charge
of 3.75%, is as follows:

<TABLE>
<CAPTION>
Equity Value Equity Growth
Fund Fund
------------ -------------
<S> <C> <C>
Net Assets. . . . . . . . . . . . . $182,640,599 $266,330,087

Outstanding Shares. . . . . . . . . 10,026,959 9,001,376

Net Asset Value Per Share . . . . . $ 18.21 $ 25.14

Sales Charge (3.75% of
the offering price) . . . . . . . . $ 0.71 $ 0.98

Offering Price to Public. . . . . . $ 18.92 $ 26.12

<CAPTION>
Equity International
Income Fund Equity Fund
------------ -------------
<S> <C> <C>
Net Assets. . . . . . . . . . . . . $169,275,775 $56,591,796

Outstanding Shares. . . . . . . . . 8,993,619 3,728,334

Net Asset Value Per Share . . . . . $ 18.82 $ 15.18

Sales Charge (3.75% of
the offering price) . . . . . . . . $ 0.73 $ 0.59

Offering Price to Public. . . . . . $ 19.55 $ 15.77
</TABLE>

-12-
<PAGE>

<TABLE>
<CAPTION>
Small Company MidCap
Equity Fund Equity Fund
------------- -------------
<S> <C> <C>
Net Assets. . . . . . . . . . . . . $133,593,454 $ 10

Outstanding Shares. . . . . . . . . 6,475,217 1

Net Asset Value Per Share . . . . . $ 20.94 $ 10.00

Sales Charge (3.75% of
the offering price) . . . . . . . . $ 0.82 $ 0.39

Offering Price to Public. . . . . . $ 21.76 $ 10.39

<CAPTION>
Asset Allocation Strategic Equity
Fund Fund
---------------- ----------------
<S> <C> <C>
Net Assets. . . . . . . . . . . . . $177,238,812 $ 10

Outstanding Shares. . . . . . . . . 10,786,088 1

Net Asset Value Per Share . . . . . $ 16.46 $ 10.00

Sales Charge (3.75% of
the offering price) . . . . . . . . $ 0.64 $ 0.39

Offering Price to Public. . . . . . $ 17.10 $ 10.39
</TABLE>

Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized.

-13-
<PAGE>

DESCRIPTION OF SHARES

Galaxy is a Massachusetts business trust. Galaxy's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares and
to classify or reclassify any unissued shares into one or more additional
classes by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized
the issuance of thirty classes of shares, each representing interests in one
of thirty separate investment portfolios: Money Market Fund, Government Fund,
U.S. Treasury Fund, Tax-Exempt Fund, Connecticut Municipal Money Market Fund,
Massachusetts Municipal Money Market Fund, Institutional Government Money
Market Fund, Prime Reserves, Government Reserves, Tax-Exempt Reserves, Equity
Value Fund, Equity Growth Fund, Equity Income Fund, International Equity
Fund, Small Company Equity Fund, MidCap Equity Fund, Asset Allocation Fund,
Small Cap Value Fund, Growth and Income Fund, Strategic Equity Fund,
Short-Term Bond Fund, Intermediate Government Income Fund, High Quality Bond
Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New Jersey Municipal Bond
Fund, New York Municipal Bond Fund, Connecticut Municipal Bond Fund,
Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond Fund. As
stated in the Prospectuses, two separate series of shares (Retail A Shares
and Trust Shares) of the Funds (plus a third series of shares, i.e. Retail B
Shares, of the CDSC Funds) are offered under separate Prospectuses to
different categories of investors.

Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Except as noted below with respect to the Shareholder
Services Plan (which is currently applicable only to Retail A Shares of a
Fund), the Distribution and Services Plan for Retail B Shares of a CDSC Fund,
and differing transfer agency fees, Trust Shares, Retail A Shares and Retail
B Shares bear pro rata the same expenses and are entitled equally to a Fund's
dividends and distributions. In the event of a liquidation or dissolution of
Galaxy or an individual Fund, shareholders of a particular Fund would be
entitled to receive the assets available for distribution belonging to such
Fund, and a proportionate distribution, based upon the relative asset values
of Galaxy's respective Funds, of any general assets of Galaxy not belonging
to any particular Fund, which are available for distribution. Shareholders
of a Fund are entitled to participate in the net distributable assets of the
particular Fund involved in liquidation, based on the number of shares of the
Fund that are held by each shareholder, except that currently each Fund's
Retail A Shares would be solely responsible for the Fund's payments to
Service Organizations under the Shareholder Services Plan and each CDSC
Fund's Retail B Shares would be solely responsible for the Fund's payments to
FD Distributors and to Service Organizations under the Distribution and
Services Plan.

-14-
<PAGE>

Galaxy's Distribution and Services Plan for Retail B Shares. Further,
shareholders of all of the Funds, as well as those of any other investment
portfolio now or hereafter offered by Galaxy, will vote together in the
aggregate and not separately on a Fund-by-Fund basis, except as otherwise
required by law or when permitted by the Board of Trustees. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted to the holders
of the outstanding voting securities of an investment company such as Galaxy
shall not be deemed to have been effectively acted upon unless approved by
the holders of a majority of the outstanding shares of each Fund affected by
the matter. A particular Fund is deemed to be affected by a matter unless it
is clear that the interests of each Fund in the matter are substantially
identical or that the matter does not affect any interest of the Fund. Under
the Rule, the approval of an investment advisory agreement or any change in
an investment objective or a fundamental investment policy would be
effectively acted upon with respect to a Fund only if approved by a majority
of the outstanding shares of such Fund (irrespective of series designation).
However, the Rule also provides that the ratification of the appointment of
independent public accountants, the approval of principal underwriting
contracts, and the election of trustees may be effectively acted upon by
shareholders of Galaxy voting without regard to class or series.

Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a)
sell and convey the assets of a Fund to another management investment company
for consideration which may include securities issued by the purchaser and,
in connection therewith, to cause all outstanding shares of the Fund involved
to be redeemed at a price which is equal to their net asset value and which
may be paid in cash or by distribution of the securities or other
consideration received from the sale and conveyance; (b) sell and convert a
Fund's assets into money and, in connection therewith, to cause all
outstanding shares of the Fund involved to be redeemed at their net asset
value; or (c) combine the assets belonging to a Fund with the assets
belonging to another Fund of Galaxy and, in connection therewith, to cause
all outstanding shares of any Fund to be redeemed at their net asset value or
converted into shares of another class of Galaxy's shares at the net asset
value. In the event that shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such shares, due to changes
in the market prices of the Fund's portfolio securities, an amount that is
more or less than the original investment. The exercise of such authority by
the Board of Trustees will be subject to the provisions of the 1940 Act, and
the Board of Trustees will not take any action described in this paragraph
unless the proposed action has been disclosed in writing to the Fund's
shareholders at least 30 days prior thereto.

-15-
<PAGE>

ADDITIONAL INFORMATION CONCERNING TAXES

IN GENERAL

Each Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended, (the "Code"), and each Fund intends to
qualify as a "regulated investment company" under the Code. By following
this policy, each Fund expects to eliminate or reduce to a nominal amount the
federal income taxes to which it may be subject. If for any taxable year a
Fund does not qualify for the special federal tax treatment afforded
regulated investment companies, all of the Fund's taxable income would be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders. In such event, a Fund's distributions to
shareholders would be taxable as ordinary income, to the extent of the
current and accumulated earnings and profits of the particular Fund, and
would be eligible for the dividends received deduction in the case of
corporate shareholders.

Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income, if any, net
of certain deductions for such year (the "Distribution Requirement"). In
addition, each Fund must satisfy certain requirements with respect to the
source of its income for a taxable year. At least 90% of the gross income of
each Fund must be derived from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies, and other income (including, but not
limited to, gains from options, futures, or forward contracts) derived with
respect to the Fund's business of investing in such stock, securities or
currencies (the "Income Requirement"). The Treasury Department may by
regulation exclude from qualifying income foreign currency gains which are
not directly related to a Fund's principal business of investing in stock or
securities, or options and futures with respect to stock or securities. Any
income derived by a Fund from a partnership or trust is treated for this
purpose as derived with respect to the Fund's business of investing in stock,
securities or currencies, only to the extent that such income is attributable
to items of income which would have been qualifying income if realized by the
Fund in the same manner as by the partnership or trust.

Substantially all of each Fund's net capital gain (excess of net
long-term capital gain over net short-term capital loss), if any, will be
distributed at least annually to Fund shareholders. A Fund will generally
have no tax liability with respect to such gains and the distributions will
be taxable to Fund shareholders who are not currently exempt from federal
income taxes as long-term capital gain regardless of how long the
shareholders have held Fund shares and whether such gains are received in
cash or reinvested in additional shares.

-16-
<PAGE>

Each Fund will designate the tax status of any distribution in a written
notice mailed to shareholders within 60 days after the close of its taxable
year. Shareholders should note that, upon the sale or exchange of Fund
shares, if the shareholder has not held such shares for more than six months,
any loss on the sale or exchange of those shares will be treated as long term
capital loss to the extent of the capital gain dividends received with
respect to the shares.

Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable
and the phase-out of personal exemptions, the maximum effective marginal rate
of tax for some taxpayers may be higher. An individual's long-term capital
gains on stocks and securities are taxable at a maximum nominal rate of 20%.
For corporations, long-term capital gains and ordinary income are both
taxable at a maximum average rate of 35% (a maximum effective marginal rate
of 39% applies in the case of corporations having taxable income between
$100,000 and $335,000).

A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this
excise tax.

The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid
to any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to backup withholding due to prior failure to
properly include on his or her return payments of taxable interest or
dividends, or (iii) has failed to certify to the Funds that he or she is not
subject to back up withholding when required to do so or that he or she is an
"exempt recipient."

Income received by the Funds from sources within foreign countries may
be subject to withholding and other foreign taxes. The payment of such taxes
will reduce the amount of dividends and distributions paid to a Fund's
shareholders. So long as a Fund qualifies as a regulated investment company,
certain distribution requirements are satisfied, and more than 50% of the
value of the Fund's assets at the close of the taxable year consists of stock
or securities of foreign corporations, the Fund may elect, for U.S. federal
income tax purposes, to treat foreign income taxes paid by the Fund that can
be treated as income taxes under U.S. income tax principles as paid by its
shareholders. A Fund may qualify for and make this election in some, but not
necessarily all, of its taxable years. If a Fund were to make an election,
an amount equal to the foreign income taxes paid by the Fund would be
included in the income of its shareholders and each shareholder would be
entitled either (i) to credit their portions of this amount against their
U.S. tax due, if any, or (ii) if the shareholder itemizes deductions, to
deduct such portion from their U.S taxable income, if any, should the
shareholder so choose. Shortly after any year for which it makes such an
election, a Fund will report to its shareholders, in writing, the amount per
share of such foreign tax that must be included in each shareholder's gross
income and the amount which will be available for deduction or credit.
Certain limitations are imposed on the extent to which the credit (but not
the deduction) for foreign taxes may be claimed.

-17-
<PAGE>

Shareholders who choose to utilize a credit (rather than a deduction)
for foreign taxes will be subject to the limitation that the credit may not
exceed the shareholder's U.S. tax (determined without regard to the
availability of the credit) attributable to his or her total foreign source
taxable income. For this purpose, the portion of dividends and distributions
paid by the Fund from its foreign source income will be treated as foreign
source income. A Fund's gains and losses from the sale of securities
generally will be treated as derived from United States sources and certain
foreign currency gains and losses likewise will be treated as derived from
United States sources. The limitation on the foreign tax credit is applied
separately to foreign source "passive income," such as the portion of
dividends received from a Fund which qualifies as foreign source income.
Additional limitations apply to using the foreign tax credit to offset the
alternative minimum tax imposed on corporations and individuals. Because of
these limitations, shareholders may be unable to claim a credit for the full
amount of their proportionate shares of the foreign income taxes paid by a
Fund.

TAXATION OF CERTAIN FINANCIAL INSTRUMENTS

Strategic rules govern the federal income tax treatment of financial
instruments that may be held by the Funds. These rules may have a particular
impact on the amount of income or gain that the Funds must distribute to
their respective shareholders to comply with the Distribution Requirement and
on the income or gain qualifying under the Income Requirement.

Generally, futures contracts and options on futures contracts held by
the Funds and certain foreign currency contracts entered into by the Funds
(as described above) (collectively, the "Instruments") at the close of their
taxable year are treated for federal income tax purposes as sold for their
fair market value on the last business day of such year, a process known as
"mark-to-market." Forty percent of any gain or loss resulting from such
constructive sales will be treated as short-term capital gain or loss and 60%
of such gain or loss will be treated as long-term capital gain or loss
without regard to the period a Fund has held the Instruments ("the 40-60
rule"). The amount of any capital gain or loss actually realized by a Fund
in a subsequent sale or other disposition of those Instruments is adjusted to
reflect any capital gain or loss taken into account by the Fund in a prior
year as a result of the constructive sale of the Instruments. Losses with
respect to certain foreign currency contracts, which are regarded as parts of
a "mixed straddle" because their values fluctuate inversely to the values of
specific securities held by the Funds, are subject to certain loss deferral
rules, which limit the amount of loss currently deductible on either part of
the straddle to the amount thereof that exceeds the unrecognized gain, if
any, with respect to the other part of the straddle, and to certain wash
sales regulations. With respect to certain Instruments, deductions for
interest and carrying charges may not be allowed. Notwithstanding the rules
described above, with respect to certain foreign currency contracts that are
properly identified as such, a Fund may make an election which will exempt
(in whole or in part) those identified foreign currency contracts from the
Rules of Section 1256 of the Code including "the 40-60 rule" and
"mark-to-market," but gains and losses will be subject to such short sales,
wash sales and loss deferral rules and the requirement to capitalize interest
and carrying charges. Under Temporary Regulations, a Fund would be allowed
(in lieu of the foregoing) to elect either (1) to offset gains or losses from
portions which are part of a mixed straddle by separately identifying each
mixed straddle to which such treatment applies, or (2) to

-18-
<PAGE>

establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under
either election, "the 40-60 rule" will apply to the net gain or loss
attributable to the Instruments, but in the case of a mixed straddle account
election, not more than 50% of any net gain may be treated as long-term and
no more than 40% of any net loss may be treated as short-term.

Certain foreign currency contracts entered into by a Fund may be subject
to the "mark-to-market" process, but gain or loss will be treated as 100%
ordinary income or loss. A foreign currency contract must meet the following
conditions in order to be subject to the mark-to-market rules described
above: (1) the contract must require delivery of, or settlement by reference
to the value of, a foreign currency of a type in which regulated futures
contracts are traded; (2) the contract must be entered into at arm's length
at a price determined by reference to the price in the interbank market; and
(3) the contract must be traded in the interbank market. The Treasury
Department has broad authority to issue regulations under the provisions
respecting foreign currency contracts. As of the date of this Statement of
Additional Information, the Treasury Department has not issued any such
regulations. Other foreign currency contracts entered into by a Fund may
result in the creation of one or more straddles for federal income tax
purposes, in which case certain loss deferral, short sales, and wash sales
rules and the requirement to capitalize interest and carrying charges may
apply.

