<PAGE>
TRUST
THE GALAXY FUND
MONEY MARKET FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
BY FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
PAGE
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EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 4
INVESTMENT OBJECTIVE AND POLICIES..................................... 6
In General.......................................................... 6
Quality Requirements................................................ 6
INVESTMENTS, STRATEGIES AND RISKS..................................... 7
U.S. Government Obligations......................................... 7
Money Market Instruments............................................ 7
Variable and Floating Rate Instruments.............................. 8
Repurchase and Reverse Repurchase Agreements........................ 8
When-Issued and Delayed Settlement Transactions..................... 9
Securities Lending.................................................. 9
Guaranteed Investment Contracts..................................... 9
Asset-Backed Securities............................................. 10
INVESTMENT LIMITATIONS................................................ 10
PRICING OF SHARES..................................................... 12
HOW TO PURCHASE AND REDEEM SHARES..................................... 12
Distributor......................................................... 12
Purchase of Shares.................................................. 12
Redemption of Shares................................................ 13
DIVIDENDS AND DISTRIBUTIONS........................................... 14
TAXES................................................................. 14
Federal............................................................. 14
State and Local..................................................... 15
Miscellaneous....................................................... 15
PAGE
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MANAGEMENT OF THE FUND................................................ 15
Investment Adviser.................................................. 15
Authority to Act as Investment Adviser.............................. 16
Administrator....................................................... 16
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 17
Shareholder Services Plan........................................... 17
Agreements for Sub-Account Services................................. 18
CUSTODIAN AND TRANSFER AGENT.......................................... 18
EXPENSES.............................................................. 19
PERFORMANCE REPORTING................................................. 19
MISCELLANEOUS......................................................... 20
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<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5180 regarding purchases, redemptions,
exchanges and other shareholder services
or current performance, call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares"), which
represent interests in the MONEY MARKET FUND (the "Fund") offered by Galaxy.
The Fund's investment objective is to seek as high a level of current income
as is consistent with liquidity and stability of principal. The Fund invests in
"money market" instruments with remaining maturities of one year or less, such
as domestic and foreign bank certificates of deposit, bankers' acceptances,
commercial paper and corporate bonds in addition to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
repurchase agreements relating to such obligations.
This Prospectus describes Trust Shares in the Fund. Trust Shares are offered
to investors maintaining qualified accounts at bank and trust institutions,
including institutions affiliated with Fleet Financial Group, Inc., and to
participants in employer-sponsored defined contribution plans. Galaxy is also
authorized to issue two additional series of shares in the Fund, Retail A Shares
and Retail B Shares (referred to herein collectively as "Retail Shares"), which
are offered under a separate prospectus. Retail Shares are offered primarily to
individuals, corporations or other entities purchasing either for their own
accounts or for the accounts of others and to FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers on behalf of
their customers. Trust Shares, Retail A Shares and Retail B Shares represent
equal pro rata interests in the Fund, except that they bear different expenses
and charges. See "Financial Highlights," "Management of the Fund" and
"Description of Galaxy and Its Shares" herein.
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY,
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Fund, contained in the Statement of Additional Information relating to the
Fund and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
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FEBRUARY 28, 1998
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of the operating expenses for Trust Shares of
the Fund. Examples based on the summary are also shown.
<TABLE>
<CAPTION>
MONEY
ANNUAL FUND OPERATING EXPENSES MARKET
(AS A PERCENTAGE OF AVERAGE NET ASSETS) FUND
- ---------------------------------------- ------
<S> <C>
Advisory Fees (After Fee Waivers)....... .36%
12b-1 Fees.............................. None
Other Expenses.......................... .19%
------
Total Fund Operating Expenses (After Fee
Waivers)................................ .55%
------
------
</TABLE>
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Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund....................... $6 $17 $30 $67
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund bears directly
or indirectly. The information contained in the Expense Summary and Example is
based on expenses incurred by the Fund during the last fiscal year, restated to
reflect the expenses which the Fund expects to incur during the current fiscal
year on its Trust Shares. Without voluntary fee waivers by Fleet, Advisory Fees
would be .40% and Total Fund Operating Expenses would be .59%. Fleet is under no
obligation to waive fees and/or reimburse expenses but has advised Galaxy that
it intends to waive fees and/or reimburse expenses during the current year to
the extent necessary to maintain the Fund's operating expenses at the level set
forth in the above table. For more complete descriptions of these costs and
expenses, see "Management of the Fund" and "Description of Galaxy and Its
Shares" in this Prospectus and the financial statements and notes incorporated
by reference into the Statement of Additional Information relating to the Fund.
Any fees charged by affiliates of Fleet or other institutions directly to their
customer accounts for services related to an investment in Trust Shares of the
Fund are in addition to and not reflected in the fees and expenses described
above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
Prior to November 1, 1994, the Fund offered a single series of shares. As of
such date, the existing series of shares was designated as Retail Shares (now
designated Retail A Shares), and the Fund began offering a new series of shares
designated as Trust Shares. The Fund also offers an additional series of shares,
Retail B Shares. This Prospectus describes the Trust Shares in the Fund. Retail
A Shares and Retail B Shares in the Fund are offered under a separate
prospectus. As described below under "Description of Galaxy and Its Shares",
Trust Shares, Retail A Shares and Retail B Shares represent equal pro rata
interests in the Fund, except that (i) Retail A Shares of the Fund bear the
expenses incurred under Galaxy's Shareholder Services Plan at an annual rate of
up to .10% of the average daily net asset value of the Fund's outstanding Retail
A Shares, (ii) Retail B Shares of the Fund bear the expenses incurred under
Galaxy's Distribution and Services Plan at an annual rate of up to .75% of the
average daily net asset value of the Fund's outstanding Retail B Shares, and
(iii) Trust Shares, Retail A Shares and Retail B Shares bear differing transfer
agency expenses. See "Management of the Fund" and "Description of Galaxy and Its
Shares."
The financial highlights presented below have been audited by Coopers &
Lybrand L.L.P., Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Fund for the fiscal year
ended October 31, 1997 (the "Annual Report"). Such financial highlights should
be read in conjunction with the financial statements contained in the Annual
Report and incorporated by reference into the Statement of Additional
Information relating to the Fund. Information in the financial highlights for
periods prior to the fiscal year ended October 31, 1995 reflects the investment
results of Retail A Shares of the Fund and is intended to provide investors with
a longer-term perspective of the Fund's financial history. More information
about the performance of the Fund is contained in the Annual Report which may be
obtained without charge by contacting Galaxy at its telephone number or address
provided above.
4
<PAGE>
MONEY MARKET FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
----------------------------
1997 1996 1995
----------------------------
TRUST SHARES
----------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 1.00 $ 1.00 $ 1.00
------- -------- --------
Income from
Investment Operations
Net investment
income(2,3)................ 0.05 0.05 0.05
Net realized and unrealized
gain (loss) on
investments................ -- -- --
------- -------- --------
Total from Investment
Operations:.............. 0.05 0.05 0.05
------- -------- --------
Less Dividends:
Dividends from net
investment income.......... (0.05) (0.05) (0.05)
Dividends from net realized
capital gains(4)........... -- -- --
------- -------- --------
Total Dividends:.......... (0.05) (0.05) (0.05)
------- -------- --------
Net increase (decrease) in net
asset value.................. -- -- --
------- -------- --------
Net Asset Value, End of
Period....................... $ 1.00 $ 1.00 $ 1.00
------- -------- --------
------- -------- --------
Total Return(5)............... 5.13% 5.00% 5.43%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................... $1,138,185 $924,222 $334,054
Ratios to average net assets:
Net investment income
including reimbursement/
waiver..................... 5.04% 4.89% 5.30%
Operating expenses including
reimbursement/ waiver...... 0.50% 0.55% 0.55%
Operating expenses excluding
reimbursement/ waiver...... 0.54% 0.58% 0.56%
<CAPTION>
YEARS ENDED OCTOBER 31,(1)
--------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Income from
Investment Operations
Net investment
income(2,3)................ 0.03 0.03 0.04 0.06 0.08 0.09 0.07
Net realized and unrealized
gain (loss) on
investments................ -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total from Investment
Operations:.............. 0.03 0.03 0.04 0.06 0.08 0.09 0.07
-------- -------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net
investment income.......... (0.03) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07)
Dividends from net realized
capital gains(4)........... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Dividends:.......... (0.03) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07)
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease) in net
asset value.................. -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Total Return(5)............... 3.35% 2.78% 4.07% 6.40% 8.11% 9.09% 7.08%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................... $797,399 $577,558 $590,911 $415,541 $444,303 $410,121 $210,712
Ratios to average net assets:
Net investment income
including reimbursement/
waiver..................... 3.38% 2.74% 3.74% 6.24% 7.82% 8.73% 6.92%
Operating expenses including
reimbursement/ waiver...... 0.64% 0.63% 0.58% 0.59% 0.59% 0.58% 0.59%
Operating expenses excluding
reimbursement/ waiver...... 0.64% 0.63% 0.58% 0.59% 0.59% 0.59% 0.59%
</TABLE>
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(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail Shares
(now designated as Retail A Shares) and the Fund began issuing a second
series of shares designated as Trust Shares.
(2) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996 and 1995 was $0.05, $0.05 and $0.05,
respectively.
(3) Net investment income per share for Retail Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1994, 1993, 1992, 1991, 1990, 1989 and 1988 was
$0.03, $0.03, $0.04, $0.06, $0.08, $0.09, and $0.07, respectively.
(4) Represents less than $0.01 per share for year ended October 31, 1992.