Some of the non-U.S. dollar denominated investments that a Fund may
make, such as foreign securities, European Depository Receipts, Global
Depository Receipts and foreign currency contracts, may be subject to the
provisions of Subpart J of the Code, which govern the federal income tax
treatment of certain transactions denominated in terms of a currency other
than the U.S. dollar or determined by reference to the value of one or more
currencies other than the U.S. dollar. The types of transactions covered by
these provisions include the following: (1) the acquisition of, or becoming
the obligor under, a bond or other debt instrument (including, to the extent
provided in Treasury regulations, preferred stock); (2) the accruing of
certain trade receivables and payables; and (3) the entering into or
acquisition of any forward contract, futures contract, option and similar
financial instrument. The disposition of a currency other than the U.S.
dollar by a U.S. taxpayer also is treated as a transaction subject to the
special currency rules. However, foreign currency-related regulated futures
contracts and nonequity options are generally not subject to the special
currency rules if they are or would be treated as sold for their fair market
value at year-end under the mark-to-market rules, unless an election is made
to have such currency rules apply. With respect to transactions covered by
the special rules, foreign currency gain or loss is calculated separately
from any gain or loss on the underlying transaction and is normally taxable
as ordinary gain or loss. A taxpayer may elect to treat as capital gain or
loss foreign currency gain or loss arising from certain identified forward
contracts, futures contracts and options that are capital assets in the hands
of the taxpayer and which are not part of a straddle. In accordance with
Treasury regulations, certain transactions that are part of a "Section 988
hedging transaction" (as defined in the Code and Treasury regulations) may be
integrated and treated as a single transaction or otherwise treated
consistently for purposes of the Code. "Section 988 hedging transactions" are
not subject to the mark-to-market or loss deferral rules under the Code.
Gain or loss attributable to the foreign currency component of transactions
engaged in by the Funds, which is not subject to the special currency rules
(such as foreign

-19-
<PAGE>

equity investments other than certain preferred stocks), is treated as
capital gain or loss and is not segregated from the gain or loss on the
underlying transaction.

The Funds may be subject to U.S. federal income tax on a portion of any
"excess distribution" or a gain from the disposition of stock of a passive
foreign investment company even if the Fund distributes the income to its
shareholders. To avoid such tax, a Fund may instead elect to treat such a
company as a "qualified electing fund" or to mark such stock to market as of
the end of each year; under either of these alternative approaches the Fund
may also recognize taxable income in a year without receiving any
corresponding amount of cash.

STATE TAXATION

TRUSTEES AND OFFICERS

The trustees and executive officers of Galaxy, their addresses,
principal occupations during the past five years, and other affiliations are
as follows:

Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
---------------- ----------- ----------------------
<S> <C> <C>

Dwight E. Vicks, Jr. Chairman & Trustee President & Director, Vicks Lithograph & Printing
Vicks Lithograph & Corporation (book manufacturing and commercial printing);
Printing Corporation Director, Utica Fire Insurance Company; Trustee, Savings
Commercial Drive Bank of Utica; Director, Monitor Life Insurance Company;
P.O. Box 270 Director, Commercial Travelers Mutual Insurance Company;
Yorkville, NY 13495 Trustee, The Galaxy VIP Fund; Trustee, Galaxy Fund II.
Age 64
</TABLE>

-20-
<PAGE>

<TABLE>
<CAPTION>
Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
---------------- ----------- ----------------------
<S> <C> <C>

John T. O'Neill(1) President, Executive Vice President and CFO, Hasbro, Inc. (toy and
Hasbro, Inc. Treasurer & game manufacturer); Trustee, The Galaxy VIP Fund;
1027 Newport Avenue Trustee Trustee, Galaxy Fund II.
Pawtucket, RI 02862
Age 53

Louis DeThomasis Trustee President, Saint Mary's College of Minnesota; Director,
Saint Mary's College Bright Day Travel, Inc.; Trustee, Religious Communities
of Minnesota Trust; Trustee, The Galaxy VIP Fund; Trustee, Galaxy Fund
Winona, MN 55987 II.
Age 57

Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast services);
10725 Quail Covey Road Director/Trustee, Lexington Funds; Chairman, Executive
Boynton Beach, FL 33436 Committee, Compton International, Inc. (advertising
Age 72 agency); Trustee, Keuka College; Trustee, The Galaxy VIP
Fund; Trustee, Galaxy Fund II.

James M. Seed Trustee Chairman and President, The Astra Projects, Incorporated
The Astra Ventures, Inc. (land development); President, The Astra Ventures,
One Citizens Plaza Incorporated (previously, Buffinton Box Company -
Providence, RI 02903 manufacturer of cardboard boxes); Commissioner, Rhode
Age 56 Island Investment Commission; Trustee, The Galaxy VIP
Fund; Trustee, Galaxy Fund II.

Bradford S. Wellman(1) Trustee Private Investor; Vice President and Director, Acadia
2468 Ohio Street Management Company; Director, Essex County Gas Company,
Bangor, ME 04401 until January 1994; Director, Maine Mutual Fire Insurance
Age 66 Co.; Member, Maine Finance Authority; Trustee, The Galaxy
VIP Fund; Trustee, Galaxy Fund II.

-21-
<PAGE>

Positions Principal Occupation
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
---------------- ----------- ----------------------
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle & Reath LLP,
Philadelphia National Philadelphia, Pennsylvania.
Bank Building
1345 Chestnut Street.
Philadelphia, PA 19107
Age 54

Jylanne Dunne Vice President and Vice President, First Data Investor Services Group, Inc.,
First Data Investor Assistant 1990 to present.
Services Group, Inc. Treasurer
4400 Computer Drive
Westboro, MA 01581-5108
Age 38
</TABLE>

- -----------------
1. An interested person within the definition set forth in Section 2(a)(19) of
the 1940 Act.

-22-
<PAGE>

investment options, and the amount paid to the trustees under the Plan will
be determined based upon the performance of such investments. Deferral of
trustees' fees will have no effect on a portfolio's assets, liabilities, and
net income per share, and will not obligate the Trusts to retain the services
of any trustee or obligate a portfolio to any level of compensation to the
trustee. The Trusts may invest in underlying securities without shareholder
approval.

No employee of First Data Investor Services Group, Inc., ("Investor
Services Group") receives any compensation from Galaxy for acting as an
officer. No person who is an officer, director or employee of Fleet or
Oechsle, or any of their respective affiliates, serves as a trustee, officer
or employee of Galaxy. The trustees and officers of Galaxy own less than 1%
of its outstanding shares.

The following chart provides certain information about the fees received
by Galaxy's trustees in the most recently completed fiscal year.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Pension or
Retirement
Benefits Total Compensation
Aggregate Accrued as Part from Galaxy and
Compensation from of Fund Fund Complex*Paid
Name of Person/Position Galaxy Expenses to Trustees
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $34,591 None $38,500
Trustee
- --------------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $38,184 None $42,500
Chairman and Trustee
- --------------------------------------------------------------------------------------
Donald B. Miller** $34,574 None $38,500
Trustee
- --------------------------------------------------------------------------------------
Rev. Louis DeThomasis $34,591 None $38,500
Trustee
- --------------------------------------------------------------------------------------
John T. O'Neill $36,837 None $41,000
President, Treasurer
and Trustee
- --------------------------------------------------------------------------------------
James M. Seed** $34,574 None $38,500
Trustee
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>

- -------------

* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy Fund
II.

** Deferred compensation (including interest) in the amounts of $35,777 and
$40,992 accrued during Galaxy's fiscal year ended October 31, 1997 for
Messrs. Miller and Seed, respectively.

-23-
<PAGE>

SHAREHOLDER AND TRUSTEE LIABILITY

ADVISORY, SUB-ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER AGENCY AGREEMENTS

For the services provided and expenses assumed by Fleet, Galaxy paid
Fleet for the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997 advisory fees (net of expense reimbursements) of $1,797,623,
$2,220,230 and $2,860,410, respectively, with respect to the Equity Value
Fund; and $3,406,615, $4,746,270 and $6,555,045, respectively, with respect

-24-
<PAGE>

to the Equity Growth Fund. For the fiscal years ended October 31, 1995 and
October 31, 1997, Fleet reimbursed advisory fees of $2,347 and $26,924,
respectively, with respect to the Equity Value Fund; and $9,296 and $27,033,
respectively, with respect to the Equity Growth Fund.

For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Galaxy paid Fleet advisory fees (net of expense
reimbursements) of $1,097,887, $1,533,644 and $1,947,792, respectively, with
respect to the Equity Income Fund. For the fiscal years ended October 31,
1995, October 31, 1996 and October 31, 1997, Fleet reimbursed advisory fees
of $24,627, $0 and $38,298, respectively, with respect to the Equity Income
Fund.

For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Fleet received advisory fees (net of expense
reimbursements) of $807,983, $1,562,481 and $2,610,431, respectively, with
respect to the Small Company Equity Fund; and $982,310, $1,447,310 and
$2,313,863, respectively, with respect to the Asset Allocation Fund. For the
fiscal years ended October 31, 1995, October 31, 1996 and October 31, 1997,
Fleet reimbursed advisory fees of $11,087, $331 and $118,118, respectively,
with respect to the Small Company Equity Fund; and $37,161, $12,512 and
$19,254, respectively, with respect to the Asset Allocation Fund.

For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Fleet received advisory fees (net of fee waivers and
expense reimbursements) of $850,924, $1,154,303 and $1,844,037, respectively,
with respect to the International Equity Fund. During the same periods,
Fleet waived advisory fees of $291,265, $464,938 and $682,009, respectively,
with respect to the International Equity Fund. During the fiscal year ended
October 31, 1997, Fleet reimbursed advisory fees of $18,362 with respect to
the International Equity Fund.

Oechsle serves as sub-adviser to the International Equity Fund. Under
its sub-advisory agreement with Fleet, Oechsle determines which securities
and other investments will be

-25-
<PAGE>

purchased, retained or sold for the International Equity Fund; places orders
for the Fund; manages the Fund's overall cash position; and provides Fleet
with foreign broker research and a quarterly review of international economic
and investment developments. Fleet, among other things, assists and consults
with Oechsle in connection with the International Equity Fund's continuous
investment program; approves lists of foreign countries recommended by
Oechsle for investment; reviews the Fund's investment policies and
restrictions and recommends appropriate changes to the Board of Trustees; and
provides the Board of Trustees and Oechsle with information concerning
relevant economic and political developments. Oechsle will provide services
under this agreement in accordance with the Fund's investment objectives,
policies and restrictions. Unless sooner terminated by Fleet or the Board of
Trustees upon sixty days' written notice or by Oechsle upon ninety days'
written notice, the sub-advisory agreement will continue in effect from year
to year as long as such continuance is approved at least annually as
described above. For the fiscal year ended October 31, 1997 and for the
period from August 12, 1996 through October 31, 1996, Oechsle received
sub-advisory fees of $979,810 and $119,374, respectively, with respect to the
International Equity Fund.

Prior to August 12, 1996, Wellington Management Company served as
sub-adviser to the International Equity Fund. For the fiscal year ended
October 31, 1995 and for the period from November 1, 1995 through August 11,
1996, Wellington Management Company received sub-advisory fees of $423,376
and $431,198, respectively, with respect to the International Equity Fund.

Investor Services Group serves as Galaxy's administrator. Under the
administration agreement, Investor Services Group has agreed to maintain
office facilities for Galaxy, furnish Galaxy with statistical and research
data, clerical, accounting, and bookkeeping services, certain other services
such as internal auditing services required by Galaxy, and compute the net
asset value and net income of the Funds. Investor Services Group prepares
the Funds' annual and semi-annual reports to the SEC, federal and state tax
returns, and filings with state securities commissions, arranges for and
bears the cost of processing share purchase and redemption orders, maintains
the Funds' financial accounts and records, and generally assists in all
aspects of Galaxy's operations.

For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Investor Services Group and/or its predecessors received
administration fees (net of waivers) of $210,049, $251,209 and $312,596,
respectively, with respect to the Equity Value Fund; $398,623, $536,874 and
$711,960, respectively, with respect to the Equity Growth Fund; $130,993,
$174,406 and $216,835, respectively, with respect to the Equity Income Fund;
$97,015, $141,571 and $222,620, respectively, with respect to the
International Equity Fund; $95,582, $176,590 and $292,316, respectively, with
respect to the Small Company Equity Fund; and $118,968, $165,077 and
$215,871, respectively, with respect to the Asset Allocation Fund. For the
fiscal year ended October 31, 1997, Investor Services Group waived
administration fees

-26-
<PAGE>

of $1,640, $4,360, $4,570 and $2,010 for the Equity Value Fund, Equity Growth
Fund, Small Company Equity Fund and the Asset Allocation Fund, respectively.

CUSTODIAN AND TRANSFER AGENT

The Chase Manhattan Bank ("Chase Manhattan") serves as custodian to the
Funds pursuant to a Global Custody Agreement. Under its custody agreement,
Chase Manhattan has agreed to: (i) maintain a separate account or accounts
in the name of each Fund; (ii) hold and disburse portfolio securities on
account of each Fund; (iii) collect and make disbursements of money on behalf
of each Fund; (iv) collect and receive all income and other payments and
distributions on account of each Fund's portfolio securities; (v) respond to
correspondence from security brokers and others relating to its duties; and
(vi) make periodic reports to the Board of Trustees concerning the Funds'
operations. Chase Manhattan is authorized to select one or more banks or
trust companies to serve as sub-custodian for the Funds, provided that Chase
Manhattan shall remain responsible for the performance of all of its duties
under the custodian agreement and shall be liable to the Funds for any loss
which shall occur as a result of the failure of a sub-custodian to exercise
reasonable care with respect to the safekeeping of the Funds' assets. In
addition, Chase Manhattan may employ sub-custodians for the Funds upon prior
approval by the Board of Trustees in accordance with the regulations of the
SEC, for the purpose of providing custodial services for the foreign assets
of those Funds held outside the U.S. The assets of the Funds are held under
bank custodianship in compliance with the 1940 Act.

PORTFOLIO TRANSACTIONS

The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
Transactions in equity securities on U.S. stock exchanges for the Funds
involve the payment of negotiated brokerage commissions. On U.S. stock
exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. Transactions in the over-the-counter market are
generally principal transactions with dealers and the costs of such
transactions involve dealer spreads rather than brokerage commissions. With
respect to over-the-counter transactions, Fleet and Oechsle will normally
deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere or as described below.

-27-
<PAGE>

For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, the Equity Value Fund paid brokerage commissions
aggregating $588,613, $790,862 and $934,709, respectively; the Equity Growth
Fund paid brokerage commissions aggregating $192,433, $539,416 and
$7,006,331, respectively; the Equity Income Fund paid brokerage commissions
aggregating $108,082, $217,231 and $201,407, respectively, the Asset
Allocation Fund paid brokerage commissions aggregating $101,436, $112,582 and
$155,296, respectively; the Small Company Equity Fund paid brokerage
commissions aggregating $109,014, $258,606 and $354,910, respectively; and
the International Equity Fund paid brokerage commissions aggregating
$341,377, $1,155,060 and $851,919, respectively.