(5) Total Return for the year ended October 31, 1994 includes the effect of the
voluntary capital contribution of $1.6 million from Fleet in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.35%.
5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek as high a level of current income
as is consistent with liquidity and stability of principal. The Fund seeks to
achieve its objective by investing in "money market" instruments that are
determined by Fleet Investment Advisors Inc. ("Fleet"), the Fund's investment
adviser, to present minimal credit risk and meet certain rating criteria.
Instruments that may be purchased by the Fund include obligations of domestic
and foreign banks (including negotiable certificates of deposit, non-negotiable
time deposits, savings deposits and bankers' acceptances); commercial paper;
corporate bonds; obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; and repurchase agreements with financial
institutions such as banks and broker/dealers. These instruments have remaining
maturities of one year or less (except for certain variable and floating rate
notes and securities underlying certain repurchase agreements). For more
information, including applicable quality requirements, see "Quality
Requirements" and "Investments, Strategies and Risks" below.
Fleet will use its best efforts to achieve the investment objective of the
Fund, although such achievement cannot be assured. The investment objective of
the Fund may not be changed without the approval of the holders of a majority of
its outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program. The Fund will maintain a
dollar-weighted average portfolio maturity of 90 days or less in an effort to
maintain a stable net asset value per share of $1.00. The value of the Fund's
portfolio securities will generally vary inversely with changes in prevailing
interest rates.
QUALITY REQUIREMENTS
The Fund will purchase only those instruments which meet the applicable
quality requirements described below. The Fund will not purchase a security
(other than a U.S. Government security) unless the security or the issuer with
respect to comparable securities (i) is rated by at least two nationally
recognized statistical rating organizations ("Rating Agencies") (such as
Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's") or Fitch IBCA, Inc. ("Fitch IBCA")), in the highest category for
short-term debt securities, (ii) is rated by the only Rating Agency that has
issued a rating with respect to such security or issuer in such Rating Agency's
highest category for short-term debt, or (iii) if not rated, the security is
determined to be of comparable quality. These rating categories are determined
without regard to sub-categories and gradations. The Fund will follow applicable
regulations in determining whether a security rated by more than one Rating
Agency can be treated as being in the highest short-term rating category. See
"Investment Limitations" below.
Determinations of comparable quality shall be made in accordance with
procedures established by the Board of Trustees. Generally, if a security has
not been rated by a Rating Agency, Fleet will acquire the security if it
determines that the security is of comparable quality to securities that have
received the requisite ratings. Fleet also considers other relevant information
in its evaluation of unrated short-term securities.
6
<PAGE>
INVESTMENTS, STRATEGIES AND RISKS
U.S. GOVERNMENT OBLIGATIONS
Obligations issued or guaranteed by the U.S. Government its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association, are supported
by the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some U.S. Government obligations may be issued
as variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal.
However, due to fluctuations in interest rates, the market value of such
securities may vary during the period a shareholder owns shares of the Fund.
MONEY MARKET INSTRUMENTS
"Money market" instruments include bank obligations and corporate
obligations, including commercial paper and corporate bonds with remaining
maturities of one year or less.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank that is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank that is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Investments in non-negotiable time
deposits are limited to no more than 5% of the Fund's total assets at the time
of purchase.
Domestic and foreign banks are subject to extensive but different government
regulations which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject
7
<PAGE>
to less stringent reserve requirements and to different accounting, auditing,
reporting and recordkeeping standards than those applicable to domestic branches
of U.S. banks. Investments in the obligations of U.S. branches of foreign banks
or foreign branches of U.S. banks will be made only when Fleet believes that the
credit risk with respect to the instrument is minimal.
Commercial paper may include securities issued by corporations without
registration under the Securities Act of 1933, as amended, (the "1933 Act") in
reliance on the so-called "private placement" exemption in Section 4(2)
("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under
the federal securities laws in that any resale must similarly be made in an
exempt transaction. Section 4(2) Paper is normally resold to other institutional
investors through or with the assistance of investment dealers which make a
market in Section 4(2) Paper, thus providing liquidity. For purposes of the
Fund's 10% limitation on purchases of illiquid instruments described below,
Section 4(2) Paper will not be considered illiquid if Fleet has determined, in
accordance with guidelines approved by the Board of Trustees, that an adequate
trading market exists for such securities. The Fund may also purchase Rule 144A
securities. See "Investment Limitations."
VARIABLE AND FLOATING RATE INSTRUMENTS
Securities purchased by the Funds may include variable and floating rate
instruments. Variable rate instruments provide for periodic adjustments in the
interest rate. Floating rate instruments provide for automatic adjustment of the
interest rate whenever some other specified interest rate changes. Some variable
and floating rate obligations are direct lending arrangements between the
purchaser and the issuer and there may be no active secondary market. However,
in the case of variable and floating rate obligations with a demand feature, the
Fund may demand payment of principal and accrued interest at a time specified in
the instrument or may resell the instrument to a third party. In the event an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, a Fund might be unable to dispose of the note because of the absence
of a secondary market and could, for this or other reasons, suffer a loss to the
extent of the default. Variable or floating rate instruments issued or
guaranteed by the U.S. Government or its agencies or instrumentalities are
similar in form but may have a more active secondary market. Substantial
holdings of variable and floating rate instruments could reduce portfolio
liquidity.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will only be entered into with financial
institutions such as banks and broker/dealers that are deemed to be creditworthy
by Fleet under guidelines approved by Galaxy's Board of Trustees. The Fund will
not enter into repurchase agreements with Fleet or any of its affiliates. Unless
a repurchase agreement has a remaining maturity of seven days or less or may be
terminated on demand upon notice of seven days or less, the repurchase agreement
will be considered an illiquid security and will be subject to the 10% limit
described in Investment Limitation No. 4 under "Investment Limitations" below.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for
8
<PAGE>
bankruptcy or became insolvent, disposition of such securities by the Fund might
be delayed pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). A reverse repurchase agreement involves the risk that
the market value of the securities sold by the Fund may decline below the
repurchase price. The Fund would pay interest on amounts obtained pursuant to a
reverse repurchase agreement.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase securities on a "when-issued" or "delayed settlement"
basis. When-issued transactions, which involve a commitment by the Fund to
purchase particular securities with payment and delivery taking place at a
future date (perhaps one or two months later) permit the Fund to lock in a price
or yield on a security it intends to purchase, regardless of future changes in
interest rates. Delayed settlement describes settlement of a securities
transaction in the secondary market sometime in the future. When-issued and
delayed settlement transactions involve the risk, however, that the yield or
price obtained in a transaction may be less favorable than the yield or price
available in the market when the securities delivery takes place. It is expected
that, absent unusual market conditions, commitments by the Fund to purchase
securities on a when-issued or delayed settlement basis will not exceed 25% of
the value of its total assets. These transactions will not be entered into for
speculative purposes, but only in furtherance of the Fund's investment
objective.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with its investment limitations. Such
loans would involve risks of delay in receiving additional collateral or in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially. Any portfolio securities
purchased with cash collateral would also be subject to possible depreciation.
Loans will generally be short-term, and will be made only to borrowers deemed by
Fleet to be of good standing and only when, in Fleet's judgment, the income to
be earned from the loan justifies the attendant risks. The Fund currently
intends to limit the lending of its portfolio securities so that, at any given
time, securities loaned by the Fund represent not more than one-third of the
value of its total assets.
GUARANTEED INVESTMENT CONTRACTS
The Fund may invest in guaranteed investment contracts ("GICs") issued by
United States insurance companies. Pursuant to such contracts, the Fund makes
cash contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the Fund payments at negotiated, floating
or fixed interest rates. A GIC is a general obligation of the issuing insurance
company and not a separate account. The purchase price paid for a GIC becomes
part of the general assets of the insurance company, and the contract is paid
from the company's general assets. The Fund will only purchase GICs that are
issued or guaranteed by insurance companies that at the time of purchase are
rated in accordance with the applicable quality requirements described above
under "Quality Requirements." GICs are considered illiquid securities and will
be subject to the Fund's 10% limitation on illiquid
9
<PAGE>
investments, unless there is an active and substantial secondary market for the
particular instrument and market quotations are readily available.
ASSET-BACKED SECURITIES
The Fund may purchase asset-backed securities which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another, such as motor vehicle receivables and credit card receivables. The Fund
will only purchase asset-backed securities that meet the applicable quality
requirements described above under "Quality Requirements." See "Asset-Backed
Securities" in the Statement of Additional Information.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that the Fund (i) may purchase or hold debt
instruments in accordance with its investment objective and policies, (ii)
may enter into repurchase agreements with respect to portfolio securities,
and (iii) may lend portfolio securities against collateral consisting of
cash or securities that are consistent with its permitted investments, where
the value of the collateral is equal at all times to at least 100% of the
value of the securities loaned.
2. Purchase securities of any one issuer if immediately after such
purchase more than 5% of the value of its total assets would be invested in
the securities of such issuer (the "5% limitation"), except that up to 25%
of the value of its total assets may be invested without regard to the 5%
limitation; notwithstanding the foregoing restriction, the Fund may invest
without regard to the 5% limitation in U.S. Government obligations.
3. Borrow money or issue senior securities, except that the Fund may
borrow from domestic banks for temporary purposes, and then in amounts not
in excess of 10% of the value of its total assets at the time of such
borrowing (provided that the Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in amounts not in
excess of 10% of the value of its total assets at the time of such
borrowing); or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of its total
assets at the time of such borrowing. The Fund will not purchase securities
while borrowings (including reverse repurchase agreements) in excess of 5%
of its total assets are outstanding.
4. Invest more than 10% of the value of its total assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other securities
which are not readily marketable.