The Funds may engage in short-term trading to achieve their investment
objectives. Portfolio turnover may vary greatly from year to year as well as
within a particular year. In purchasing or selling securities for the Funds,
Fleet or Oechsle will seek to obtain the best net price and the most
favorable execution of orders. To the extent that the execution and price
offered by more than one broker/dealer are comparable, Fleet or Oechsle may
effect transactions in portfolio securities with broker/dealers who provide
research, advice or other services such as market investment literature.

Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to,
Fleet, Oechsle, Investor Services Group, or their affiliates, and will not
give preference to affiliates and correspondent banks of Fleet with respect
to such transactions.

Galaxy is required to identify any securities of its "regular brokers or
dealers" that the Funds have acquired during Galaxy's most recent fiscal
year. At October 31, 1997, (1) the Asset Allocation Fund held 1,961,375
shares of common stock of Chase Manhattan Corp. with a value of $1,961,375;
(2) the Equity Value Fund held 56,8000 shares of common stock of Chase
Manhattan Corp. with a value of $6,553,300 and held 50,000 shares of common
stock of Merrill Lynch & Co., Inc. with a value of $3,381,250; (3) the Equity
Growth Fund held 175,000 shares of common stock of Chase Manhattan Corp. with
a value of $20,190,625. Chase Manhattan Corp. and Merrill Lynch & Co. Inc.
are considered "regular brokers or dealers" of Galaxy.

Investment decisions for each Fund are made independently from those for
the other Funds and portfolios of Galaxy and for any other investment
companies and accounts advised or managed by Fleet or Oechsle. When a
purchase or sale of the same security is made at substantially the same time
on behalf of a Fund, another portfolio of Galaxy, and/or another investment
company or account, the transaction will be averaged as to price, and
available investments allocated as to amount, in a manner which Fleet or
Oechsle believes to be equitable to the Fund and such other portfolio,
investment company or account. In some instances, this investment procedure
may adversely affect the price paid or received by a Fund or the size of the
position obtained or sold by such Fund. To the extent permitted by law,
Fleet or Oechsle may aggregate the securities to be sold or purchased for a
Fund with those to be sold or purchased for Galaxy's other Funds and
portfolios, or other investment companies or accounts in order to obtain best
execution.

-28-
<PAGE>

SHAREHOLDER SERVICES PLAN

As stated in the Prospectuses, Galaxy may enter into agreements
("Servicing Agreements") pursuant to its Shareholder Services Plan ("Services
Plan") with Institutions and other organizations (including Fleet Bank and
its affiliates) (collectively, "Service Organizations") pursuant to which
Service Organizations will be compensated by Galaxy for offering to provide
certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares and Trust Shares of a Fund. As of
October 31, 1997, Galaxy had entered into Servicing Agreements only with
Fleet Bank and affiliates.

Each Servicing Agreement between Galaxy and a Service Organization
relating to the Services Plan requires that, with respect to those Funds
which declare dividends on a daily basis, the Service Organization agree to
waive a portion of the servicing fee payable to it under the Services Plan to
the extent necessary to ensure that the fees required to be accrued with
respect to the Retail A Shares of such Funds on any day do not exceed the
income to be accrued to such Retail A Shares on that day.

For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, payments to Service Organizations totaled $245,304,
$331,670 and $440,920, respectively, with respect to Retail A Shares of the
Equity Value Fund; $237,326, $356,642 and $558,695, respectively, with
respect to Retail A Shares of the Equity Growth Fund; $203,471, $309,334 and
$434,674, respectively, with respect to Retail A Shares of the Equity Income
Fund; $93,434, $79,239 and $102,465, respectively, with respect to Retail A
Shares of the International Equity Fund; $102,102, $172,887 and $287,068,
respectively, with respect to Retail A Shares of the Small Company Equity
Fund; and $205,546, $267,695 and $412,384, respectively, with respect to
Retail A Shares of the Asset Allocation Fund.

Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Services Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid
under the Servicing Agreements and the purposes for which the expenditures
were made. In addition, the arrangements with Service Organizations must be
approved annually by a majority of Galaxy's trustees, including a majority of
the trustees who are not "interested persons" of Galaxy as defined in the
1940 Act and who have no direct or indirect financial interest in such
arrangements (the "Disinterested Trustees").

The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors
that there is a reasonable likelihood that the arrangements will benefit the
Funds and their shareholders by affording Galaxy greater flexibility in
connection with the efficient servicing of the accounts of the beneficial
owners of Retail A Shares of the Funds. Any material amendment to Galaxy's
arrangements with Service Organizations must be approved by a majority of
Galaxy's Board of Trustees (including a majority of the Disinterested
Trustees). So long as Galaxy's arrangements with Service Organizations are
in effect, the selection and nomination of the members of

-29-
<PAGE>

Galaxy's Board of Trustees who are not "interested persons" (as defined in
the 1940 Act) of Galaxy will be committed to the discretion of such
Disinterested Trustees.

DISTRIBUTION AND SERVICES PLAN

Galaxy has adopted a Distribution and Services Plan (the "12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to Retail B Shares of
the Equity Value, Equity Growth, Small Company Equity, MidCap Equity, Asset
Allocation and Strategic Equity Funds. The 12b-1 Plan is described in the
applicable Prospectus.

Under the 12b-1 Plan, payments by Galaxy (i) for distribution expenses
may not exceed .65% (annualized) of the average daily net assets attributable
to such Funds' outstanding Retail B Shares, (ii) to an Institution for
shareholder liaison services and/or administrative support services may not
exceed .25% (annualized) and .25% (annualized), respectively, of the average
daily net assets attributable to each such Funds' outstanding Retail B Shares
which are owned of record or beneficially by that Institution's Customers for
whom the Institution is the dealer of record or shareholder of record or with
whom it has a servicing relationship. As of the date of this Statement of
Additional Information, Galaxy intends to limit the Funds' payments for
shareholder liaison and administrative support services under the 12b-1 Plan
to an aggregate fee of not more than .30% (on an annualized basis) of the
average daily net asset value of Retail B Shares owned of record or
beneficially by Customers of Institutions.

Payments for distribution expenses under the 12b-1 Plan are subject to
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule defines distribution
expenses to include the cost of "any activity which is primarily intended to
result in the sale of Galaxy shares." The Rule provides, among other things,
that an investment company may bear such expenses only pursuant to a plan
adopted in accordance with the Rule. In accordance with the Rule, the 12b-1
Plan provides that a report of the amounts expended under the 12b-1 Plan, and
the purposes for which such expenditures were incurred, will be made to the
Board of Trustees for its review at least quarterly. The 12b-1 Plan provides
that it may not be amended to increase materially the costs which Retail B
Shares of a Fund may bear for distribution pursuant to the 12b-1 Plan without
shareholder approval, and that any other type of material amendment must be
approved by a majority of the Board of Trustees, and by a majority of the
trustees who are neither "interested persons" (as defined in the 1940 Act) of
Galaxy nor have any direct or indirect financial interest in the operation of
the 12b-1 Plan or in any related agreements, by vote cast in person at a
meeting called for the purpose of considering such amendments (the
"Disinterested Trustees").

For the fiscal year ended October 31, 1997, Retail B Shares of the
Equity Value, Equity Growth, Small Company Equity and Asset Allocation Funds
bore the following distribution and shareholder servicing fees under the
12b-1 Plan: $50,897 in distribution fees and $21,199 in shareholder servicing
fees with respect to Retail B Shares of the Equity Value Fund; $75,906 in
distribution fees and $34,034 in shareholder servicing fees with respect to
Retail B Shares of the Equity Growth Fund; $55,371 in distribution fees and
$23,556 in shareholder servicing fees with respect to Retail B Shares of the
Small Company Equity Fund; and $99,219 in distribution fees and $44,293 in
shareholder servicing fees with respect to Retail B Shares of the Asset
Allocation

-30-
<PAGE>

Fund. For the fiscal year ended October 31, 1997, all amounts paid under the
12b-1 Plan were attributable to payments to broker-dealers.

For the period from March 4, 1996 (date of initial public offering of
Retail B Shares) through October 31, 1996, Retail B Shares of the Equity
Value, Equity Growth, Small Company Equity and Asset Allocation Funds bore
the following distribution and shareholder servicing fees until the 12b-1
Plan: $3,518 in distribution fees and $1,624 in shareholder servicing fees
with respect to Retail B Shares of the Equity Value Fund; $7,613 in
distribution fees and $3,514 in shareholder servicing fees with respect to
Retail B Shares of the Equity Growth Fund; $7,282 in distribution fees and
$3,361 in shareholder servicing fees with respect to Retail B Shares of the
Small Company Equity Fund; and $6,389 in distribution fees and $2,949 in
shareholder servicing fees with respect to Retail B Shares of the Asset
Allocation Fund. For the fiscal year ended October 31, 1996, all amounts
paid under the 12b-1 Plan were attributable to payments to broker-dealers.

As long as the 12b-1 Plan is in effect, the nomination of the trustees
who are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of such Disinterested Trustees.

DISTRIBUTOR

First Data Distributors, Inc., a wholly-owned subsidiary of Investor
Services Group, serves as Galaxy's distributor. On March 31, 1995, Investor
Services Group acquired all of the issued and outstanding stock of FD
Distributors. Prior to that time, FD Distributors was a wholly-owned
subsidiary of 440 Financial Group of Worcester, Inc. and an indirect
subsidiary of State Mutual Life Assurance Company of America.

Unless otherwise terminated, the Distribution Agreement between Galaxy
and FD Distributors remains in effect until May 31, 1999, and thereafter will
continue from year to year upon annual approval by Galaxy's Board of
Trustees, or by the vote of a majority of the outstanding shares of Galaxy
and by the vote of a majority of the Board of Trustees of Galaxy who are not
parties to the Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. The
Agreement will terminate in the event of its assignment, as defined in the
1940 Act.

-31-
<PAGE>

FD Distributors is entitled to the payment of a front-end sales charge
on the sale of Retail A Shares of the Funds as described in the applicable
Prospectus. For the fiscal year ended October 31, 1997, FD Distributors
received front-end sales charges in connection with Retail A Share purchases
as follows: Equity Value Fund -- $451,771; Equity Growth Fund -- $491,165;
Equity Income Fund -- $592,347; International Equity Fund -- $320,935; Small
Company Equity Fund -- $343,614; and Asset Allocation Fund -- $1,010,359. Of
these amounts, the Distributor and affiliates of Fleet retained $0 and
$451,771, respectively, with respect to the Equity Value Fund; $0 and
$491,165, respectively, with respect to the Equity Growth Fund; $0 and
$592,347, respectively, with respect to the Equity Income Fund; $0 and
$320,935, respectively, with respect to the International Equity Fund; $0 and
$343,614, respectively, with respect to the Small Company Equity Fund; and $0
and $1,010,359, respectively, with respect to the Asset Allocation Fund.

FD Distributors is also entitled to the payment of contingent deferred
sales charges upon the redemption of Retail B Shares of the CDSC Funds. For
the fiscal year ended October 31, 1997, FD Distributors received contingent
deferred sales charges in connection with Retail B Share redemptions as
follows: Equity Value Fund -- $21,384; Equity Growth Fund -- $28,379; Small
Company Equity Fund -- $34,481; and Asset Allocation Fund -- $57,559. All
such amounts were paid over to affiliates of Fleet.

The following table shows all sales charges, commissions and other
compensation received by FD Distributors directly or indirectly from the
Funds during the fiscal year ended October 31, 1997:

-32-
<PAGE>

<TABLE>
<CAPTION>
Brokerage
Net Underwriting Compensation on Commissions in
Discounts and Redemption and Connection with Other
Fund Commissions(1) Repurchase(2) Fund Transactions Compensation(3)
- ------------- ---------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Equity Value $ 473,155 $21,384 $ 0 $494,552

Equity Growth $ 519,543 $28,379 $ 0 $556,499

Equity Income $ 592,347 $ N/A $ 0 $421,303

International $ 320,935 $ N/A $ 0 $108,934
Equity

Small Company $ 378,095 $34,481 $ 0 $350,051
Equity

Asset $1,067,918 $57,559 $ 0 $517,061
Allocation
</TABLE>

- -------------------

(1) Represents amounts received from front-end sales charges on Retail A Shares
and commissions received in connection with sales of Retail B Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares. All such amounts
were paid to affiliates of Fleet.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1997, which includes fees accrued in the fiscal year ended October 31,
1996, which were paid in 1997 (see "Shareholder Services Plan" and
"Distribution and Services Plan" above).

AUDITORS

PricewaterhouseCoopers LLP, independent certified public accountants,
with offices at One Post Office Square, Boston, Massachusetts 02109, serve as
auditors to Galaxy. The financial highlights for the respective Funds
included in the Prospectuses and the financial statements for the Funds
contained in Galaxy's Annual Report to Shareholders and incorporated by
reference into this Statement of Additional Information for the respective
fiscal periods ended October 31 of each calendar year have been audited by
PricewaterhouseCoopers LLP for the periods included in their report thereon
which appears therein.

COUNSEL

-33-
<PAGE>

PERFORMANCE AND YIELD INFORMATION

The Funds' 30-day (or one month) standard yields described in the
Prospectus are calculated separately for each series of shares in each Fund
in accordance with the method prescribed by the SEC for mutual funds:

YIELD = 2[(a-b/cd +1 )6 - 1]

<TABLE>
<S> <C> <C>
Where: a = dividends and interest earned by a Fund during the period;

b = expenses accrued for the period (net of reimbursements);

c = average daily number of shares outstanding during the
period, entitled to receive dividends; and

d = maximum offering price per share on the last day of the
period.
</TABLE>

For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the Fund. Except as noted below,
interest earned on debt obligations held by a Fund is calculated by computing
the yield to maturity of each obligation based on the market value of the
obligation (including actual accrued interest) at the close of business on
the last business day of each month, or, with respect to obligations
purchased during the month, the purchase price (plus actual accrued interest)
and dividing the result by 360 and multiplying the quotient by the market
value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the
subsequent month that the obligation is held by the Fund. For purposes of
this calculation, it is assumed that each month contains 30 days. The
maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date. With respect to debt obligations purchased at a discount or
premium, the formula generally calls for amortization of the discount or
premium. The amortization schedule will be adjusted monthly to reflect
changes in the market value of such debt obligations. Expenses accrued for
the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts in proportion to the length of the base
period and the Fund's mean (or median) account size. Undeclared earned
income will be subtracted from the offering price per share (variable "d" in
the formula).

With respect to mortgage or receivables-backed obligations that are
expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay-downs are
accounted for as an increase or decrease to interest income during the
period, and (ii) each Fund may elect either (a) to amortize the discount and
premium on the remaining security, based on the cost of the security, to the
weighted average maturity date, if such information is available, or to the
remaining term of the security, if any, if the

-34-
<PAGE>

weighted average date is not available or (b) not to amortize discount or
premium on the remaining security.

Based on the foregoing calculation, the standard yield for Retail A
Shares of the Equity Value, Equity Growth, Equity Income, International
Equity, Small Company Equity and Asset Allocation Funds for the 30-day period
ended October 31, 1997 were 0.36%, 0.08%, 1.69%, -1.05%, -0.09% and 2.57%,
respectively.

Based on the foregoing calculation, the standard yield for Retail B
Shares of the Equity Value, Equity Growth, Small Company Equity and Asset
Allocation Funds for the 30-day period ended October 31, 1997 were -0.40%,
- -0.70%, -1.92% and 2.06%, respectively.

T = [(ERV/P)- 1]l/n

<TABLE>
<S> <C> <C>
Where: T = average annual total return;

ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the l, 5 or 10 year
(or other) periods at the end of the applicable
period (or a fractional portion thereof);

P = hypothetical initial payment of $1,000; and

n = period covered by the computation, expressed in
years.
</TABLE>

Aggregate Total Return = [(ERV/P) - l]

The calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date, (2) all recurring fees charged to
all shareholder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size in the Fund
during the periods is reflected. The ending redeemable value (variable "ERV"
in the formula) is determined by assuming complete redemption of the
hypothetical investment after deduction of all nonrecurring charges at the
end of the measuring period. In addition, the Funds' Retail Shares average
annual total return and aggregate total return quotations will reflect the
deduction of the maximum sales load charged in connection with purchases of
Retail A Shares or redemptions of Retail B Shares.

-35-
<PAGE>

Aggregate total return for Retail A Shares of the Equity Value Fund for
the period September 1, 1988 (inception) to October 31, 1997 was 245.24%.
From September 1, 1988 (inception) to October 31, 1997, average annual total
return for Retail A Shares of the Equity Value Fund was 14.48%. For the
one-year and five-year periods ended October 31, 1997, the average annual
total returns for Retail A Shares of the Equity Value Fund were 24.64% and
18.41%, respectively.

Aggregate total returns for Retail A Shares of the Equity Growth and
Equity Income Funds from December 14, 1990 (inception) to October 31, 1997
were 186.29% and 152.04%, respectively. From December 14, 1990 (inception)
to October 31, 1997, average annual total returns for Retail A Shares of the
Equity Growth and Equity Income Funds were 16.52% and 14.38%, respectively.
For the one-year and five-year periods ended October 31, 1997, the average
annual total returns for Retail A Shares of the Equity Growth and Equity
Income Funds were 26.70% and 16.68%, and 18.65% and 14.73%, respectively.

Aggregate total returns for Retail A Shares of the Small Company Equity,
International Equity and Asset Allocation Funds from December 30, 1991
(inception) to October 31, 1997 were 136.16%, 63.32% and 89.11%,
respectively. From December 30, 1991 (inception) to October 31, 1997, average
annual total returns for Retail A Shares of the Small Company Equity, Asset
Allocation and International Equity Funds were 15.87%, 11.53% and 8.77%,
respectively. For the one-year and five-year periods ended October 31, 1997,
the average annual total returns for Retail A Shares of the Small Company
Equity, Asset Allocation and International Equity Funds were 14.60% and
21.86%, 15.69% and 12.95%, and 11.56% and 11.07%, respectively.

Aggregate total returns for Retail B Shares of the Equity Value, Equity
Growth, Small Company Equity and Asset Allocation Funds from March 4, 1996
(date of their initial public offering) to October 31, 1997 were 35.92%,
37.17%, 32.37% and 24.54%, respectively. From March 4, 1996 (date of their
initial public offering) through October 31, 1997, the average annual total
returns for Retail B Shares of the Equity Value, Equity Growth, Small Company
Equity and Asset Allocation Funds were 20.31%, 20.97%, 18.40% and 14.13%,
respectively. For the one-year period ended October 31, 1997, the average
annual total returns for Retail B Shares of the Equity Value, Equity Growth,
Small Company Equity and Asset Allocation Funds were 23.60%, 25.78%, 13.23%
and 14.34%, respectively.

As stated in the Prospectuses, the Funds may also calculate total return
quotations without deducting the maximum sales charge imposed on purchases of
Retail A Shares or redemptions of Retail B Shares. The effect of not
deducting the sales charge will be to increase the total return reflected.

MISCELLANEOUS

-36-
<PAGE>

thereof, including any proceeds from the sale of such investments, any funds
or payments derived from any reinvestment of such proceeds and a portion of
any general assets of Galaxy not belonging to a particular series or Fund.
In determining the net asset value of a particular series of a Fund, assets
belonging to the particular series of the Fund are charged with the direct
liabilities in respect of that series and with a share of the general
liabilities of Galaxy, which are allocated in proportion to the relative
asset values of the respective series and Funds at the time of allocation.
Subject to the provisions of Galaxy's Declaration of Trust, determinations by
the Board of Trustees as to the direct and allocable liabilities, and the
allocable portion of any general assets with respect to a particular series
or Fund, are conclusive.

As of January 28, 1998, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding Trust
Shares of each of Galaxy's investment portfolios (including shares of the
Institutional Treasury Money Market Fund) were as follows: Money Market Fund
- --Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, New York 14863 (98.22%); Government Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, New York 14638 (98.38%); U.S. Treasury Money Market
Fund -- Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, New York 14638 (98.37%); Tax-Exempt Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main Street,
NY/RO/TO3C, Rochester, New York 14638 (9.95%); Institutional Treasury Money
Market Fund -- Fleet New York, Fleet Investment Services, 159 East Main
Street; NY/RO/TO3C, Rochester, New York 14638 (97.40%); Equity Value Fund --
Norstar Trust Company, Gales & Co., Funds Control, Account 00000003294, Attn:
Julie Hogestyn, One East Avenue, Rochester, New York 14638 (16.78%); Norstar
Trust Company, Gales & Co., Funds Control, Account 00000000064, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (77.92%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000011551, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (5.27%); Equity Growth
Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account
00000030718, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (13.66%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000010017, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (16.01%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000000082, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (70.42%); Equity Income Fund -- Norstar Trust Company, Gales & Co.,
Funds Control, Account 00000000037, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (13.70%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000003748, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (34.36%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000016771, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (51.84%); International Equity Fund -- Norstar
Trust Company, Gales & Co., Funds Control, Account 00000004088, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (11.59%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000876, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (39.24%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000073, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (47.07%); Growth and
Income Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account
05000503793, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (66.30%); Norstar Trust Company, Gales & Co., Funds Control, Account
05000603873, Attn: Julie Hogestyn, One East

-37-
<PAGE>

Avenue, Rochester, New York 14638 (29.85%); Asset Allocation Fund -- Norstar
Trust Company, Gales & Co., Funds Control, Account 00000002598, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (14.30%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000073, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (80.32%); Small Company
Equity Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account
00000006102, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (5.76%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000001492, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (15.90%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000000046, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (70.60%); Small Cap Value Fund -- Norstar Trust Company, Gales & Co.,
Funds Control, Account 06000503917, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (6.32%); Norstar Trust Company, Gales & Co., Funds
Control, Account 05000503999, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (71.98%); Norstar Trust Company, Gales & Co., Funds
Control, Account 05000503953, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (11.25%); Short-Term Bond Fund -- Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000064, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (41.78%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000001090, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York, 14638 (16.05%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000008627, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (42.06%); Intermediate
Government Income Fund -- Norstar Trust Company, Gales & Co., Funds Control,
Account 00000007183, Attn: Julie Hogestyn, One East Avenue, Rochester, New
York 14638 (29.57%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000000037, Attn: Julie Hogestyn, One East Avenue, Rochester, New
York 14638 (28.12%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000038408, Attn: Julie Hogestyn, One East Avenue, Rochester, New
York 14638 (42.32%); Swarovski North America Ret Plan, c/o Norstar Trust Co.,
Gates & Co., 159 East Main St., Rochester, NY 14638 (5.72%); High Quality
Bond Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account
00000006095, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (11.82%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000001465, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (21.18%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000000037, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (67.00%); Corporate Bond Fund -- Norstar Trust Company, Gales & Co.,
Funds Control, Account 00000000046, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (53.41%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000006102, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (34.28%); Tax-Exempt Bond Fund -- Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000670, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (20.10%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000028, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (37.86%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000005899, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (42.04%); New York
Municipal Bond Fund -- Norstar Trust Company, Gales & Co., Funds Control,
Account 00000005292, Attn: Julie Hogestyn, One East Avenue, Rochester, New
York 14638 (10.50%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000000019, Attn: Julie Hogestyn, One East Avenue, Rochester, New
York 14638 (13.66%); Norstar Trust Company, Gales & Co., Funds Control,
Account

-38-
<PAGE>

00000001107, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (75.75%); Connecticut Municipal Bond Fund -- Norstar Trust Company,
Gales & Co., Funds Control, Account 00000000037, Attn: Julie Hogestyn, One
East Avenue, Rochester, New York 14638 (20.74%); Norstar Trust Company, Gales
& Co., Funds Control, Account 00000000019, Attn: Julie Hogestyn, One East
Avenue, Rochester, New York 14638 (78.60%); and Massachusetts Municipal Bond
Fund --Norstar Trust Company, Gales & Co., Funds Control, Account
00000000073, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(36.98%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000000019, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (63.02%).

As of January 28, 1998, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding
Retail B Shares of each of Galaxy's investment portfolios were as follows:
Money Market Fund -- Charles I. Boynton Insurance, 72 River Park Street,
Needham, MA 02194, Account 00920380973, (25.72%); Fleet Bank of
Massachusetts, Customer if the IRA, FBO Norris K. Smith, Jr., 9262 Versailles
Rd., Angola, NY 14006, Account 05100347130, (6.06%); Peter Daniel Mendelsohn,
540 East 6th Street, Apt. 2B, New York, NY 10009, Account 05100353961,
(6.85%); Thomas A. Dowd, Myrna L. Dowd(JTWROS) 9 Cypress Ave., Shrewsbury, MA
01546, Account 06100563501, (17.13%); Mario J. Vidal, Customer Nathan S.
Vidal, 106 Aquidneck Street, New Bedford, MA 02744, Account 06100567151,
(8.54%); Barbara A. Saganich, 4 St. James Circle, Acton, MA 01720, Account
05100663842, (5.09%); High Quality Bond Fund -- E.L. Bradley and Co., Inc.,
16 Helen Rd., Needham, MA 02192, Account 05100649206, (7.78%); Short-Term
Bond Fund -- Colonial Marble Co., Inc., 25 Garvey Street, P.O. Box 187,
Everett, MA 02149, Account 00970037797, (7.17%); Wilbur J. Wade, Jr., 122
Snyder Road, Fort Plain, NY 13339, Account 05100596030, (5.58%); and
Tax-Exempt Bond Fund -- Katrina A. Seltzer, 121 Schuyler Street, Boonville,
NY 13309, Account 051001743724, (12.25%); David Fendler, 72 Brinkerhoff Ave.,
Stamford, CT 06905, Account 05100255354, (25.74%); Joseph R. Copeland, 201
College Street, Springfield, MA 01109, Account 05100388896, (12.97%).

-39-
<PAGE>

FINANCIAL STATEMENTS

Galaxy's Annual Report to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1997 has been filed with the Securities and
Exchange Commission. The financial statements in such Annual Report (the
"Financial Statements") are incorporated by reference into this Statement of
Additional Information. The Financial Statements included in the Annual
Report for the Funds for the fiscal year ended October 31, 1997 have been
audited by Galaxy's independent accountants, PricewaterhouseCoopers LLP,
whose report thereon also appears in such Annual Report and incorporated
herein by reference. The Financial Statements in such Annual Report have been
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

-40-
<PAGE>

APPENDIX A

DESCRIPTION OF SECURITIES RATINGS

The following is a description of the securities ratings of Duff &
Phelps Credit Rating Co. ("D&P"), Fitch IBCA, ("Fitch IBCA"), Standard &
Poor's Ratings Group, Division of McGraw Hill ("S&P"), Moody's Investors
Service, Inc. ("Moody's"), and Thomson BankWatch, Inc. ("Thomson").

CORPORATE AND TAX-EXEMPT BOND RATINGS

The four highest ratings of D&P for tax-exempt and corporate
fixed-income securities are AAA, AA, A and BBB. Securities rated AAA are of
the highest credit quality. The risk factors are considered to be
negligible, being only slightly more than for risk-free U.S. Treasury debt.
Securities rated AA are of high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions. Securities that are rated "A" have protection factors
that are average but adequate. However, risk factors are more variable and
greater in periods of economic stress. Securities that are rated "BBB" have
below average protection factors but are still considered sufficient for
prudent investment. Considerable variability in risk is present during
economic cycles. The AA, A and BBB ratings may be modified by an addition of
a plus (+) or minus (-) sign to show relative standing within these major
rating categories.

The four highest ratings of Fitch IBCA for tax-exempt and corporate
bonds are AAA, AA, A and BBB. Plus (+) and minus (-) signs are used with a
rating symbol to indicate the relative position of a credit within the rating
category. AAA bonds are considered to be investment grade and of the highest
credit quality. The obligor is judged to have an exceptionally strong
ability to pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events. AA bonds are considered to be investment
grade and of very high credit quality. The obligor's ability to pay interest
and repay principal is very strong, although not quite as strong as bonds
rated AAA. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated F-1+. A bonds are considered to be
investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings. BBB bonds are considered to be investment grade
and of satisfactory credit quality. The obligor's ability to pay interest
and repay principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely to have an
adverse impact on these bonds, and therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade
is higher than for bonds with higher ratings.

The four highest ratings of S&P for tax-exempt and corporate bonds are
AAA, AA, A and BBB. Bonds rated AAA bear the highest rating assigned by S&P
to a debt obligation and the AAA rating indicates in its opinion an extremely
strong capacity to pay interest and repay principal. Bonds rated AA by S&P
are judged by it to have a very strong capacity to pay interest

A-1
<PAGE>

and repay principal, and they differ from AAA issues only in small degree.
Bonds rated A are considered to have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds of a
higher rated category. Bonds rated BBB are regarded as having an adequate
capacity to pay interest and repay principal. Whereas such bonds normally
exhibit adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for higher rated
categories. The AA, A and BBB ratings may be modified by an addition of a
plus (+) or minus (-) sign to show relative standing within these major
rating categories.

The four highest ratings of Moody's for tax-exempt and corporate bonds
are Aaa, Aa, A and Baa. Tax-exempt and corporate bonds rated Aaa are judged
to be of the "best quality." The rating of Aa is assigned to bonds which are
of "high quality by all standards." Aa bonds are rated lower than Aaa bonds
because margins of protection may not be as large or fluctuations of
protective elements may be of greater amplitude or there may be other
elements which make the long-term risks appear somewhat larger. Bonds that
are rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
that suggest a susceptibility to impairment sometime in the future. Bonds
that are rated Baa are considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well. Moody's may modify a rating of Aa,
A or Baa by adding numerical modifiers of 1, 2 or 3 to show relative standing
within these categories. The foregoing ratings are sometimes presented in
parentheses preceded with a "con" indicating the bonds are rated
conditionally. Such parenthetical rating denotes the probable credit stature
upon completion of construction or elimination of the basis of the condition.

CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS

A-2
<PAGE>

Fitch IBCA's short-term ratings apply to tax-exempt and corporate debt
obligations that are payable on demand or have original maturities of up to
three years. The four highest ratings of Fitch IBCA for short-term
securities are F-1+, F-1, F-2 and F-3. F-1+ securities possess exceptionally
strong credit quality. Issues assigned this rating are regarded as having
the strongest degree of assurance for timely payment. F-1 securities possess
very strong credit quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated F-1+. F-2
securities possess good credit quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payment, but the margin of safety
is not as great as the F-1+ and F-1 categories. F-3 securities possess fair
credit quality. Issues assigned this rating have characteristics suggesting
that the degree of assurance for timely payment is adequate; however,
near-term adverse changes could cause these securities to be rated below
investment grade.

Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Issuers rated Prime-1 (or related supporting
institutions) in the opinion of Moody's "have a superior capacity for
repayment of short-term promissory obligations." Principal repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance
on debt and ample asset protection; broad margins in earning coverage of
fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity. Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of short-term promissory
obligations. This capacity will normally be evidenced by many of the
characteristics of Prime-1 rated issues, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is maintained. Issuers
rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. Issuers rated
Not Prime do not fall within any of the Prime rating categories.

A-3
<PAGE>

TAX-EXEMPT NOTE RATINGS

Fitch IBCA uses its short-term ratings described above under "Corporate
and Tax-Exempt Commercial Paper Ratings" for tax-exempt notes.

A-4
<PAGE>

APPENDIX B

As stated in the applicable Prospectus, the MidCap Equity and Strategic
Equity Funds may enter into futures transactions for hedging purposes. The
following is a description of such transactions.

I. INTEREST RATE FUTURES CONTRACTS

B-1
<PAGE>

price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.

B-2
<PAGE>

e.g., shorter term securities whose yields are greater than those available
on long-term bonds. A Fund's basic motivation would be to maintain for a
time the income advantage from investing in the short-term securities; the
Fund would be endeavoring at the same time to eliminate the effect of all or
part of an expected increase in market price of the long-term bonds that the
Fund may purchase.

II. MARGIN PAYMENTS

Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker or in a
segregated account with Galaxy's custodian an amount of cash or liquid
portfolio securities, known as initial margin, based on the value of the
contract. The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance
bond or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract

B-3
<PAGE>

III. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS

There are several risks in connection with the use of futures by the
MidCap Equity and Strategic Equity Funds as hedging devices. One risk arises
because of the imperfect correlation between movements in the price of the
futures and movements in the price of the instruments that are the subject of
the hedge. The price of the futures may move more than or less than the price
of the instruments being hedged. If the price of the futures moves less than
the price of the instruments which are the subject of the hedge, the hedge
will not be fully effective but, if the price of the instruments being hedged
has moved in an unfavorable direction, a Fund would be in a better position
than if it had not hedged at all. If the price of the instruments being
hedged has moved in a favorable direction, this advantage will be partially
offset by the loss on the futures. If the price of the futures moves more
than the price of the hedged instruments, the Funds involved will experience
either a loss or gain on the futures, which will not be completely offset by
movements in the price of the instruments which are the subject of the hedge.
To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of instruments being hedged if the volatility over a particular
time period of the prices of such instruments has been greater than the
volatility over such time period of the futures, or if otherwise deemed to be
appropriate by the investment adviser. Conversely, a Fund may buy or sell
fewer futures contracts if the volatility over a particular time period of
the prices of the instruments being hedged is less than the volatility over
such time period of the futures contract being used, or if otherwise deemed
to be appropriate by Fleet. It is also possible that, where a Fund had sold
futures to hedge its portfolio against a decline in the market, the market
may advance and the value of instruments held in the Fund may decline. If
this occurred, the Fund would lose money on the futures and also experience a
decline in value in its portfolio securities.

B-4
<PAGE>

because of concern as to possible further market decline or for other
reasons, the Fund will realize a loss on the futures contract that is not
offset by a reduction in the price of the instruments that were to be
purchased.

Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not be sold
until the futures contract can be terminated. In such circumstances, an
increase in the price of the securities, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is
no guarantee that the price of the securities will in fact correlate with the
price movements in the futures contract and thus provide an offset on a
futures contract.

Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation
limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once
the daily limit has been reached in the contract, no trades may be entered
into at a price beyond the limit, thus preventing the liquidation of open
futures positions. The trading of futures contracts is also subject to the
risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm or clearing

B-5
<PAGE>

house or other disruptions of normal activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.

Successful use of futures by the Funds is also subject to Fleet's
ability to predict correctly movements in the direction of the market. For
example, if a particular Fund has hedged against the possibility of a decline
in the market adversely affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if the Fund has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market.
The Funds may have to sell securities at a time when it may be
disadvantageous to do so.

B-6
<PAGE>

TRUST

THE GALAXY FUND

Statement of Additional Information

Equity Value Fund

Equity Growth Fund

Equity Income Fund

International Equity Fund

Small Company Equity Fund

MidCap Equity Fund

Asset Allocation Fund

Strategic Equity Fund

February 28, 1998
(as revised October 30, 1998)

<PAGE>

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the current prospectuses (the "Prospectuses") for
the Trust Shares of the Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity, MidCap Equity, Asset Allocation
and Strategic Equity Funds, each dated February 28, 1998, of The Galaxy Fund
("Galaxy"), as they may from time to time be supplemented or revised. This
Statement of Additional Information is incorporated by reference in its
entirety into each such Prospectus. No investment in shares of the Funds
should be made without reading the Prospectuses. Copies of the Prospectuses
may be obtained by writing Galaxy c/o First Data Distributors, Inc., 4400
Computer Drive, Westboro, Massachusetts 01581-5108 or by calling Galaxy at
1-800-628-0414.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
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<S> <C>
THE GALAXY FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Variable And Floating Rate Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Bank Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Asset-Backed Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
When-Issued Securities And Delayed Settlement Transactions . . . . . . . . . . . . . . . . 2
Repurchase Agreements; Reverse Repurchase Agreements; Loans Of Portfolio Securities. . . . 2
U.S. Government Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Derivative Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Put And Call Options -- Equity Growth, Equity Income, Small Company Equity
And Asset Allocation Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Covered Call Options -- Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity And Asset Allocation Funds . . . . . . . . 5
Options On Foreign Stock Indexes -- International Equity Fund. . . . . . . . . . . . . . . 6
Put And Call Options-- Midcap Equity And Strategic Equity Funds. . . . . . . . . . . . . . 6
Stock Index Futures And Options-- Midcap Equity And Strategic Equity Funds . . . . . . . . 6
Restrictions On Use Of Futures Contracts And Options -- Midcap Equity And Strategic
Equity Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Indexed Securities-- Midcap Equity And Strategic Equity Funds. . . . . . . . . . . . . . . 8
Swap Agreements-- Midcap Equity And Strategic Equity Funds . . . . . . . . . . . . . . . . 8
Foreign Currency Exchange Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Additional Investment Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 11
DESCRIPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ADDITIONAL INFORMATION CONCERNING TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Taxation of Certain Financial Instruments. . . . . . . . . . . . . . . . . . . . . . . . . 16
State Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Shareholder and Trustee Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ADVISORY, SUB-ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER
AGENCY AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
PORTFOLIO TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SHAREHOLDER SERVICES PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
PERFORMANCE AND YIELD INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
APPENDIX A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
APPENDIX B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-1
</TABLE>

<PAGE>

THE GALAXY FUND

The Galaxy Fund ("Galaxy") is an open-end management investment company
which is currently authorized to offer shares of beneficial interest in
thirty investment portfolios.

This Statement of Additional Information relates to the Trust Shares of
eight of those investment portfolios: the Equity Value Fund, Equity Growth
Fund, Equity Income Fund, International Equity Fund, Small Company Equity
Fund, MidCap Equity Fund, Asset Allocation Fund and Strategic Equity Fund
(the "Funds"). This Statement of Additional Information provides additional
investment information with respect to the Funds and should be read in
conjunction with the current Prospectuses. As of the date of this Statement
of Additional Information, the MidCap Equity Fund had not commenced
investment operations.

INVESTMENT OBJECTIVES AND POLICIES

VARIABLE AND FLOATING RATE OBLIGATIONS

BANK OBLIGATIONS

Investments by the Funds in non-negotiable time deposits are limited to
no more than 5% of each such Fund's total assets at the time of purchase.

ASSET-BACKED SECURITIES

Asset-backed securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in an
underlying pool of assets, or as debt instruments, which are also known as
collateralized obligations, and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Asset-backed securities are often backed by a pool of
assets representing the obligations of a number of different parties.

<PAGE>

The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount
of the obligations may be prepaid at any time because the underlying assets
(i.e. loans) generally may be prepaid at any time. As a result, if an
asset-backed security is purchased at a premium, a prepayment rate that is
faster than expected will reduce yield to maturity, while a prepayment rate
that is slower than expected will have the opposite effect of increasing
yield to maturity. Conversely, if an asset-backed security is purchased at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments, will decrease, yield to maturity.

Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore
prepayment rates are influenced by a variety of economic and social factors.
In general, the collateral supporting non-mortgage asset-backed securities is
of shorter maturity than mortgage loans and is less likely to experience
substantial prepayments. Like other fixed income securities, when interest
rates rise, the value of an asset-backed security generally will decline;
however, when interest rates decline, the value of an asset-backed security
with prepayment features may not increase as much as that of other fixed
income securities.

Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing
or liquidating such securities. For these reasons, under certain
circumstances, asset-backed securities may be considered illiquid securities.

WHEN-ISSUED SECURITIES AND DELAYED SETTLEMENT TRANSACTIONS

REPURCHASE AGREEMENTS; REVERSE REPURCHASE AGREEMENTS; LOANS OF PORTFOLIO
SECURITIES

Each Fund may enter into repurchase agreements. The repurchase price
under a repurchase agreement generally equals the price paid by a Fund plus
interest negotiated on the

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<PAGE>

U.S. GOVERNMENT SECURITIES

Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation,
direct obligations of the U.S. Treasury, and securities issued or guaranteed
by the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land
Banks, Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, Federal National Mortgage
Association, General Services Administration, Central Bank for Cooperatives,
Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks,
Resolution Trust Corporation and Maritime Administration.

DERIVATIVE SECURITIES

PUT AND CALL OPTIONS -- EQUITY GROWTH, EQUITY INCOME,
SMALL COMPANY EQUITY AND ASSET ALLOCATION FUNDS

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<PAGE>

-4-
<PAGE>

COVERED CALL OPTIONS -- EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME,
INTERNATIONAL EQUITY, SMALL COMPANY EQUITY AND ASSET ALLOCATION FUNDS

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<PAGE>

federal income tax purposes, and losses on closing purchase transactions are
treated as short-term capital losses.

OPTIONS ON FOREIGN STOCK INDEXES -- INTERNATIONAL EQUITY FUND

PUT AND CALL OPTIONS -- MIDCAP EQUITY AND STRATEGIC EQUITY FUNDS

The MidCap Equity and Strategic Equity Funds may purchase and sell put
options on their portfolio securities as described in the Prospectuses.

STOCK INDEX FUTURES AND OPTIONS -- MIDCAP EQUITY AND STRATEGIC EQUITY
FUNDS

As a means of reducing fluctuations in the net asset value of shares of
the Funds, the Funds may attempt to hedge all or a portion of their
respective portfolios through the purchase of listed put options on stocks,
stock indices and stock index futures contracts. These options will be used
as a form of forward pricing to protect portfolio securities against
decreases in value resulting from market factors, such as an anticipated
increase in interest rates. A purchased put option gives a Fund, in return
for a premium, the right to sell the underlying security to the writer
(seller) at a specified price during the term of the option. Put options on
stock indices are similar to put options on stocks except for the delivery
requirements. Instead of giving a Fund the right

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<PAGE>

to make delivery of stock at a specified price, a put option on a stock index
gives the Fund, as holder, the right to receive an amount of cash upon
exercise of the option.

RESTRICTIONS ON USE OF FUTURES CONTRACTS AND OPTIONS -- MIDCAP EQUITY AND
STRATEGIC EQUITY FUNDS

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<PAGE>

INDEXED SECURITIES -- MIDCAP EQUITY AND STRATEGIC EQUITY FUNDS

SWAP AGREEMENTS -- MIDCAP EQUITY AND STRATEGIC EQUITY FUNDS

-8-
<PAGE>

FOREIGN CURRENCY EXCHANGE TRANSACTIONS

Because the Funds may buy and sell securities denominated in currencies
other than the U.S. dollar, and receive interest, dividends and sale proceeds
in currencies other than the U.S. dollar, the Funds may enter into foreign
currency exchange transactions to convert United States currency to foreign
currency and foreign currency to United States currency as well as convert
foreign currency to other foreign currencies. A Fund either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies.

A forward foreign currency exchange contract is an obligation by a Fund
to purchase or sell a specific currency at a specified price and future date,
which may be any fixed number of days from the date of the contract. Forward
foreign currency exchange contracts establish an exchange rate at a future
date. These contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward foreign currency exchange contract generally has no
deposit requirement and is traded at a net price without commission. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of a Fund's portfolio securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.

The Funds may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes
in foreign currency exchange rates that would adversely affect a portfolio
position or an anticipated portfolio position. Since consideration of the
prospect for currency parities will be incorporated into a Fund's long-term
investment decisions, the Funds will not routinely enter into foreign
currency hedging transactions with respect to portfolio security
transactions; however, it is important to have the flexibility to enter into
foreign currency hedging transactions when it is determined that the
transactions would be in the Fund's best interest. Although these
transactions tend to minimize the risk of loss due to a decline in the value
of the hedged currency, at the same time they tend to limit any potential
gain that might be realized should the value of the hedged currency increase.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value
of these securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the date the
forward contract is entered into and the date it matures. The projection of
currency market movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.

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<PAGE>

ADDITIONAL INVESTMENT LIMITATIONS

Each Fund may not:

1. Purchase securities on margin (except such short-term credits as may
be necessary for the clearance of purchases), make short sales of
securities, or maintain a short position.

2. Act as an underwriter within the meaning of the Securities Act of
1933; except insofar as a Fund might be deemed to be an underwriter
upon disposition of restricted portfolio securities; and except to
the extent that the purchase of securities directly from the issuer
thereof in accordance with the Fund's investment objective, policies
and limitations may be deemed to be underwriting.

4. Purchase or sell commodities or commodity contracts or invest in oil,
gas, or other mineral exploration or development programs or mineral
leases; provided however, that (i) the Equity Value, Equity Growth,
Equity Income, International Equity, Small Company Equity and Asset
Allocation Funds may enter into forward currency contracts and foreign
currency futures contracts and related options to the extent permitted
by their respective investment objectives and policies, and (ii) the
MidCap Equity and Strategic Equity Funds may engage in transactions
involving financial futures contracts or options on financial futures
contracts.

5. Invest in or sell put options, call options, straddles, spreads, or
any combination thereof; provided, however, that each of the Equity
Value, Equity Growth, Equity Income, International Equity, Small
Company Equity and Asset Allocation Funds may write covered call
options with respect to its portfolio securities that are traded on a
national securities exchange, and may enter into closing purchase
transactions with respect to such options if, at the time of the
writing of such options, the aggregate value of the securities subject
to the options written by the Fund does not exceed 25% of the value
of its total assets; and further provided that (i) the Equity Growth,
Equity Income, International Equity, Small Company Equity and Asset
Allocation Funds may purchase put and call options to the extent
permitted by their investment objectives and policies, and (ii) the
MidCap Equity and Strategic Equity Funds may buy and sell options,
including without

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<PAGE>

limit buying or writing puts and calls, based on any type of security,
index or currency, including options on foreign exchanges and options
not traded on exchanges.