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5. Invest in obligations having remaining maturities in excess of one
year, except that certain variable and floating rate instruments and
securities subject to repurchase agreements may bear longer maturities
(provided certain provisions are met).
In addition to the foregoing limitations, the Fund may not purchase
securities that would cause 25% or more of the value of its total assets at the
time of purchase to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry; provided,
however, that (a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, by
domestic banks, or by U.S. branches of foreign banks that are subject to the
same regulation as domestic banks; (b) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of the parents; and (c) utilities
will be classified according to their services. (For example, gas, gas
transmission, electric and gas, electric and telephone each will be considered a
separate industry.)
With respect to Investment Limitation No. 2 above: (a) in certain
circumstances, the guarantor of a guaranteed security may also be considered to
be an issuer in connection with such guarantee; and (b) securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities (including
securities backed by the full faith and credit of the United States) are deemed
to be U.S. Government obligations.
With respect to Investment Limitation No. 3 above, the Fund intends to limit
borrowings, including reverse repurchase agreements, to not more than 10% of the
value of its total assets at time of such borrowings.
With respect to Investment Limitation No. 4 above, the Fund intends to limit
its investments in illiquid securities to not more than 10% of the value of its
net assets.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
The Fund may follow non-fundamental operating policies that are more
restrictive than its fundamental investment limitations, as set forth in this
Prospectus and the Statement of Additional Information relating to the Fund in
order to comply with applicable laws and regulations, including the provisions
and regulations under the Investment Company Act of 1940, as amended, (the "1940
Act"). In particular the Fund will comply with the various requirements of Rule
2a-7 under the 1940 Act, which regulates money market funds. In accordance with
Rule 2a-7, the Fund is subject to the 5% limitation contained in Investment
Limitation No. 2 above as to all of its assets; however in accordance with such
Rule, the Fund will be able to invest more than 5% (but no more than 25%) of its
total assets in the securities of a single issuer for a period of up to three
business days after the purchase thereof, provided that the Fund may not hold
more than one such investment at any one time. Subject to Investment Limitation
No. 5 above, the Fund will determine the effective maturity of its investments,
as well as its ability to consider a security as having received the requisite
short-term ratings by Rating Agencies, according to Rule 2a-7. Except with
respect to Investment Limitation No. 5 above, the Fund may change these
operating policies to reflect changes in the laws and regulations without the
approval of the shareholders.
Rule 144A under the 1933 Act, allows for a broader institutional trading
market for securities otherwise subject to restrictions on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the 1933 Act for resales of certain securities to qualified institutional
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buyers. The Fund's investment in Rule 144A securities could have the effect of
increasing the level of illiquidity of the Fund during any period that qualified
institutional buyers were no longer interested in purchasing these securities.
For purposes of the Fund's 10% limitation on purchases of illiquid instruments,
Rule 144A securities will not be considered to be illiquid if Fleet has
determined, in accordance with guidelines established by the Board of Trustees,
that an adequate trading market exists for such securities.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of 11:00 a.m.
(Eastern Time) and the close of regular trading hours on the New York Stock
Exchange (the "Exchange"), currently 4:00 p.m. (Eastern Time), on each day the
Exchange is open. Currently, the holidays which Galaxy observes are New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value
per share for purposes of pricing sales and redemptions is calculated separately
for each series of shares by dividing the value of all securities and other
assets attributable to a particular series of shares of the Fund, less the
liabilities attributable to the shares of that series of the Fund, by the number
of outstanding shares of that series of the Fund.
The assets in the Fund are valued based upon the amortized cost method.
Pursuant to this method, a security is valued by reference to a Fund's
acquisition cost as adjusted for amortization of premium or accretion of
discount. Although Galaxy seeks to maintain the net asset value per share of the
Fund at $1.00, there can be no assurance that the net asset value per share will
not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts primarily at bank and trust institutions,
including subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. Each Institution
is responsible for transmitting to FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
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A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that the Fund's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If an Institution accepts a purchase
order from its Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Fund and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Investors should contact their Institution (in the case of
employer-sponsored defined contribution plans, their employers) for further
information concerning the types of eligible Customer accounts and the related
purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirements with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by their Customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by an Institution to its Customers.
Information pertaining to such plans is available directly from the Institution.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which purchase orders must be
received in order to be processed on that Business Day.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and credit its Customers' accounts with the redemption proceeds on
a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy, although an Institution may charge its Customers' accounts
for redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day will normally be wired on the following Business
Day to the Institution. Payment for redemption orders received on a non-Business
Day will normally be wired to the Institution on the next Business Day.
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However, in both cases Galaxy reserves the right to wire redemption proceeds
within seven days after receiving the redemption order if, in its judgment, an
earlier payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. The Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon sixty days
written notice, if the account is less than $250 as a result of redemptions.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Fund is declared daily as a dividend to the
persons who are shareholders of the Fund immediately after the 11:00 a.m.
pricing of shares on the day of declaration. The Fund's net income for dividend
purposes is determined separately for each series of shares of the Fund and
consists of all accrued income, whether taxable or tax-exempt, plus discount
earned on the Fund's assets attributable to each series of shares, less
amortization of premium on such assets and accrued expenses attributable to each
series of shares of the Fund. The Fund does not expect to realize net capital
gains. However, if any such gains are realized, they will be paid out to
shareholders no less frequently than annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent its earnings are distributed
in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that the Fund distribute to its shareholders
an amount equal to at least the sum of 90% of its investment company taxable
income. In general, the Fund's investment company taxable income will be its
taxable income (including interest) subject to certain adjustments and excluding
the excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. The Fund intends to distribute
substantially all of its investment company taxable income and net
exempt-interest income each year. Such dividends will be taxable as ordinary
income to the Fund's shareholders who are not currently exempt from federal
income taxes, whether such income is received in cash or reinvested in
additional Trust Shares. Because all of the Fund's net investment income is
expected to be derived from earned interest, it is anticipated that no part of
any distribution will be eligible for the dividends received deduction for
corporations.
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Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
STATE AND LOCAL
Shareholders should consult their own tax advisers about the status of
distributions from the Fund in their own state.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations generally
affecting the Fund and its shareholders and is not intended as a substitute for
careful tax planning. Accordingly, potential investors in the Fund should
consult their tax advisers with specific reference to their own tax situation.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made each year.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets at December 31, 1997 of approximately $85.5
billion. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients, and
manages the other portfolios of Galaxy: the Government, U.S. Treasury,
Tax-Exempt, Connecticut Municipal Money Market, Massachusetts Municipal Money
Market, Institutional Government Money Market, Equity Value, Equity Growth,
Equity Income, International Equity, Small Company Equity, MidCap Equity, Asset
Allocation, Small Cap Value, Growth and Income, Strategic Equity, Short-Term
Bond, Intermediate Government Income, High Quality Bond, Corporate Bond,
Tax-Exempt Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds.
Subject to the general supervision of Galaxy's Board of Trustees, Fleet
manages the Fund, makes decisions with respect to and places orders for all
purchases and sales of its portfolio securities and maintains related records.
For the services provided and expenses assumed, Fleet is entitled to receive
advisory fees, computed daily and paid monthly, at the annual rate of .40% of
the average daily net assets of the Fund. Fleet may from time to time, in its
discretion, waive advisory fees payable by the Fund in order to help maintain a
competitive expense ratio, and may from time to time allocate a portion of its
advisory fees to Fleet Bank or other subsidiaries of Fleet Financial Group, Inc.
in consideration for administrative and/or shareholder support services which
they provide to beneficial shareholders. Fleet has advised Galaxy that it
intends to waive advisory fees payable to it by the Fund in an amount equal to
0.05% of the average daily net assets of
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the Fund to the extent that the Fund's net assets exceed $750,000,000. For the
fiscal year ended October 31, 1997, Fleet received advisory fees (after fee
waivers) at the effective annual rate of 0.36% of the Fund's average daily net
assets. In addition to fee waivers, during the fiscal year ended October 31,
1997, Fleet also reimbursed the Fund for certain operating expenses, which
reimbursement may be revised or discontinued at any time.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission ("SEC"), financial
institutions that are affiliated with Fleet or that have sold shares of the
Fund, if Fleet believes that the quality of the transaction and the commission
are comparable to what they would be with other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities such as Trust
Shares of the Fund, but such banking laws and regulations do not prohibit such a
bank holding company or affiliate from acting as investment adviser, transfer
agent, or custodian to such an investment company or from purchasing shares of
such a company as agent for and upon the order of customers. Fleet, the
custodian and Institutions that are banks or bank affiliates are subject to such
banking laws and regulations. Should legislative, judicial or administrative
action prohibit or restrict the activities of such companies in connection with
their services to the Fund, Galaxy might be required to alter materially or
discontinue its arrangements with such companies and change its method of
operations. It is not anticipated, however, that any resulting change in the
Fund's method of operations would affect the Fund's net asset value per share or
result in financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5180, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Fund, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of combined
average daily net assets of the Fund and the other portfolios offered by Galaxy
(collectively, the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily all or a portion of the
administration fee payable to it by the Fund. For the fiscal year ended October
31, 1997, the Fund paid Investor Services Group administration fees at the
effective annual rate of .082% of its average daily net assets.
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DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each of three series in the Fund as follows:
Class A shares (Retail A Shares), Class A-Special Series 1 shares (Trust Shares)
and Class A-Special Series 2 shares (Retail B Shares), each series representing
interests in the Fund. The Fund is classified as a diversified company under the
1940 Act. The Board of Trustees has also authorized the issuance of additional
classes and series of shares representing interests in other portfolios of
Galaxy. For information regarding the Fund's Retail A Shares and Retail B Shares
and these other portfolios, which are offered through separate prospectuses,
contact FD Distributors at 1-800-628-0414.
Shares of each series in the Fund bear their pro rata portion of all
operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid to institutions under Galaxy's
Shareholder Services Plan described below and holders of the Fund's Retail B
Shares bear the fees described in the prospectus for such shares that are paid
under Galaxy's Distribution and Services Plan at an annual rate of up to .75% of
the average daily net asset value of the Fund's outstanding Retail B Shares.
Currently, these payments are not made with respect to the Fund's Trust Shares.
In addition, shares of each series in the Fund bear differing transfer agency
expenses. Standardized yield quotations are computed separately for each series
of shares. The difference in the expenses paid by the respective series will
affect their performance.
Retail A Shares of the Fund are sold without any sales charge. Retail B
Shares of the Money Market Fund are subject to a maximum contingent deferred
sales charge of 5.0% and automatically convert to Retail A Shares six years
after the date of purchase. Retail A and Retail B Shares have certain exchange
and other privileges which are not available with respect to Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001, represents an equal proportionate interest in the related investment
portfolio with other shares of the same class, and is entitled to such dividends
and distributions out of the income earned on the assets belonging to such
investment portfolio as are declared in the discretion of Galaxy's Board of
Trustees.
Shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held, and will vote in the aggregate and
not by class, except as otherwise expressly required by law or when the Board of
Trustees determines that the matter to be voted on affects only the interests of
shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which Galaxy
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to such servicing agreements, Institutions
will render certain administrative and support services enumerated below to
Customers who are the beneficial owners of Retail A Shares in consideration for
payment of up to .25% (on an annualized basis) of the average daily net asset
value of Retail A Shares beneficially owned by such Customers. Services under
the Shareholder Services Plan may include aggregating and processing purchase
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and redemption requests and placing net purchase and redemption orders with FD
Distributors; processing dividend payments from the Fund; providing Customers
with information as to their positions in Retail A Shares; providing
sub-accounting with respect to Retail A Shares or the information necessary for
sub-accounting; and providing periodic mailings to Customers. Such services are
intended to supplement the services provided by Investor Services Group as
administrator and transfer agent and are described more fully in the Statement
of Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .10% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares in each sub-account, crediting to each participant's sub-account
all dividends and distributions with respect to that sub-account; and
transmitting to each participant a periodic statement regarding the sub-account
as well as any proxy materials, reports and other material Fund communications.
Such entities are compensated by Investor Services Group for the Sub-Account
Services and in connection therewith the transfer agency fees payable by Trust
Shares of the Fund to Investor Services Group have been increased by an amount
equal to these fees. In substance, therefore, the holders of Trust Shares of the
Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at One Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as custodian of the Fund's assets, and First Data Investor Services
Group, Inc. ("Investor Services Group"), a wholly-owned subsidiary of First Data
Corporation, serves as Galaxy's transfer and dividend disbursing agent. Services
performed by both entities for the Funds are described in the Statement of
Additional Information. Communications to Investor Services Group should be
directed to Investor Services Group at P.O. Box 5108, 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
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EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their advisory and administrative services
for the Fund. The Fund bears the expenses incurred in its operations. Such
expenses include taxes; interest; fees (including fees paid to its Trustees and
officers who are not affiliated with Investor Services Group); SEC fees; state
securities qualification fees; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to shareholders; advisory,
administration, shareholder servicing, Rule 12b-1 distribution, fund accounting
and custody fees; charges of the transfer agent and dividend disbursing agent;
certain insurance premiums; outside auditing and legal expenses; cost of
independent pricing services; costs of shareholder reports and meetings; and any
extraordinary expenses. The Fund also pays for any brokerage fees and
commissions in connection with the purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
yield of the Fund, as a measure of its performance, may be quoted and compared
to that of other mutual funds with similar investment objectives and to other
relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, such data is reported in national financial publications such as
DONOGHUE'S MONEY FUND REPORT-Registered Trademark-, a widely recognized
independent publication that monitors the performance of mutual funds. Also, the
Fund's yield data may be reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or in publications of a local or regional nature. The
Fund's performance may also be compared to the average yields reported by the
BANK RATE MONITOR for money market deposit accounts offered by the 50 leading
banks and thrift institutions in the top five standard metropolitan statistical
areas. Yield data will be calculated separately for Trust Shares, Retail A
Shares and Retail B Shares of the Fund.
The yield of the Fund refers to the income generated over a seven-day period
identified in the advertisement. This income is annualized, I.E., the income
during a particular week is assumed to be generated each week over a 52-week
period, and is shown as a percentage of the investment. The Fund may also
advertise its "effective yield," which is calculated similarly but, when
annualized, the income from an investment in the Fund is assumed to be
reinvested. Consequently, the "effective yield" will be slightly higher because
of the compounding effect of the assumed reinvestment.
The Fund's yield will fluctuate and any quotation of yield should not be
considered as representative of the future performance of the Fund. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in the
Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
fees charged directly by Institutions to accounts of Customers that have
invested in Trust Shares of the Fund will not be included in calculations of
yield.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such
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performance may compare to various market indices, shareholder portfolio and
hypothetical investor scenarios; the economy; the financial and capital markets;
investment strategies and techniques; investment products; and tax; retirement
and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the lesser of (a) more
than 50% of the outstanding shares of the Fund, or (b) 67% or more of the shares
of the Fund present at a meeting if more than 50% of the outstanding shares of
the Fund are represented at the meeting in person or by proxy.
20
<PAGE>
GALAXY
MONEY MARKET
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-270 15021 (3/98)
<PAGE>
TRUST
THE GALAXY FUND
GOVERNMENT FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
BY FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
PAGE
----
EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 4
INVESTMENT OBJECTIVE AND POLICIES..................................... 6
In General.......................................................... 6
INVESTMENTS, STRATEGIES AND RISKS..................................... 6
U.S. Government Obligations......................................... 6
Repurchase and Reverse Repurchase Agreements........................ 7
When-Issued and Delayed Settlement Transactions..................... 7
Securities Lending.................................................. 7
INVESTMENT LIMITATIONS................................................ 8
PRICING OF SHARES..................................................... 9
HOW TO PURCHASE AND REDEEM SHARES..................................... 9
Distributor......................................................... 9
Purchase of Shares.................................................. 10
Redemption of Shares................................................ 11
DIVIDENDS AND DISTRIBUTIONS........................................... 11
TAXES................................................................. 11
Federal............................................................. 11
State and Local..................................................... 12
Miscellaneous....................................................... 12
MANAGEMENT OF THE FUND................................................ 12
Investment Adviser.................................................. 12
Authority to Act as Investment Adviser.............................. 13
Administrator....................................................... 14
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 14
Shareholder Services Plan........................................... 15
Agreements for Sub-Account Services................................. 15
CUSTODIAN AND TRANSFER AGENT.......................................... 16
EXPENSES.............................................................. 16
PERFORMANCE REPORTING................................................. 16
MISCELLANEOUS......................................................... 17
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance, call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares"), which
represent interests in the GOVERNMENT FUND (the "Fund") offered by Galaxy.
The Fund's investment objective is to seek as high a level of current income
as is consistent with liquidity and stability of principal. The Fund invests in
obligations with remaining maturities of 397 days or less which are issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
repurchase agreements relating to such obligations.
This Prospectus describes Trust Shares in the Fund. Trust Shares are offered
to investors maintaining qualified accounts primarily at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue an additional series of shares in the Fund
("Retail A Shares"), which are offered under a separate prospectus primarily to
individuals, corporations or other entities purchasing either for their own
accounts or for the accounts of others and to FIS Securities Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers on behalf of
their customers. Trust Shares and Retail A Shares represent equal pro rata
interests in the Fund, except they bear different expenses which reflect the
difference in the range of services provided to them. See "Financial
Highlights," "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES OF
THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. AN
INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Fund, contained in the Statement of Additional Information relating to the
Fund and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
------------------------
FEBRUARY 28, 1998
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of the operating expenses for Trust Shares of
the Fund. Examples based on the summary are also shown.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES GOVERNMENT
(AS A PERCENTAGE OF AVERAGE NET ASSETS) FUND
- ---------------------------------------- -------------
<S> <C>
Advisory Fees (After Fee Waivers)....... .39%
12b-1 Fees.............................. None
Other Expenses.......................... .15%
-----
Total Fund Operating Expenses (After Fee
Waivers)................................ .54%
-----
-----
</TABLE>
- ---------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Government Fund......................... $5 $17 $30 $66
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund bears directly
or indirectly. The information contained in the Expense Summary and Example is
based on expenses incurred by the Fund during the last fiscal year, restated to
reflect the expenses which the Fund expects to incur during the current fiscal
year on its Trust Shares. Without voluntary fee waivers by Fleet, Advisory Fees
would be .40% and Total Fund Operating Expenses would be .55%. Fleet is under no
obligation to waive fees and/or reimburse expenses but has advised Galaxy that
it intends to waive fees and/or reimburse expenses during the current year to
the extent necessary to maintain the Fund's operating expenses at the level set
forth in the above table. For more complete descriptions of these costs and
expenses, see "Management of the Fund" and "Description of Galaxy and Its
Shares" in this Prospectus and the financial statements and notes incorporated
by reference into the Statement of Additional Information relating to the Fund.