6. Invest in companies for the purpose of exercising management or
control.

7. Purchase securities of other investment companies except in connection
with a merger, consolidation, reorganization, or acquisition of
assets; provided, however, that the Funds may acquire such securities
in accordance with the 1940 Act; and further provided, that each of
the MidCap Equity and Strategic Equity Funds may from time to time, on
a temporary basis, invest exclusively in one other investment company
similar to the respective Fund.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares of the Funds are sold on a continuous basis by First Data
Distributors, Inc. ("FD Distributors"), and FD Distributors has agreed to use
appropriate efforts to solicit all purchase orders. As described in the
Prospectuses, Trust Shares of the Funds are offered to investors maintaining
qualified accounts at bank and trust institutions, including institutions
affiliated with Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans. Trust Shares of the
International Equity Fund are also available for purchase by clients,
partners and employees of Oechsle.

Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized.

-11-
<PAGE>

DESCRIPTION OF SHARES

Galaxy is a Massachusetts business trust. Galaxy's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares and
to classify or reclassify any unissued shares into one or more additional
classes by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized
the issuance of thirty classes of shares, each representing interests in one
of thirty separate investment portfolios: Money Market Fund, Government Fund,
U.S. Treasury Fund, Tax-Exempt Fund, Connecticut Municipal Money Market Fund,
Massachusetts Municipal Money Market Fund, Institutional Government Money
Market Fund, Prime Reserves, Government Reserves, Tax-Exempt Reserves, Equity
Value Fund, Equity Growth Fund, Equity Income Fund, International Equity
Fund, Small Company Equity Fund, MidCap Equity Fund, Asset Allocation Fund,
Small Cap Value Fund, Growth and Income Fund, Strategic Equity Fund,
Short-Term Bond Fund, Intermediate Government Income Fund, High Quality Bond
Fund, Corporate Bond Fund, Tax-Exempt Bond Fund, New Jersey Municipal Bond
Fund, New York Municipal Bond Fund, Connecticut Municipal Bond Fund,
Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond Fund. As
stated in the Prospectuses, two separate series of shares (Retail A Shares
and Trust Shares) of the Funds (plus a third series of shares, i.e. Retail B
Shares, of the Equity Value, Equity Growth, Small Company Equity, MidCap
Equity, Asset Allocation and Strategic Equity Funds (the "CDSC Funds")) are
offered under separate Prospectuses to different categories of investors.

Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Except as noted below with respect to the Shareholder
Services Plan (which is currently applicable only to Retail A Shares of a
Fund), the Distribution and Services Plan for Retail B Shares of a CDSC Fund,
and differing transfer agency fees, Trust Shares, Retail A Shares and Retail
B Shares bear pro rata the same expenses and are entitled equally to a Fund's
dividends and distributions. In the event of a liquidation or dissolution of
Galaxy or an individual Fund, shareholders of a particular Fund would be
entitled to receive the assets available for distribution belonging to such
Fund, and a proportionate distribution, based upon the relative asset values
of Galaxy's respective Funds, of any general assets of Galaxy not belonging
to any particular Fund, which are available for distribution. Shareholders
of a Fund are entitled to participate in the net distributable assets of the
particular Fund involved in liquidation, based on the number of shares of the
Fund that are held by each shareholder, except that currently each Fund's
Retail A Shares would be solely responsible for the Fund's payments to
Service Organizations under the Shareholder Services Plan and each CDSC
Fund's Retail B Shares would be solely responsible for the Fund's payments to
FD Distributors and to Service Organizations under the Distribution and
Services Plan.

-12-
<PAGE>

Fund will be entitled to vote on matters submitted to a vote of shareholders
pertaining to Galaxy's Distribution and Services Plan for Retail B Shares.
Further, shareholders of all of the Funds, as well as those of any other
investment portfolio now or hereafter offered by Galaxy, will vote together
in the aggregate and not separately on a Fund-by-Fund basis, except as
otherwise required by law or when permitted by the Board of Trustees. Rule
18f-2 under the 1940 Act provides that any matter required to be submitted to
the holders of the outstanding voting securities of an investment company
such as Galaxy shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each Fund
affected by the matter. A particular Fund is deemed to be affected by a
matter unless it is clear that the interests of each Fund in the matter are
substantially identical or that the matter does not affect any interest of
the Fund. Under the Rule, the approval of an investment advisory agreement
or any change in an investment objective or a fundamental investment policy
would be effectively acted upon with respect to a Fund only if approved by a
majority of the outstanding shares of such Fund (irrespective of series
designation). However, the Rule also provides that the ratification of the
appointment of independent public accountants, the approval of principal
underwriting contracts, and the election of trustees may be effectively acted
upon by shareholders of Galaxy voting without regard to class or series.

Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a)
sell and convey the assets of a Fund to another management investment company
for consideration which may include securities issued by the purchaser and,
in connection therewith, to cause all outstanding shares of the Fund involved
to be redeemed at a price which is equal to their net asset value and which
may be paid in cash or by distribution of the securities or other
consideration received from the sale and conveyance; (b) sell and convert a
Fund's assets into money and, in connection therewith, to cause all
outstanding shares of the Fund involved to be redeemed at their net asset
value; or (c) combine the assets belonging to a Fund with the assets
belonging to another Fund of Galaxy and, in connection therewith, to cause
all outstanding shares of any Fund to be redeemed at their net asset value or
converted into shares of another class of Galaxy's shares at the net asset
value. In the event that shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such shares, due to changes
in the market prices of the Fund's portfolio securities, an amount that is
more or less than the original investment. The exercise of such authority by
the Board of Trustees will be subject to the provisions of the 1940 Act, and
the Board of Trustees will not take any action described in this paragraph
unless the proposed action has been disclosed in writing to the Fund's
shareholders at least 30 days prior thereto.

-13-
<PAGE>

ADDITIONAL INFORMATION CONCERNING TAXES

IN GENERAL

Each Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended, (the "Code"), and each Fund intends to
qualify as a "regulated investment company" under the Code. By following
this policy, each Fund expects to eliminate or reduce to a nominal amount the
federal income taxes to which it may be subject. If for any taxable year a
Fund does not qualify for the special federal tax treatment afforded
regulated investment companies, all of the Fund's taxable income would be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders. In such event, a Fund's distributions to
shareholders would be taxable as ordinary income, to the extent of the
current and accumulated earnings and profits of the particular Fund, and
would be eligible for the dividends received deduction in the case of
corporate shareholders.

Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income, if any, net
of certain deductions for such year (the "Distribution Requirement"). In
addition, each Fund must satisfy certain requirements with respect to the
source of its income for a taxable year. At least 90% of the gross income of
each Fund must be derived from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies, and other income (including, but not
limited to, gains from options, futures, or forward contracts) derived with
respect to the Fund's business of investing in such stock, securities or
currencies (the "Income Requirement"). The Treasury Department may by
regulation exclude from qualifying income foreign currency gains which are
not directly related to a Fund's principal business of investing in stock or
securities, or options and futures with respect to stock or securities. Any
income derived by a Fund from a partnership or trust is treated for this
purpose as derived with respect to the Fund's business of investing in stock,
securities or currencies, only to the extent that such income is attributable
to items of income which would have been qualifying income if realized by the
Fund in the same manner as by the partnership or trust.

Substantially all of each Fund's net capital gain (excess of net
long-term capital gain over net short-term capital loss), if any, will be
distributed at least annually to Fund shareholders. A Fund will generally
have no tax liability with respect to such gains and the distributions will
be taxable to Fund shareholders who are not currently exempt from federal
income taxes as long-

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<PAGE>

term capital gain regardless of how long the shareholders have held Fund
shares and whether such gains are received in cash or reinvested in
additional shares.

Each Fund will designate the tax status of any distribution in a written
notice mailed to shareholders within 60 days after the close of its taxable
year. Shareholders should note that, upon the sale or exchange of Fund
shares, if the shareholder has not held such shares for more than six months,
any loss on the sale or exchange of those shares will be treated as long term
capital loss to the extent of the capital gain dividends received with
respect to the shares.

Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable
and the phase-out of personal exemptions, the maximum effective marginal rate
of tax for some taxpayers may be higher. An individual's long-term capital
gains on stocks and securities are taxable at a maximum nominal rate of 20%.
For corporations, long-term capital gains and ordinary income are both
taxable at a maximum average rate of 35% (a maximum effective marginal rate
of 39% applies in the case of corporations having taxable income between
$100,000 and $335,000).

A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this
excise tax.

The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid
to any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to backup withholding due to prior failure to
properly include on his or her return payments of taxable interest or
dividends, or (iii) has failed to certify to the Funds that he or she is not
subject to back up withholding when required to do so or that he or she is an
"exempt recipient."

Income received by the Funds from sources within foreign countries may
be subject to withholding and other foreign taxes. The payment of such taxes
will reduce the amount of dividends and distributions paid to a Fund's
shareholders. So long as a Fund qualifies as a regulated investment company,
certain distribution requirements are satisfied, and more than 50% of the
value of the Fund's assets at the close of the taxable year consists of stock
or securities of foreign corporations, the Fund may elect, for U.S. federal
income tax purposes, to treat foreign income taxes paid by the Fund that can
be treated as income taxes under U.S. income tax principles as paid by its
shareholders. A Fund may qualify for and make this election in some, but not
necessarily all, of its taxable years. If a Fund were to make an election,
an amount equal to the foreign income taxes paid by the Fund would be
included in the income of its shareholders and each shareholder would be
entitled either (i) to credit their portions of this amount against their
U.S. tax due, if any, or (ii) if the shareholder itemizes deductions, to
deduct such portion from their U.S taxable income, if any, should the
shareholder so choose. Shortly after any year for which it makes such an
election, a Fund will report to its shareholders, in writing, the amount per
share of such foreign tax that must be included in each shareholder's gross
income and the amount which will be available for deduction or credit.
Certain limitations

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<PAGE>

are imposed on the extent to which the credit (but not the deduction) for
foreign taxes may be claimed.

TAXATION OF CERTAIN FINANCIAL INSTRUMENTS

Generally, futures contracts and options on futures contracts held by
the Funds and certain foreign currency contracts entered into by the Funds
(as described above) (collectively, the "Instruments") at the close of their
taxable year are treated for federal income tax purposes as sold for their
fair market value on the last business day of such year, a process known as
"mark-to-market." Forty percent of any gain or loss resulting from such
constructive sales will be treated as short-term capital gain or loss and 60%
of such gain or loss will be treated as long-term capital gain or loss
without regard to the period a Fund has held the Instruments ("the 40-60
rule"). The amount of any capital gain or loss actually realized by a Fund
in a subsequent sale or other disposition of those Instruments is adjusted to
reflect any capital gain or loss taken into account by the Fund in a prior
year as a result of the constructive sale of the Instruments. Losses with
respect to certain foreign currency contracts, which are regarded as parts of
a "mixed straddle" because their values fluctuate inversely to the values of
specific securities held by the Funds, are subject to certain loss deferral
rules, which limit the amount of loss currently deductible on either part of
the straddle to the amount thereof that exceeds the unrecognized gain, if
any, with respect to the other part of the straddle, and to certain wash
sales regulations. With respect to certain Instruments, deductions for
interest and carrying charges may not be allowed. Notwithstanding the rules
described above, with respect to certain foreign currency contracts that are
properly identified as such, a Fund may make an election which will exempt
(in whole or in part) those identified foreign currency contracts from the
Rules of Section 1256 of the Code including "the 40-60 rule" and
"mark-to-market," but gains and losses will be subject to such short sales,
wash sales and loss deferral rules and the requirement to capitalize interest
and carrying charges. Under Temporary Regulations, a Fund would be allowed
(in lieu of the

-16-
<PAGE>

foregoing) to elect either (1) to offset gains or losses from portions which
are part of a mixed straddle by separately identifying each mixed straddle to
which such treatment applies, or (2) to establish a mixed straddle account
for which gains and losses would be recognized and offset on a periodic basis
during the taxable year. Under either election, "the 40-60 rule" will apply
to the net gain or loss attributable to the Instruments, but in the case of a
mixed straddle account election, not more than 50% of any net gain may be
treated as long-term and no more than 40% of any net loss may be treated as
short-term.

Certain foreign currency contracts entered into by a Fund may be subject
to the "mark-to-market" process, but gain or loss will be treated as 100%
ordinary income or loss. A foreign currency contract must meet the following
conditions in order to be subject to the mark-to-market rules described
above: (1) the contract must require delivery of, or settlement by reference
to the value of, a foreign currency of a type in which regulated futures
contracts are traded; (2) the contract must be entered into at arm's length
at a price determined by reference to the price in the interbank market; and
(3) the contract must be traded in the interbank market. The Treasury
Department has broad authority to issue regulations under the provisions
respecting foreign currency contracts. As of the date of this Statement of
Additional Information, the Treasury Department has not issued any such
regulations. Other foreign currency contracts entered into by a Fund may
result in the creation of one or more straddles for federal income tax
purposes, in which case certain loss deferral, short sales, and wash sales
rules and the requirement to capitalize interest and carrying charges may
apply.

Some of the non-U.S. dollar denominated investments that a Fund may
make, such as foreign securities, European Depository Receipts, Global
Depository Receipts and foreign currency contracts, may be subject to the
provisions of Subpart J of the Code, which govern the federal income tax
treatment of certain transactions denominated in terms of a currency other
than the U.S. dollar or determined by reference to the value of one or more
currencies other than the U.S. dollar. The types of transactions covered by
these provisions include the following: (1) the acquisition of, or becoming
the obligor under, a bond or other debt instrument (including, to the extent
provided in Treasury regulations, preferred stock); (2) the accruing of
certain trade receivables and payables; and (3) the entering into or
acquisition of any forward contract, futures contract, option and similar
financial instrument. The disposition of a currency other than the U.S.
dollar by a U.S. taxpayer also is treated as a transaction subject to the
special currency rules. However, foreign currency-related regulated futures
contracts and nonequity options are generally not subject to the special
currency rules if they are or would be treated as sold for their fair market
value at year-end under the mark-to-market rules, unless an election is made
to have such currency rules apply. With respect to transactions covered by
the special rules, foreign currency gain or loss is calculated separately
from any gain or loss on the underlying transaction and is normally taxable
as ordinary gain or loss. A taxpayer may elect to treat as capital gain or
loss foreign currency gain or loss arising from certain identified forward
contracts, futures contracts and options that are capital assets in the hands
of the taxpayer and which are not part of a straddle. In accordance with
Treasury regulations, certain transactions that are part of a "Section 988
hedging transaction" (as defined in the Code and Treasury regulations) may be
integrated and treated as a single transaction or otherwise treated
consistently for purposes of the Code. "Section 988 hedging transactions" are
not subject to the mark-to-market or loss deferral rules under the Code.
Gain or loss attributable to the foreign currency component of transactions

-17-
<PAGE>

engaged in by the Funds, which is not subject to the special currency rules
(such as foreign equity investments other than certain preferred stocks), is
treated as capital gain or loss and is not segregated from the gain or loss
on the underlying transaction.