Any fees that may be charged by affiliates of Fleet or other institutions
directly to their customer accounts for services related to an investment in
Trust Shares of the Fund are in addition to and not reflected in the fees and
expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
Prior to November 1, 1994, the Fund offered a single series of shares. As of
such date, the existing series of shares was designated as Retail Shares (now
designated Retail A Shares), and the Fund began offering a new series of shares
designated as Trust Shares. This Prospectus describes the Trust Shares of the
Fund. Retail A Shares in the Fund are offered under a separate prospectus. Trust
Shares and Retail A Shares represent equal pro rata interests in the Fund,
except that (i) Retail A Shares of the Fund bear the expenses incurred under
Galaxy's Shareholder Services Plan at an annual rate of up to .10% of the
average daily net asset value of the Fund's outstanding Retail A Shares, and
(ii) Trust Shares and Retail A Shares bear differing transfer agency expenses.
The financial highlights presented below have been audited by Coopers &
Lybrand L.L.P., Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Fund for the fiscal year
ended October 31, 1997 (the "Annual Report"). Such financial highlights should
be read in conjunction with the financial statements contained in the Annual
Report and incorporated by reference into the Statement of Additional
Information. Information in the financial highlights for periods prior to the
fiscal year ended October 31, 1995 reflects the investment results of Retail A
Shares of the Fund and is intended to provide investors with a long-term
perspective of the Fund's financial history. More information about the
performance of the Fund is also contained in the Annual Report which may be
obtained without charge by contacting Galaxy at its telephone number or address
provided above.
4
<PAGE>
GOVERNMENT FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
----------------------------
1997 1996 1995 YEARS ENDED OCTOBER 31,(1)
---------------------------- --------------------------------------------------------------------
TRUST SHARES 1994 1993 1992 1991 1990 1989 1988
---------------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
Investment
Operations:
Net investment
income(2,3)......... 0.05 0.05 0.05 0.03 0.03 0.04 0.06 0.08 0.09 0.07
Net realized and
unrealized gain
(loss) on
investments......... -- -- -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
Investment
Operations:....... 0.05 0.05 0.05 0.03 0.03 0.04 0.06 0.08 0.09 0.07
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net
investment income... (0.05) (0.05) (0.05) (0.03) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07)
Dividends from net
realized capital
gains(4)............ -- -- -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Dividends:... (0.05) (0.05) (0.05) (0.03) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
in net asset value.... -- -- -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Return(5)........ 5.06% 4.95% 5.39% 3.49% 2.83% 4.19% 6.25% 8.10% 8.82% 6.91%
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's)...... $630,859 $733,759 $678,679 $759,106 $685,304 $636,338 $436,232 $335,443 $303,181 $141,545
Ratios to average net
assets:
Net investment income
including
reimbursement/
waiver.............. 4.94% 4.85% 5.27% 3.36% 2.79% 3.67% 6.05% 7.80% 8.59% 6.73%
Operating expenses
including
reimbursement/waiver... 0.51% 0.52% 0.53% 0.54% 0.55% 0.53% 0.56% 0.56% 0.60% 0.60%
Operating expenses
excluding
reimbursement/
waiver.............. 0.52% 0.53% 0.54% 0.54% 0.55% 0.53% 0.56% 0.57% 0.61% 0.60%
</TABLE>
- ---------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Trust Shares for the years ended
October 31, 1997, 1996 and 1995 was $0.05, $0.05 and $0.05, respectively.
(3) Net investment income per share for Retail Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1994, 1993, 1992, 1991, 1990, 1989 and 1988 was
$0.03, $0.03, $0.04, $0.06, $0.08, $0.09 and $0.07, respectively.
(4) Represents less than $0.01 per share for the years ended October 31, 1992,
1990, 1989 and 1988.
(5) Total return for the year ended October 31, 1994 includes the effect of the
voluntary capital contribution of $2.3 million from Fleet in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.49%.
5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek as high a level of current income
as is consistent with liquidity and stability of principal. The Fund seeks to
achieve its objective by investing in obligations issued or guaranteed as to
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations. These
instruments have remaining maturities of 397 days or less (except for certain
variable and floating rate notes and securities underlying certain repurchase
agreements). See "Investments, Strategies and Risks" below.
Fleet Investment Advisors Inc. ("Fleet"), the Fund's investment adviser,
will use its best efforts to achieve the investment objective of the Fund,
although such achievement cannot be assured. The investment objective of the
Fund may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program. The Fund will maintain a
dollar-weighted average portfolio maturity of 90 days or less in an effort to
maintain a stable net asset value per share of $1.00. The value of the Fund's
portfolio securities will generally vary inversely with changes in prevailing
interest rates.
INVESTMENTS, STRATEGIES AND RISKS
U.S. GOVERNMENT OBLIGATIONS
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association, are supported
by the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal.
However, due to fluctuations in interest rates, the market value of such
securities may vary during the period a shareholder owns shares of the Fund.
Some U.S. Government obligations may be issued as variable or floating rate
instruments. Variable rate instruments provide for periodic adjustments in the
interest rate. Floating rate instruments provide for automatic adjustment of the
interest rate whenever some other specified interest rate changes. Because there
may not always be an active secondary market for these instruments, substantial
holdings of variable and floating rate instruments could reduce portfolio
liquidity.
6
<PAGE>
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will only be entered into with financial
institutions such as banks and broker/dealers that are deemed to be creditworthy
by Fleet under guidelines approved by Galaxy's Board of Trustees. The Fund will
not enter into repurchase agreements with Fleet or any of its affiliates. Unless
a repurchase agreement has a remaining maturity of seven days or less or may be
terminated on demand upon notice of seven days or less, the repurchase agreement
will be considered an illiquid security and will be subject to the 10% limit
described in Investment Limitations No. 4 under "Investment Limitations" below.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). A reverse repurchase agreement involves the risk that
the market value of the securities sold by the Fund may decline below the
repurchase price. The Fund would pay interest on amounts obtained pursuant to a
reverse repurchase agreement.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase securities on a "when-issued" or "delayed settlement"
basis. When-issued transactions, which involve a commitment by the Fund to
purchase particular securities with payment and delivery taking place at a
future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it intends to purchase, regardless of future
changes in interest rates. Delayed settlement describes settlement of a
securities transaction in the secondary market sometime in the future.
When-issued and delayed settlement transactions involve the risk, however, that
the yield or price obtained in a transaction may be less favorable than the
yield or price available in the market when the securities delivery takes place.
It is expected that, absent unusual market conditions, commitments by the Fund
to purchase securities on a when-issued or delayed settlement basis will not
exceed 25% of the value of its total assets. These transactions will not be
entered into for speculative purposes, but only in furtherance of the Fund's
investment objective.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with its investment limitations. Such
loans would involve risks of delay in receiving additional collateral or in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially. Any portfolio securities
purchased with cash collateral would also be subject to possible depreciation.
Loans will generally be short-term, and will be made only to borrowers deemed by
Fleet to be of good standing and only when, in Fleet's judgment, the income to
be earned from the loan justifies the attendant risks. The Fund currently
intends to limit the lending of its portfolio
7
<PAGE>
securities so that, at any given time, securities loaned by the Fund represent
not more than one-third of the value of its total assets.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that the Fund (i) may purchase or hold debt
instruments in accordance with its investment objective and policies, (ii)
may enter into repurchase agreements with respect to portfolio securities,
and (iii) may lend portfolio securities against collateral consisting of
cash or securities that are consistent with its permitted investments, where
the value of the collateral is equal at all times to at least 100% of the
value of the securities loaned.
2. Purchase securities of any one issuer, if immediately after such
purchase more than 5% of the value of its total assets would be invested in
the securities of such issuer, except that up to 25% of the value of its
total assets may be invested without regard to this limitation;
notwithstanding the foregoing restriction, the Fund may invest without
regard to the 5% limitation in U.S. Government obligations and as otherwise
permitted in accordance with Rule 2a-7 under the Investment Company Act of
1940, as amended, (the "1940 Act"), or any successor rule.
3. Borrow money or issue senior securities, except that the Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase agreements
in accordance with its investment policies and in amounts not in excess of
10% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the Fund's total assets at the time
of such borrowing. The Fund will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
4. Invest more than 10% of the value of its total assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other securities
which are not readily marketable.
In addition to the foregoing limitations, the Fund may not purchase
securities that would cause 25% or more of the value of its total assets at the
time of purchase to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry; provided,
however, that there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
With respect to Investment Limitation No. 2 above: (a) in certain
circumstances, the guarantor of a guaranteed security may also be considered to
be an issuer in connection with such guarantee; and
8
<PAGE>
(b) securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities (including securities backed by the full faith and credit of
the United States) are deemed to be U.S. Government obligations.
With respect to Investment Limitation No. 3 above, the Fund intends to limit
any borrowings (including reverse repurchase agreements) to not more than 10% of
the value of its total assets at the time of the borrowing.
With respect to Investment Limitation No. 4 above, the Fund intends to limit
its investments in illiquid securities to not more than 10% of the value of its
net assets.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
The Fund may follow non-fundamental operating policies that are more
restrictive than its fundamental investment limitations, as set forth in this
Prospectus and in the Statement of Additional Information relating to the Fund
in order to comply with applicable laws and regulations, including the
provisions of and applicable regulations under the 1940 Act. In particular, the
Fund will comply with the various requirements of Rule 2a-7 under the 1940 Act,
which regulates money market funds. The Fund will determine the effective
maturity of its investments according to Rule 2a-7. The Fund may change these
operating policies to reflect changes in the laws and regulations without
shareholder approval.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of 11:00 a.m.
(Eastern Time) and the close of regular trading hours on the New York Stock
Exchange (the "Exchange"), currently 4:00 p.m. (Eastern Time), on each day the
Exchange is open. Currently, the holidays which Galaxy observes are New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value
per share for purposes of pricing sales and redemptions is calculated separately
for each series of shares by dividing the value of all securities and other
assets attributable to a particular series of shares of the Fund, less the
liabilities attributable to shares of that series of the Fund, by the number of
outstanding shares of that series of the Fund.
The assets in the Fund are valued based upon the amortized cost method.
Pursuant to this method, a security is valued by reference to the Fund's
acquisition cost as adjusted for amortization of premium or accretion of
discount. Although Galaxy seeks to maintain the net asset value per share of the
Fund at $1.00, there can be no assurance that the net asset value per share will
not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
9
<PAGE>
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contributions plans (such institutions and plans
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. Each Institution
is responsible for transmitting to FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that the Fund's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If an Institution accepts a purchase
order from its Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Fund and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Investors should contact their Institution (in the case of
employer-sponsored deferred contribution plans, their employer) for further
information concerning the types of eligible Customer accounts and the related
purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirements with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by their Customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by an Institution to its Customers.
Information pertaining to such plans is available directly from the Institution.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day.
10
<PAGE>
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day will normally be wired on the following Business
Day to the Institution. Payment for redemption orders received on a non-Business
Day will normally be wired to the Institution on the next Business Day. However,
in both cases Galaxy reserves the right to wire redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. The Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon sixty days
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Fund is declared daily as a dividend to the
persons who are shareholders of the Fund immediately after the 11:00 a.m.
pricing of shares on the day of declaration. The Fund's net income for dividend
purposes is determined separately for each series of shares of the Fund and
consists of all accrued income, whether taxable or tax-exempt, plus discount
earned on the Fund's assets attributable to each series of shares, less
amortization of premium on such assets and accrued expenses attributable to
shares of the Fund. The Fund does not expect to realize net capital gains.
However, if any such gains are realized, they will be paid out to shareholders
no less frequently than annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such
11
<PAGE>
qualification generally relieves the Fund of liability for federal income taxes
to the extent its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that the Fund distribute to its shareholders
an amount equal to at least the sum of 90% of its investment company taxable
income. In general, the Fund's investment company taxable income will be its
taxable income (including interest) subject to certain adjustments and excluding
the excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. Taxable income generally
includes interest income on U.S. Government obligations. The Fund intends to
distribute substantially all of its investment company taxable income each year.
Such dividends will be taxable as ordinary income to the Fund's shareholders who
are not currently exempt from federal income taxes, whether such income is
received in cash or reinvested in additional Trust Shares. Because all of the
Fund's net investment income is expected to be derived from earned interest, it
is anticipated that no part of any distribution will be eligible for the
dividends received deduction for corporations.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
STATE AND LOCAL
Shareholders should consult their own tax advisers about the status of
distributions from the Fund in their own state. Distributions attributable to
interest on U.S. Government obligations will generally be nontaxable for state
income tax purposes, but distributions attributable to income from repurchase
agreements and other possible investments of the Fund may be taxable for state
income tax purposes.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations generally
affecting the Fund and its shareholders and is not intended as a substitute for
careful tax planning. Accordingly, potential investors in the Fund should
consult their tax advisers with specific reference to their own tax situation.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made each year.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets at December 31, 1997 approximately $85.5
billion. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients, and
manages the other portfolios of Galaxy: the Money Market, U.S. Treasury,
Tax-Exempt, Connecticut Municipal Money Market, Massachusetts Municipal Money
Market,
12
<PAGE>
Institutional Government Money Market, Equity Value, Equity Growth, Equity
Income, International Equity, Small Company Equity, MidCap Equity, Asset
Allocation, Small Cap Value, Growth and Income, Strategic Equity, Short-Term
Bond, Intermediate Government Income, High Quality Bond, Corporate Bond,
Tax-Exempt Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds.
Subject to the general supervision of Galaxy's Board of Trustees, Fleet
manages the Fund, makes decisions with respect to and places orders for all
purchases and sales of its portfolio securities and maintains related records.
For the services provided and expenses assumed, Fleet is entitled to receive
advisory fees, computed daily and paid monthly, at the annual rate of .40% of
the average daily net assets of the Fund. Fleet may from time to time, in its
discretion, waive advisory fees payable by the Fund in order to help maintain a
competitive expense ratio, and may from time to time allocate a portion of its
advisory fees to Fleet Bank or other subsidiaries of Fleet Financial Group, Inc.
in consideration for administrative and/or shareholder support services which
they provide to beneficial shareholders. Fleet has advised Galaxy that it
intends to waive advisory fees payable to it by the Fund in an amount equal to
0.05% of the average daily net assets of the Fund to the extent that the Fund's
net assets exceed $750,000,000. For the fiscal year ended October 31, 1997,
Fleet received advisory fees (after fee waivers) at the effective annual rate of
0.38% of the Fund's average daily net assets. In addition to fee waivers, during
the fiscal year ended October 31, 1997, Fleet also reimbursed the Fund for
certain operating expenses, which reimbursement may be revised or discontinued
at any time.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission ("SEC"), financial
institutions that are affiliated with Fleet or that have sold shares of the
Fund, if Fleet believes that the quality of the transaction and the commission
are comparable to what they would be with other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities such as Trust
Shares of the Fund, but such banking laws and regulations do not prohibit such a
bank holding company or affiliate from acting as investment adviser, transfer
agent, or custodian to such an investment company or from purchasing shares of
such a company as agent for and upon the order of customers. Fleet, the
custodian and Institutions that are banks or bank affiliates are subject to such
banking laws and regulations. Should legislative, judicial or administrative
action prohibit or restrict the activities of such companies in connection with
their services to the Fund, Galaxy might be required to alter materially or
discontinue its arrangements with such companies and change its method of
operations. It is not anticipated, however, that any resulting change in the
Fund's method of operations would affect the Fund's net asset value per share or
result in financial loss to any shareholder.
13
<PAGE>
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Fund, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of combined
average daily net assets of the Fund and the other portfolios offered by Galaxy
(collectively, the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily all or a portion of the
administration fee payable to it by the Fund. For the fiscal year ended October
31, 1997, the Fund paid Investor Services Group administration fees at the
effective annual rate of .082% of its average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each of two series in the Fund as follows:
Class B shares (Retail A Shares) and Class B - Special Series 1 shares (Trust
Shares), both series representing interests in the Fund. The Fund is classified
as a diversified company under the 1940 Act. The Board of Trustees has also
authorized the issuance of additional classes and series of shares representing
interests in other portfolios of Galaxy. For information regarding the Fund's
Retail A Shares and these other portfolios, which are offered through separate
prospectuses, contact FD Distributors at 1-800-628-0414.
Shares of each series in the Fund bear their pro rata portion of all
operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid under Galaxy's Shareholder Services
Plan described below. Currently, these payments are not made with respect to the
Fund's Trust Shares. In addition, shares of each series in the Fund bear
differing transfer agency expenses. Standardized yield quotations are computed
separately for each series of shares. The differences in the expenses paid by
the respective series will affect their performance.
Retail A Shares of the Fund are sold without any sales charge and have
certain exchange and other privileges which are not available with respect to
Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001, represents an equal proportionate interest in the related investment
portfolio with other shares of the same class, and is entitled to such dividends
and distributions out of the income earned on the assets belonging to such
investment portfolio as are declared in the discretion of Galaxy's Board of
Trustees.
Shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held, and will vote in the aggregate and
not by class or series, except as otherwise expressly required by law
14
<PAGE>
or when the Board of Trustees determines that the matter to be voted on affects
only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Series Plan pursuant to which Galaxy
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to such servicing agreements, Institutions
will render certain administrative and support services enumerated below to
Customers who are the beneficial owners of Retail A Shares in consideration for
payment of up to .25% (on an annualized basis) of the average daily net asset
value of Retail A Shares beneficially owned by such Customers. Services under
the Shareholder Services Plan may include: aggregating and processing purchase
and redemption requests and placing net purchase and redemption orders with FD
Distributors; processing dividend payments from the Fund; providing Customers
with information as to their positions in Retail A Shares; providing
sub-accounting with respect to Retail A Shares or the information necessary for
sub-accounting; and providing periodic mailing to Customers. Such services are
intended to supplement the services provided by Investor Services Group as
administrator and transfer agent, and are described more fully in the Statement
of Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .10% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including: maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Fund to Investor Services Group have
been increased by an amount equal to these fees. In substance, therefore, the
holders of Trust Shares of the Fund indirectly bear these fees.
15
<PAGE>
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at One Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as custodian of the Fund's assets, and First Data Investor Services
Group, Inc. ("Investor Services Group"), a wholly-owned subsidiary of First Data
Corporation, serves as Galaxy's transfer and dividend disbursing agent. Services
performed by both entities for the Fund are described in the Statement of
Additional Information. Communications to Investor Services Group should be
directed to Investor Services Group at P.O. Box 5108, 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their advisory and administrative services
for the Fund. Galaxy bears the expenses incurred in the Fund's operations. Such
expenses include taxes; interest; fees (including fees paid to its Trustees and
officers who are not affiliated with Investor Services Group); SEC; state
securities fees; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to shareholders; advisory, administration,
shareholder servicing, fund accounting and custody fees; charges of the transfer
agent and dividend disbursing agent; certain insurance premiums; outside
auditing and legal expenses; cost of independent pricing services; costs of
shareholder reports and meetings; and any extraordinary expenses. The Fund also
pays for any brokerage fees and commissions in connection with the purchase of
portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
yield of the Fund, as a measure of its performance, may be quoted and compared
to that of other mutual funds with similar investment objectives and to other
relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, such data is reported in national financial publications such as
DONOGHUE'S MONEY FUND REPORT-REGISTERED TRADEMARK-, a widely recognized
independent publication that monitors the performance of mutual funds. Also, the
Fund's yield data may be reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or in publications of a local or regional nature. The
Fund's performance may also be compared to the average yields reported by the
BANK RATE MONITOR for money market deposit accounts offered by the 50 leading
banks and thrift institutions in the top five standard metropolitan statistical
areas. Yield data will be calculated separately for Trust Shares and Retail A
Shares of the Fund.