STATE TAXATION

TRUSTEES AND OFFICERS

The trustees and executive officers of Galaxy, their addresses,
principal occupations during the past five years, and other affiliations are
as follows:

<TABLE>
<CAPTION>
Positions
with The Principal Occupation
Galaxy During Past 5 Years
Name and Address Fund and Other Affiliations
---------------- --------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & President & Director, Vicks
Vicks Lithograph & Trustee Lithograph & Printing Corporation
Printing Corporation (book manufacturing and commercial
Commercial Drive printing); Director, Utica Fire
P.O. Box 270 Insurance Company; Trustee,
Yorkville, NY 13495 Savings Bank of Utica; Director,
Age 64 Monitor Life Insurance Company;
Director, Commercial Travelers
Mutual Insurance Company; Trustee,
The Galaxy VIP Fund; Trustee,
Galaxy Fund II.

-18-
<PAGE>

Positions
with The Principal Occupation
Galaxy During Past 5 Years
Name and Address Fund and Other Affiliations
---------------- --------- ----------------------
John T. O'Neill(1) President, Executive Vice President and CFO,
Hasbro, Inc. Treasurer Hasbro, Inc. (toy and game
1027 Newport Avenue & Trustee manufacturer); Trustee, The Galaxy
Pawtucket, RI 02862 VIP Fund; Trustee, Galaxy Fund II.
Age 53

Louis DeThomasis Trustee President, Saint Mary's College
Saint Mary's College of Minnesota; Director, Bright Day
of Minnesota Travel, Inc.; Trustee, Religious
Winona, MN 55987 Communities Trust; Trustee, The
Age 57 Galaxy VIP Fund; Trustee, Galaxy
Fund II.

Donald B. Miller Trustee Chairman, Horizon Media, Inc.
10725 Quail Covey Road (broadcast services);
Boynton Beach, FL 33436 Director/Trustee, Lexington Funds;
Age 72 Chairman, Executive Committee,
Compton International, Inc.
(advertising agency); Trustee,
Keuka College; Trustee, The Galaxy
VIP Fund; Trustee, Galaxy Fund II.

James M. Seed Trustee Chairman and President, The Astra
The Astra Ventures, Inc. Projects, Incorporated (land
One Citizens Plaza development); President, The Astra
Providence, RI 02903 Ventures, Incorporated
Age 56 (previously, Buffinton Box Company
- manufacturer of cardboard
boxes); Commissioner, Rhode Island
Investment Commission; Trustee,
The Galaxy VIP Fund; Trustee,
Galaxy Fund II.

Bradford S. Wellman(1) Trustee Private Investor; Vice President
2468 Ohio Street and Director, Acadia Management
Bangor, ME 04401 Company; Director, Essex County
Age 66 Gas Company, until January 1994;
Director, Maine Mutual Fire
Insurance Co.; Member, Maine
Finance Authority; Trustee, The
Galaxy VIP Fund; Trustee, Galaxy
Fund II.

-19-
<PAGE>

Positions
with The Principal Occupation
Galaxy During Past 5 Years
Name and Address Fund and Other Affiliations
---------------- --------- ----------------------
W. Bruce McConnel, III Secretary Partner of the law firm Drinker
Philadelphia National Biddle & Reath LLP, Philadelphia,
Bank Building Pennsylvania.
1345 Chestnut Street.
Philadelphia, PA 19107
Age 54

Jylanne Dunne Vice Vice President, First Data
First Data Investor Services President Investor Services Group, Inc.,
Group, Inc. and 1990 to present.
4400 Computer Drive Assistant
Westboro, MA 01581-5108 Treasurer
Age 38
</TABLE>

- -------------------------

1. An interested person within the definition set forth in Section 2(a)(19) of
the 1940 Act.

-20-
<PAGE>

No employee of First Data Investor Services Group, Inc., ("Investor
Services Group") receives any compensation from Galaxy for acting as an
officer. No person who is an officer, director or employee of Fleet or
Oechsle, or any of their respective affiliates, serves as a trustee, officer
or employee of Galaxy. The trustees and officers of Galaxy own less than 1%
of its outstanding shares.

The following chart provides certain information about the fees received
by Galaxy's trustees in the most recently completed fiscal year.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Pension or Total
Retirement Compensation
Benefits from Galaxy and
Aggregate Accrued as Fund
Compensation from Part of Fund Complex*Paid to
Name of Person/Position Galaxy Expenses Trustees
----------------------- ----------------- ------------ ---------------
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $34,591 None $38,500
Trustee
- ------------------------------------------------------------------------------
Dwight E. Vicks, Jr. $38,184 None $42,500
Chairman and Trustee
- ------------------------------------------------------------------------------
Donald B. Miller** $34,574 None $38,500
Trustee
- ------------------------------------------------------------------------------
Rev. Louis DeThomasis $34,591 None $38,500
Trustee
- ------------------------------------------------------------------------------
John T. O'Neill $36,837 None $41,000
President, Treasurer
and Trustee
- ------------------------------------------------------------------------------
James M. Seed** $34,574 None $38,500
Trustee
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>

- -------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy Fund
II.

** Deferred compensation (including interest) in the amounts of $35,777 and
$40,992 accrued during Galaxy's fiscal year ended October 31, 1997 for
Messrs. Miller and Seed, respectively.

-21-
<PAGE>

SHAREHOLDER AND TRUSTEE LIABILITY

ADVISORY, SUB-ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER AGENCY AGREEMENTS

-22-
<PAGE>

Fleet Bank, an affiliate of Fleet, is paid a fee for sub-account and
administrative services performed with respect to Trust Shares of the Funds
held by defined contribution plans.

-23-
<PAGE>

Pursuant to an agreement between Fleet Bank and Investor Services Group,
Fleet Bank will be paid $21.00 per year for each defined contribution plan
participant account. As of October 31, 1997, there were approximately 91,482
defined contribution plan participant sub-accounts invested in Trust Shares
of the Funds; thus it is expected that Fleet Bank will receive annually
approximately $1,921,122 for sub-account services. Investor Services Group
bears this expense directly, and shareholders of Trust Shares of the Funds
bear this expense indirectly through fees paid to Investor Services Group for
transfer agency services.

Oechsle serves as sub-adviser to the International Equity Fund. Under
its sub-advisory agreement with Fleet, Oechsle determines which securities
and other investments will be purchased, retained or sold for the
International Equity Fund; places orders for the Fund; manages the Fund's
overall cash position; and provides Fleet with foreign broker research and a
quarterly review of international economic and investment developments.
Fleet, among other things, assists and consults with Oechsle in connection
with the International Equity Fund's continuous investment program; approves
lists of foreign countries recommended by Oechsle for investment; reviews the
Fund's investment policies and restrictions and recommends appropriate
changes to the Board of Trustees; and provides the Board of Trustees and
Oechsle with information concerning relevant economic and political
developments. Oechsle will provide services under this agreement in
accordance with the Fund's investment objectives, policies and restrictions.
Unless sooner terminated by Fleet or the Board of Trustees upon sixty days'
written notice or by Oechsle upon ninety days' written notice, the
sub-advisory agreement will continue in effect from year to year as long as
such continuance is approved at least annually as described above. For the
fiscal year ended October 31, 1997 and for the period from August 12, 1996
through October 31, 1996, Oechsle received sub-advisory fees of $979,810 and
$119,374, respectively, with respect to the International Equity Fund.

Investor Services Group serves as Galaxy's administrator. Under the
administration agreement, Investor Services Group has agreed to maintain
office facilities for Galaxy, furnish Galaxy with statistical and research
data, clerical, accounting, and bookkeeping services, certain other services
such as internal auditing services required by Galaxy, and compute the net
asset value and net income of the Funds. Investor Services Group prepares
the Funds' annual and semi-annual reports to the SEC, federal and state tax
returns, and filings with state securities commissions, arranges for and
bears the cost of processing share purchase and redemption orders, maintains
the Funds' financial accounts and records, and generally assists in all
aspects of Galaxy's operations.

-24-
<PAGE>

CUSTODIAN AND TRANSFER AGENT

The Chase Manhattan Bank ("Chase Manhattan") serves as custodian to the
Funds pursuant to a Global Custody Agreement. Under its custody agreement,
Chase Manhattan has agreed to: (i) maintain a separate account or accounts
in the name of each Fund; (ii) hold and disburse portfolio securities on
account of each Fund; (iii) collect and make disbursements of money on behalf
of each Fund; (iv) collect and receive all income and other payments and
distributions on account of each Fund's portfolio securities; (v) respond to
correspondence from security brokers and others relating to its duties; and
(vi) make periodic reports to the Board of Trustees concerning the Funds'
operations. Chase Manhattan is authorized to select one or more banks or
trust companies to serve as sub-custodian for the Funds, provided that Chase
Manhattan shall remain responsible for the performance of all of its duties
under the custodian agreement and shall be liable to the Funds for any loss
which shall occur as a result of the failure of a sub-custodian to exercise
reasonable care with respect to the safekeeping of the Funds' assets. In
addition, Chase Manhattan may employ sub-custodians for the Funds upon prior
approval by the Board of Trustees in accordance with the regulations of the
SEC, for the purpose of providing custodial services for the foreign assets
of those Funds held outside the U.S. The assets of the Funds are held under
bank custodianship in compliance with the 1940 Act.

-25-
<PAGE>

PORTFOLIO TRANSACTIONS

Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to,
Fleet, Oechsle, Investor Services Group, or their affiliates, and will not
give preference to affiliates and correspondent banks of Fleet with respect
to such transactions.

-26-
<PAGE>

Investment decisions for each Fund are made independently from those for
the other Funds and portfolios of Galaxy and for any other investment
companies and accounts advised or managed by Fleet or Oechsle. When a
purchase or sale of the same security is made at substantially the same time
on behalf of a Fund, another portfolio of Galaxy, and/or another investment
company or account, the transaction will be averaged as to price, and
available investments allocated as to amount, in a manner which Fleet or
Oechsle believes to be equitable to the Fund and such other portfolio,
investment company or account. In some instances, this investment procedure
may adversely affect the price paid or received by a Fund or the size of the
position obtained or sold by such Fund. To the extent permitted by law,
Fleet or Oechsle may aggregate the securities to be sold or purchased for a
Fund with those to be sold or purchased for Galaxy's other Funds and
portfolios, or other investment companies or accounts in order to obtain best
execution.

SHAREHOLDER SERVICES PLAN

Each Servicing Agreement between Galaxy and a Service Organization
relating to the Services Plan requires that, with respect to those Funds
which declare dividends on a daily basis, the Service Organization agree to
waive a portion of the servicing fee payable to it under the Services Plan to
the extent necessary to ensure that the fees required to be accrued with
respect to the Retail A Shares of such Funds on any day do not exceed the
income to be accrued to such Retail A Shares on that day.

Galaxy's Servicing Agreements are governed by the Services Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares and Trust Shares of each Fund. Pursuant to the Services
Plan, the Board of Trustees reviews, at least quarterly, a written report of
the amounts paid under the Servicing Agreements and the purposes for which
the expenditures were made. In addition, the arrangements with Service
Organizations must be approved annually by a majority of Galaxy's trustees,
including a majority of the trustees who are not "interested persons" of
Galaxy as defined in the 1940 Act and who have no direct or indirect
financial interest in such arrangements (the "Disinterested Trustees").

-27-
<PAGE>

beneficial owners of Retail A Shares of the Funds. Any material amendment to
Galaxy's arrangements with Service Organizations must be approved by a
majority of Galaxy's Board of Trustees (including a majority of the
Disinterested Trustees). So long as Galaxy's arrangements with Service
Organizations are in effect, the selection and nomination of the members of
Galaxy's Board of Trustees who are not "interested persons" (as defined in
the 1940 Act) of Galaxy will be committed to the discretion of such
Disinterested Trustees.

DISTRIBUTOR

AUDITORS

PricewaterhouseCoopers LLP, independent certified public accountants,
with offices at One Post Office Square, Boston, Massachusetts 02109, serve as
auditors to Galaxy. The financial highlights for the respective Funds
included in the Prospectuses and the financial statements for the Funds
contained in Galaxy's Annual Report to Shareholders and incorporated by
reference into this Statement of Additional Information for the respective
fiscal periods ended October 31 of each calendar year have been audited by
PricewaterhouseCoopers LLP for the periods included in their report thereon
which appears therein.

COUNSEL

-28-
<PAGE>

PERFORMANCE AND YIELD INFORMATION

6
YIELD = 2[(a-b/cd +1 ) - 1]

<TABLE>
<S> <C>
Where:
a = dividends and interest earned by a Fund during the period;

b = expenses accrued for the period (net of reimbursements);

c = average daily number of shares outstanding during the
period, entitled to receive dividends; and

d = maximum offering price per share on the last day of the
period.
</TABLE>

For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the Fund. Except as noted below,
interest earned on debt obligations held by a Fund is calculated by computing
the yield to maturity of each obligation based on the market value of the
obligation (including actual accrued interest) at the close of business on
the last business day of each month, or, with respect to obligations
purchased during the month, the purchase price (plus actual accrued interest)
and dividing the result by 360 and multiplying the quotient by the market
value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the
subsequent month that the obligation is held by the Fund. For purposes of
this calculation, it is assumed that each month contains 30 days. The
maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date. With respect to debt obligations purchased at a discount or
premium, the formula generally calls for amortization of the discount or
premium. The amortization schedule will be adjusted monthly to reflect
changes in the market value of such debt obligations. Expenses accrued for
the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts in proportion to the length of the base
period and the Fund's mean (or median) account size. Undeclared earned
income will be subtracted from the offering price per share (variable "d" in
the formula).

-29-
<PAGE>

weighted average date is not available or (b) not to amortize discount or
premium on the remaining security.

Based on the foregoing calculation, the standard yield for Trust Shares
of the Equity Value, Equity Growth, Equity Income, International Equity,
Small Company Equity and Asset Allocation Funds for the 30-day period ended
October 31, 1997 were 0.69%, 0.48%, 2.18%, -0.49%, -0.74%, and 2.85%,
respectively.

T = [(ERV/P)- 1]1/n

<TABLE>
<S> <C>
Where: T = average annual total return;

ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10
year (or other) periods at the end of the applicable
period (or a fractional portion thereof);

P = hypothetical initial payment of $1,000; and

n = period covered by the computation, expressed in
years.
</TABLE>

Aggregate Total Return = [(ERV/P) - 1]

The calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date, (2) all recurring fees charged to
all shareholder accounts are included, and (3) for any account fees that vary
with the size of the account, a mean (or median) account size in the Fund
during the periods is reflected. The ending redeemable value (variable "ERV"
in the formula) is determined by assuming complete redemption of the
hypothetical investment after deduction of all nonrecurring charges at the
end of the measuring period.

Aggregate total return for Trust Shares of the Equity Value Fund for the
period September 1, 1988 (inception) to October 31, 1997 was 263.21%. From
September 1, 1988 (inception) to October 31, 1997, average annual total
return for Trust Shares of the Equity Value Fund was 15.11%. For the
one-year and five-year periods ended October 31, 1997, the average annual
total returns for Trust Shares of the Equity Value Fund were 29.87% and
19.61%, respectively.

-30-
<PAGE>

Aggregate total returns for Trust Shares of the Equity Growth and Equity
Income Funds from December 14, 1990 (inception) to October 31, 1997 were
201.51% and 165.85%, respectively. From December 14, 1990 (inception) to
October 31, 1997, average annual total returns for Trust Shares of the Equity
Growth and Equity Income Funds were 17.40% and 15.27%, respectively. For the
one-year and five-year periods ended October 31, 1997, the average annual
total returns for Trust Shares of the Equity Growth and Equity Income Funds
were 32.16% and 17.89% and 23.80% and 15.95%, respectively.