The yield of the Fund refers to the income generated over a seven-day period
identified in the advertisement. This income is annualized, i.e., the income
during a particular week is assumed to be generated each week over a 52-week
period, and is shown as a percentage of the investment. The Fund may also
advertise its "effective yield," which is calculated similarly but, when
annualized, the income from an investment in the Fund is assumed to be
reinvested. Consequently, the "effective yield" will be slightly higher because
of the compounding effect of the assumed reinvestment.
The Fund's yield will fluctuate and any quotation of yield should not be
considered as representative of the future performance of the Fund. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in the
Fund's shares with bank deposits, savings accounts and similar investment
16
<PAGE>
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
fees charged directly by Institutions to accounts of Customers that have
invested in Trust Shares of the Fund will not be included in calculations of
yield.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the lesser of (a) more
than 50% of the outstanding shares of the Fund, or (b) 67% or more of the shares
of the Fund present at a meeting if more than 50% of the outstanding shares of
the Fund are represented at the meeting in person or by proxy.
17
<PAGE>
GALAXY
GOVERNMENT
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-269 15020 (3/98)
<PAGE>
TRUST
THE GALAXY FUND
U.S. TREASURY FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
BY FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
PAGE
----
EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 4
INVESTMENT OBJECTIVE AND POLICIES..................................... 6
In General.......................................................... 6
INVESTMENTS, STRATEGIES AND RISKS..................................... 6
U.S. Government Obligations......................................... 6
When-Issued and Delayed Settlement Transactions..................... 7
INVESTMENT LIMITATIONS................................................ 7
PRICING OF SHARES..................................................... 8
HOW TO PURCHASE AND REDEEM SHARES..................................... 9
Distributor......................................................... 9
Purchase of Shares.................................................. 9
Redemption of Shares................................................ 10
DIVIDENDS AND DISTRIBUTIONS........................................... 10
PAGE
----
TAXES................................................................. 11
Federal............................................................. 11
State and Local..................................................... 11
Miscellaneous....................................................... 11
MANAGEMENT OF THE FUND................................................ 12
Investment Adviser.................................................. 12
Authority to Act as Investment Adviser.............................. 12
Administrator....................................................... 13
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 13
Shareholder Services Plan........................................... 14
Agreements for Sub-Account Services................................. 14
CUSTODIAN AND TRANSFER AGENT.......................................... 15
EXPENSES.............................................................. 15
PERFORMANCE REPORTING................................................. 15
MISCELLANEOUS......................................................... 16
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares"), which
represent interests in the U.S. TREASURY FUND (the "Fund") offered by Galaxy.
The Fund's investment objective is to seek current income with liquidity and
stability of principal. The Fund invests in securities with remaining maturities
of one year or less which are issued or guaranteed as to principal and interest
by the U.S. Government or by agencies or instrumentalities thereof, the interest
income from which generally will not be subject to state income tax by reason of
current federal law. The Fund invests at least 65% of its total assets in direct
U.S. Government obligations.
This Prospectus describes Trust Shares in the Fund. Trust Shares are offered
to investors maintaining qualified accounts primarily at bank and trust
institutions including institutions affiliated with Fleet Financial Group, Inc.,
and to participants in employer-sponsored defined contribution plans. Galaxy is
also authorized to issue an additional series of shares in the Fund ("Retail A
Shares"), which are offered under a separate prospectus primarily to
individuals, corporations or other entities purchasing either for their own
accounts or for the accounts of others and to FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers on behalf of
their customers. Trust Shares and Retail A Shares represent equal pro rata
interests in the Fund, except they bear different expenses which reflect the
difference in the range of services provided to them. See "Financial
Highlights," "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group Inc., and affiliates.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Fund, contained in the Statement of Additional Information relating to the
Fund and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone numbers or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
------------------------
FEBRUARY 28, 1998
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of the operating expenses for Trust Shares of
the Fund. Examples based on the summary are also shown.
<TABLE>
<CAPTION>
U.S.
ANNUAL FUND OPERATING EXPENSES TREASURY
(AS A PERCENTAGE OF AVERAGE NET ASSETS) FUND
- ---------------------------------------- ----------
<S> <C>
Advisory Fees........................... .39%
12b-1 Fees.............................. None
Other Expenses.......................... .15%
-----
Total Fund Operating Expenses........... .54%
-----
-----
</TABLE>
- ---------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Treasury Fund...................... $5 $17 $30 $66
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund bears directly
or indirectly. The information contained in the Expense Summary and Example is
based on expenses incurred by the Fund during the last fiscal year, restated to
reflect the expenses which the Fund expects to incur during the current fiscal
year on its Trust Shares. For more complete descriptions of these costs and
expenses, see "Management of the Fund" and "Description of Galaxy and Its
Shares" in this Prospectus and the financial statements and notes incorporated
by reference into the Statement of Additional Information relating to the Fund.
Any fees that may be charged by affiliates of Fleet or other financial
institutions directly to their customer accounts for services related to an
investment in Trust Shares of the Fund are in addition to and not reflected in
the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
Prior to November 1, 1994, the Fund offered a single series of shares. As of
such date, the existing series of shares was designated as Retail Shares (now
designated Retail A Shares), and the Fund began offering a new series of shares
designated as Trust Shares. This Prospectus describes the Trust Shares in the
Fund. Retail A Shares in the Fund are offered under a separate prospectus. Trust
Shares and Retail A Shares in the Fund represent equal pro rata interests in the
Fund, except that (i) Retail A Shares in the Fund bear the expenses incurred
under Galaxy's Shareholder Services Plan at an annual rate of up to .10% of the
average daily net asset value of the Fund's outstanding Retail A Shares and (ii)
Trust Shares and Retail A Shares bear differing transfer agency expenses. See
"Management of the Fund" and "Description of Galaxy and Its Shares."
The financial highlights presented below have been audited by Coopers &
Lybrand L.L.P., Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Fund for the fiscal year
ended October 31, 1997 (the "Annual Report"). Such financial highlights should
be read in conjunction with the financial statements contained in the Annual
Report and incorporated by reference into the Statement of Additional
Information. Information in the financial highlights for periods prior to the
fiscal year ended October 31, 1995 reflects the investment results of Retail A
Shares of the Fund and is intended to provide investors with a longer-term
perspective of the Fund's financial history. More information about the
performance of the Fund is contained in the Annual Report which may be obtained
without charge by contacting Galaxy at its telephone number or address provided
above.
4
<PAGE>
U.S. TREASURY FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1997 1996 1995 YEARS ENDED OCTOBER 31,(1) PERIOD ENDED
------------------------------ ------------------------------ OCTOBER 31,
TRUST SHARES 1994 1993 1992 1991(1,2)
------------------------------ -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- ------------
Income from Investment Operations
Net investment income(3,4)............ 0.05 0.05 0.05 0.03 0.03 0.04 0.04
Net realized and unrealized gain
(loss) on investments................ -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ------------
Total from Investment Operations:... 0.05 0.05 0.05 0.03 0.03 0.04 0.04
-------- -------- -------- -------- -------- -------- ------------
Less Dividends:
Dividends from net investment income.. (0.05) (0.05) (0.05) (0.03) (0.03) (0.04) (0.04)
Dividends from net realized capital
gains................................ -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ------------
Total Dividends..................... (0.05) (0.05) (0.05) (0.03) (0.03) (0.04) (0.04)
-------- -------- -------- -------- -------- -------- ------------
Net increase (decrease) in net asset
value.................................. -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ------------
Net Asset Value, End of Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- ------------
-------- -------- -------- -------- -------- -------- ------------
Total Return(5)......................... 4.85% 4.80% 5.18% 3.30% 2.75% 3.69% 4.51%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $393,175 $354,331 $271,036 $466,993 $447,960 $482,416 $170,177
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 4.75% 4.69% 5.06% 3.24% 2.71% 3.51% 4.26%(7)
Operating expenses including
reimbursement/waiver................. 0.52% 0.53% 0.55% 0.56% 0.55% 0.49% 0.27%(7)
Operating expenses excluding
reimbursement/waiver................. 0.53% 0.53% 0.55% 0.56% 0.55% 0.55% 0.65%(7)
</TABLE>
- ---------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the Fund began issuing a second series of shares designated
as Trust Shares.
(2) The Fund commenced operations on January 22, 1991.
(3) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996 and 1995 was $0.05, $0.05 and $0.05,
respectively.
(4) Net investment income per share for Retail Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1994, 1993 and 1992 and for the period ended
October 31, 1991 was $0.03, $0.03, $0.04 and $0.04, respectively.
(5) Total return for the year ended October 31, 1994 includes the effect of the
voluntary capital contribution of $1 million from Fleet in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.30%.
(6) Not Annualized.
(7) Annualized.