Aggregate total returns for Trust Shares of the Small Company Equity,
International Equity and Asset Allocation Funds from December 30, 1991
(inception) to October 31, 1997 were 149.37%, 72.80%, and 97.85%,
respectively. From December 30, 1991 (inception) to October 31, 1997, average
annual total returns for Trust Shares of the Small Company Equity,
International Equity and Asset Allocation Funds were 16.95%, 9.83% and
12.40%, respectively. For the one-year and five-year periods ended October
31, 1997, the average annual total returns for Trust Shares of the Small
Company Equity, International Equity and Asset Allocation Funds were 19.59%
and 23.19%, 16.60% and 12.33%, and 20.42% and 13.98%, respectively.

MISCELLANEOUS

As used in the Prospectuses, "assets belonging to a particular series of
a Fund" means the consideration received by Galaxy upon the issuance of
shares in that particular series of the Fund, together with all income,
earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or
payments derived from any reinvestment of such proceeds and a portion of any
general assets of Galaxy not belonging to a particular series or Fund. In
determining the net asset value of a particular series of a Fund, assets
belonging to the particular series of the Fund are charged with the direct
liabilities in respect of that series and with a share of the general
liabilities of Galaxy, which are allocated in proportion to the relative
asset values of the respective series and Funds at the time of allocation.
Subject to the provisions of Galaxy's Declaration of Trust, determinations by
the Board of Trustees as to the direct and allocable liabilities, and the
allocable portion of any general assets with respect to a particular series
or Fund, are conclusive.

-31-
<PAGE>

Company, Gales & Co., Funds Control, Account 00000003294, Attn:
Julie Hogestyn, One East Avenue, Rochester, New York 14638 (16.78%); Norstar
Trust Company, Gales & Co., Funds Control, Account 00000000064, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (77.92%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000011551, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (5.27%); Equity Growth
Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account
00000030718, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (13.66%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000010017, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (16.01%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000000082, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (70.42%); Equity Income Fund -- Norstar Trust Company, Gales & Co.,
Funds Control, Account 00000000037, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (13.70%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000003748, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (34.36%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000016771, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (51.84%); International Equity Fund -- Norstar
Trust Company, Gales & Co., Funds Control, Account 00000004088, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (11.59%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000876, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (39.24%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000073, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (47.07%); Growth and
Income Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account
05000503793, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (66.30%); Norstar Trust Company, Gales & Co., Funds Control, Account
05000603873, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (29.85%); Asset Allocation Fund -- Norstar Trust Company, Gales & Co.,
Funds Control, Account 00000002598, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (14.30%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000073, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (80.32%); Small Company Equity Fund -- Norstar
Trust Company, Gales & Co., Funds Control, Account 00000006102, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (5.76%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000001492, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (15.90%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000046, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (70.60%); Small Cap
Value Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account
06000503917, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (6.32%); Norstar Trust Company, Gales & Co., Funds Control, Account
05000503999, Attn: Julie Hogestyn, One East Avenue, Rochester, New York
14638 (71.98%); Norstar Trust Company, Gales & Co., Funds Control, Account
05000503953, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(11.25%); Short-Term Bond Fund -- Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000064, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (41.78%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000001090, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York, 14638 (16.05%); Norstar Trust Company, Gales & Co.,
Funds Control, Account 00000008627, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (42.06%); Intermediate Government Income Fund --
Norstar Trust Company, Gales & Co., Funds Control, Account 00000007183, Attn:
Julie Hogestyn, One East Avenue, Rochester,

-32-
<PAGE>

New York 14638 (29.57%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000000037, Attn: Julie Hogestyn, One East Avenue, Rochester, New
York 14638 (28.12%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000038408, Attn: Julie Hogestyn, One East Avenue, Rochester, New
York 14638 (42.32%); Swarovski North America Ret Plan, c/o Norstar Trust Co.,
Gates & Co., 159 East Main St., Rochester, NY 14638 (5.72%); High Quality
Bond Fund -- Norstar Trust Company, Gales & Co., Funds Control, Account
00000006095, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(11.82%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000001465, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(21.18%); Norstar Trust Company, Gales & Co., Funds Control, Account
00000000037, Attn: Julie Hogestyn, One East Avenue, Rochester, New York 14638
(67.00%); Corporate Bond Fund -- Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000046, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (53.41%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000006102, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (34.28%); Tax-Exempt Bond Fund -- Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000670, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (20.10%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000028, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (37.86%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000005899, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (42.04%); New York
Municipal Bond Fund -- Norstar Trust Company, Gales & Co., Funds Control,
Account 00000005292, Attn: Julie Hogestyn, One East Avenue, Rochester, New
York 14638 (10.50%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000000019, Attn: Julie Hogestyn, One East Avenue, Rochester, New
York 14638 (13.66%); Norstar Trust Company, Gales & Co., Funds Control,
Account 00000001107, Attn: Julie Hogestyn, One East Avenue, Rochester, New
York 14638 (75.75%); Connecticut Municipal Bond Fund -- Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000037, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (20.74%); Norstar Trust
Company, Gales & Co., Funds Control, Account 00000000019, Attn: Julie
Hogestyn, One East Avenue, Rochester, New York 14638 (78.60%); and
Massachusetts Municipal Bond Fund -- Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000073, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (36.98%); Norstar Trust Company, Gales & Co., Funds
Control, Account 00000000019, Attn: Julie Hogestyn, One East Avenue,
Rochester, New York 14638 (63.02%).

-33-
<PAGE>

Carl Vajeri, 39 Brighton Ave., Boston, MA 02128 (5.73%); and Rhode Island
Municipal Bond Fund -- Norstar Trust Company, Gales & Co., Funds Control,
Attn: Julie Hogestyn, One East Ave., Rochester, NY 14638 (33.61%); James R.
McCulloch, c/o Microfibre, P.O. Box 1208, Pawtucket, RI 02860 (7.65%); Gerald
M. Gannon, 293 Promenade Ave., Warwick, RI 02886-8324 (5.81%).

As of January 28, 1998, the name, address and share ownership of the
entities or persons that held of record more than 5% of the outstanding
Retail B Shares of each of Galaxy's investment portfolios were as follows:
Money Market Fund -- Charles I. Boynton Insurance, 72 River Park Street,
Needham, MA 02194, Account 00920380973, (25.72%); Fleet Bank of
Massachusetts, Customer if the IRA, FBO Norris K. Smith, Jr., 9262 Versailles
Rd., Angola, NY 14006, Account 05100347130, (6.06%); Peter Daniel Mendelsohn,
540 East 6th Street, Apt. 2B, New York, NY 10009, Account 05100353961,
(6.85%); Thomas A. Dowd, Myrna L. Dowd(JTWROS) 9 Cypress Ave., Shrewsbury, MA
01546, Account 06100563501, (17.13%); Mario J. Vidal, Customer Nathan S.
Vidal, 106 Aquidneck Street, New Bedford, MA 02744, Account 06100567151,
(8.54%); Barbara A. Saganich, 4 St. James Circle, Acton, MA 01720, Account
05100663842, (5.09%); High Quality Bond Fund -- E.L. Bradley and Co., Inc.,
16 Helen Rd., Needham, MA 02192, Account 05100649206, (7.78%); Short-Term
Bond Fund -- Colonial Marble Co., Inc., 25 Garvey Street, P.O. Box 187,
Everett, MA 02149, Account 00970037797, (7.17%); Wilbur J. Wade, Jr., 122
Snyder Road, Fort Plain, NY 13339, Account 05100596030, (5.58%); and
Tax-Exempt Bond Fund -- Katrina A. Seltzer, 121 Schuyler Street, Boonville,
NY 13309, Account 051001743724, (12.25%); David Fendler, 72 Brinkerhoff Ave.,
Stamford, CT 06905, Account 05100255354, (25.74%); Joseph R. Copeland, 201
College Street, Springfield, MA 01109, Account 05100388896, (12.97%).

FINANCIAL STATEMENTS

Galaxy's Annual Report to Shareholders with respect to the Funds for the
fiscal year ended October 31, 1997 has been filed with the Securities and
Exchange Commission. The financial statements in such Annual Report (the
"Financial Statements") are incorporated by reference into this Statement of
Additional Information. The Financial Statements included in the Annual
Report for the Funds for the fiscal year ended October 31, 1997 have been
audited by Galaxy's independent accountants, PricewaterhouseCoopers LLP,
whose report thereon also appears in such Annual Report and incorporated
herein by reference. The Financial Statements in such Annual Report have been
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

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<PAGE>

APPENDIX A

DESCRIPTION OF SECURITIES RATINGS

CORPORATE AND TAX-EXEMPT BOND RATINGS
- -------------------------------------

The four highest ratings of D&P for tax-exempt and corporate
fixed-income securities are AAA, AA, A and BBB. Securities rated AAA are of
the highest credit quality. The risk factors are considered to be
negligible, being only slightly more than for risk-free U.S. Treasury debt.
Securities rated AA are of high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions. Securities that are rated "A" have protection factors
that are average but adequate. However, risk factors are more variable and
greater in periods of economic stress. Securities that are rated "BBB" have
below average protection factors but are still considered sufficient for
prudent investment. Considerable variability in risk is present during
economic cycles. The AA, A and BBB ratings may be modified by an addition of
a plus (+) or minus (-) sign to show relative standing within these major
rating categories.

The four highest ratings of Fitch IBCA for tax-exempt and corporate
bonds are AAA, AA, A and BBB. Plus (+) and minus (-) signs are used with a
rating symbol to indicate the relative position of a credit within the rating
category. AAA bonds are considered to be investment grade and of the highest
credit quality. The obligor is judged to have an exceptionally strong
ability to pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events. AA bonds are considered to be investment
grade and of very high credit quality. The obligor's ability to pay interest
and repay principal is very strong, although not quite as strong as bonds
rated AAA. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated F-1+. A bonds are considered to be
investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings. BBB bonds are considered to be investment grade
and of satisfactory credit quality. The obligor's ability to pay interest
and repay principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely to have an
adverse impact on these bonds, and therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade
is higher than for bonds with higher ratings.

The four highest ratings of S&P for tax-exempt and corporate bonds are
AAA, AA, A and BBB. Bonds rated AAA bear the highest rating assigned by S&P
to a debt obligation and the AAA rating indicates in its opinion an extremely
strong capacity to pay interest and repay principal. Bonds rated AA by S&P
are judged by it to have a very strong capacity to pay interest and repay
principal, and they differ from AAA issues only in small degree. Bonds rated
A are considered to have a strong capacity to pay interest

A-1
<PAGE>

and repay principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
bonds of a higher rated category. Bonds rated BBB are regarded as having an
adequate capacity to pay interest and repay principal. Whereas such bonds
normally exhibit adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for debt in this category than for higher
rated categories. The AA, A and BBB ratings may be modified by an addition
of a plus (+) or minus (-) sign to show relative standing within these major
rating categories.

The four highest ratings of Moody's for tax-exempt and corporate bonds
are Aaa, Aa, A and Baa. Tax-exempt and corporate bonds rated Aaa are judged
to be of the "best quality." The rating of Aa is assigned to bonds which are
of "high quality by all standards." Aa bonds are rated lower than Aaa bonds
because margins of protection may not be as large or fluctuations of
protective elements may be of greater amplitude or there may be other
elements which make the long-term risks appear somewhat larger. Bonds that
are rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
that suggest a susceptibility to impairment sometime in the future. Bonds
that are rated Baa are considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well. Moody's may modify a rating of Aa,
A or Baa by adding numerical modifiers of 1, 2 or 3 to show relative standing
within these categories. The foregoing ratings are sometimes presented in
parentheses preceded with a "con" indicating the bonds are rated
conditionally. Such parenthetical rating denotes the probable credit stature
upon completion of construction or elimination of the basis of the condition.

CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS

A-2
<PAGE>

Fitch IBCA's short-term ratings apply to tax-exempt and corporate debt
obligations that are payable on demand or have original maturities of up to
three years. The four highest ratings of Fitch IBCA for short-term
securities are F-1+, F-1, F-2 and F-3. F-1+ securities possess exceptionally
strong credit quality. Issues assigned this rating are regarded as having
the strongest degree of assurance for timely payment. F-1 securities possess
very strong credit quality. Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than issues rated F-1+. F-2
securities possess good credit quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payment, but the margin of safety
is not as great as the F-1+ and F-1 categories. F-3 securities possess fair
credit quality. Issues assigned this rating have characteristics suggesting
that the degree of assurance for timely payment is adequate; however,
near-term adverse changes could cause these securities to be rated below
investment grade.

Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Issuers rated Prime-1 (or related supporting
institutions) in the opinion of Moody's "have a superior capacity for
repayment of short-term promissory obligations." Principal repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance
on debt and ample asset protection; broad margins in earning coverage of
fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity. Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of short-term promissory
obligations. This capacity will normally be evidenced by many of the
characteristics of Prime-1 rated issues, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is maintained. Issuers
rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. Issuers rated
Not Prime do not fall within any of the Prime rating categories.

A-3
<PAGE>

TAX-EXEMPT NOTE RATINGS

Fitch IBCA uses its short-term ratings described above under "Corporate
and Tax-Exempt Commercial Paper Ratings" for tax-exempt notes.

A-4
<PAGE>

APPENDIX B

As stated in the applicable Prospectuses, the MidCap Equity and
Strategic Equity Funds may enter into futures transactions for hedging
purposes. The following is a description of such transactions.

I. INTEREST RATE FUTURES CONTRACTS

B-1
<PAGE>

price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.

B-2
<PAGE>

e.g., shorter term securities whose yields are greater than those available
on long-term bonds. A Fund's basic motivation would be to maintain for a
time the income advantage from investing in the short-term securities; the
Fund would be endeavoring at the same time to eliminate the effect of all or
part of an expected increase in market price of the long-term bonds that the
Fund may purchase.

II. MARGIN PAYMENTS

Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker or in a
segregated account with Galaxy's custodian an amount of cash or liquid
portfolio securities, known as initial margin, based on the value of the
contract. The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance
bond or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract

B-3
<PAGE>

III. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS

B-4
<PAGE>

because of concern as to possible further market decline or for other
reasons, the Fund will realize a loss on the futures contract that is not
offset by a reduction in the price of the instruments that were to be
purchased.

Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not be sold
until the futures contract can be terminated. In such circumstances, an
increase in the price of the securities, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is
no guarantee that the price of the securities will in fact correlate with the
price movements in the futures contract and thus provide an offset on a
futures contract.

Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation
limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once
the daily limit has been reached in the contract, no trades may be entered
into at a price beyond the limit, thus preventing the liquidation of open
futures positions. The trading of futures contracts is also subject to the
risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm or clearing

B-5
<PAGE>

house or other disruptions of normal activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.

Successful use of futures by the Funds is also subject to Fleet's
ability to predict correctly movements in the direction of the market. For
example, if a particular Fund has hedged against the possibility of a decline
in the market adversely affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the benefit to the
increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if the Fund has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market.
The Funds may have to sell securities at a time when it may be
disadvantageous to do so.

B-6