5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek current income with liquidity and
stability of principal. The Fund seeks to achieve its objective by investing in
securities with remaining maturities of one year or less which are issued or
guaranteed as to principal and interest by the U.S. Government or by agencies or
instrumentalities thereof, the interest income from which generally will not be
subject to state income tax by reason of current federal law. Such instruments
may include, but are not limited to, securities issued by the U.S. Treasury and
by certain U.S. Government agencies or instrumentalities such as the Federal
Home Loan Banks and Federal Farm Credit Banks. The Fund invests at least 65% of
its total assets in direct U.S. Government obligations. Shareholders residing in
a particular state that has an income tax law should determine through
consultation with their own tax advisers whether such interest income, when
distributed by the Fund, will be considered by the state to have retained exempt
status and whether the Fund's capital gain and other income, if any, when so
distributed will be subject to the state's income tax. See "Taxes." The Fund
will maintain a dollar-weighted average portfolio maturity of 90 days or less in
an effort to maintain a stable net asset value per share of $1.00. The value of
the Fund's portfolio securities will generally vary inversely with changes in
prevailing interest rates.
Portfolio securities held by the Fund have remaining maturities of one year
or less (with certain exceptions). The Fund may also invest in certain variable
and floating rate instruments as described under "Investments, Strategies and
Risks--U.S. Government Obligations." For more information see "Investments,
Strategies and Risks" below.
Fleet Investment Advisors Inc. ("Fleet"), the Fund's investment adviser,
will use its best efforts to achieve the investment objective of the Fund,
although such achievement cannot be assured. The investment objective of the
Fund may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program.
INVESTMENTS, STRATEGIES AND RISKS
U.S. GOVERNMENT OBLIGATIONS
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association, are supported
by the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law.
6
<PAGE>
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal.
However, due to fluctuations in interest rates, the market value of such
securities may vary during the period a shareholder owns shares of the Fund.
Some U.S. Government obligations may be issued as variable or floating rate
instruments. Variable rate instruments provide for periodic adjustments in the
interest rate. Floating rate instruments provide for automatic adjustment of the
interest rate whenever some other specified interest rate changes. Because there
may not always be an active secondary market for these instruments, substantial
holdings of variable and floating rate instruments could reduce portfolio
liquidity.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase securities on a "when-issued" or "delayed settlement"
basis. When-issued transactions, which involve a commitment by the Fund to
purchase particular securities with payment and delivery taking place at a
future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it intends to purchase, regardless of future
changes in interest rates. Delayed settlement describes settlement of a
securities transaction in the secondary market sometime in the future.
When-issued and delayed settlement transactions involve the risk, however, that
the yield or price obtained in a transaction may be less favorable than the
yield or price available in the market when the securities delivery takes place.
It is expected that, absent unusual market conditions, commitments by the Fund
to purchase securities on a when-issued or delayed settlement basis will not
exceed 25% of the value of its total assets. These transactions will not be
entered into for speculative purposes, but only in furtherance of the Fund's
investment objective.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies.
2. Purchase securities of any one issuer, if immediately after such
purchase more than 5% of the value of its total assets would be invested in
the securities of such issuer, except that up to 25% of the value of its
total assets may be invested without regard to this limitation;
notwithstanding the foregoing restriction, the Fund may invest without
regard to the 5% limitation in U.S. Government obligations.
3. Borrow money or issue senior securities, except that the Fund may
borrow from domestic banks for temporary purposes, and then in amounts not
in excess of 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of its total
assets at the time of such borrowing. The Fund will not purchase securities
while borrowings (including reverse repurchase agreements) in excess of 5%
of its total assets are outstanding.
7
<PAGE>
4. Invest more than 10% of the value of the its total assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in excess
of seven days, restricted securities, non-negotiable time deposits and other
securities which are not readily marketable.
5. Invest in obligations having remaining maturities in excess of one
year, except that certain variable and floating rate instruments and
securities subject to repurchase agreements may bear longer maturities
(provided certain provisions are met).
In addition to the foregoing limitations, the Fund may not purchase
securities that would cause 25% or more of the value of its total assets at the
time of purchase to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry; provided,
however, that there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
With respect to Investment Limitation No. 2 above: (a) in certain
circumstances, the guarantor of a guaranteed security may also be considered to
be an issuer in connection with such guarantee; and (b) securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities (including
securities backed by the full faith and credit of the United States) are deemed
to be U.S. Government obligations.
With respect to Investment Limitation No. 4 above, the Fund intends to limit
its investments in illiquid securities to not more than 10% of the value of its
net assets.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
The Fund may follow non-fundamental operating policies that are more
restrictive than its fundamental investment limitations, as set forth in this
Prospectus and in the Statement of Additional Information relating to the Fund,
in order to comply with applicable laws and regulations, including the
provisions of and applicable regulations under the Investment Company Act of
1940, as amended, (the "1940 Act"). In particular, the Fund will comply with the
various requirements of Rule 2a-7 under the 1940 Act, which regulates money
market funds. Subject to Investment Limitation No. 5 above, the Fund will
determine the effective maturity of its investments according to Rule 2a-7.
Except with respect to Investment Limitation No. 5 above, the Fund may change
these operating policies to require changes in the laws and regulations without
shareholder approval.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of 11:00 a.m.
(Eastern Time) and the close of regular trading hours on the New York Stock
Exchange (the "Exchange"), currently 4:00 p.m. (Eastern Time), on each day the
Exchange is open. Currently, the holidays which Galaxy observes are New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value
per share for purposes of pricing sales and redemptions is calculated separately
for each series of shares by dividing the value of all securities and other
assets attributable to a particular series of shares of the Fund, less the
liabilities attributable to shares of that series of the Fund, by the number of
outstanding shares of that series of the Fund.
8
<PAGE>
The assets in the Fund are valued based upon the amortized cost method.
Pursuant to this method, a security is valued by reference to a Fund's
acquisition cost as adjusted for amortization of premium or accretion of
discount, regardless of the impact of fluctuating interest rates on the market
value of the security. Although Galaxy seeks to maintain the net asset value per
share of the Fund at $1.00, there can be no assurance that the net asset value
per share will not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. Each Institution
is responsible for transmitting to FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that the Fund's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If any Institution accepts a purchase
order from its Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Fund and Share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Investors should contact their Institution (in the case of
employer-sponsored defined contribution plans, their employer) for further
information concerning the types of eligible Customer accounts and the related
purchase and redemption procedures.
9
<PAGE>
Although Galaxy does not impose any minimum initial or subsequent investment
requirements with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by their Customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by an Institution to its Customers.
Information pertaining to such plans is available directly from the Institution.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day will normally be wired on the following Business
Day to the Institution. Payment for redemption orders received on a non-Business
Day will normally be wired to the Institution on the next Business Day. However,
in both cases Galaxy reserves the right to wire redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. The Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon sixty days
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Fund is declared daily as a dividend to the
persons who are shareholders of the Fund immediately after the 11:00 a.m.
pricing of shares on the day of declaration. The Fund's net income for dividend
purposes is determined separately for each series of shares of the Fund and
consists of all accrued income, whether taxable or tax-exempt, plus discount
earned on the Fund's assets attributable to each series of shares, less
amortization of premium on such assets and accrued expenses attributable to each
series of shares of the Fund. The Fund does not expect to realize net capital
gains. However, if any such gains are realized, they will be paid out to
shareholders no less frequently than annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
10
<PAGE>
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent its earnings are distributed
in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that the Fund distribute to its shareholders
an amount equal to at least the sum of 90% of its investment company taxable
income. In general, the Fund's investment company taxable income will be its
taxable income (including interest) subject to certain adjustments and excluding
the excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. The Fund intends to distribute
substantially all of its investment company taxable income and net
exempt-interest income each year. Such dividends will be taxable as ordinary
income to the Fund's shareholders who are not currently exempt from federal
income taxes, whether such income is received in cash or reinvested in
additional Trust Shares. Because all of the Fund's net investment income is
expected to be derived from earned interest, it is anticipated that no part of
any distribution will be eligible for the dividends received deduction for
corporations.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
STATE AND LOCAL
The Fund is structured to provide shareholders, to the extent permissible by
federal and state law, with income that is exempt or excluded from taxation at
the state and local level. Many states, by statute, judicial decision or
administrative action, have taken the position that dividends of a regulated
investment company, such as the Fund, that are attributable to interest on
direct U.S. Treasury obligations or obligations of certain U.S. Government
agencies, are the functional equivalent of interest from such obligations and
are, therefore, exempt from state and local income taxes. Shareholders should
consult their own tax adviser about the status of distributions from the Fund in
their own state.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations generally
affecting the Fund and its shareholders and is not intended as a substitute for
careful tax planning. Accordingly, potential investors in the Fund should
consult their tax advisers with specific reference to their own tax situation,
including the application of state and local tax laws. Shareholders will be
advised at least annually as to the federal income tax consequences of
distributions made each year.
11
<PAGE>
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Funds. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets at December 31, 1997 approximately $85.5
billion. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients, and
manages the other portfolios of Galaxy: the Money Market, Government,
Tax-Exempt, Connecticut Municipal Money Market, Massachusetts Municipal Money
Market, Institutional Government Money Market, Equity Value, Equity Growth,
Equity Income, International Equity, Small Company Equity, MidCap Equity, Asset
Allocation, Small Cap Value, Growth and Income, Strategic Equity, Short-Term
Bond, Intermediate Government Income, High Quality Bond, Corporate Bond,
Tax-Exempt Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds.
Subject to the general supervision of Galaxy's Board of Trustees, Fleet
manages the Fund, makes decisions with respect to and places orders for all
purchases and sales of its portfolio securities and maintains related records.
For the services provided and expenses assumed, Fleet is entitled to receive
advisory fees, computed daily and paid monthly, at the annual rate of .40% of
the first $750,000,000 of the average daily net assets of the Fund plus .35% of
the average daily net assets of the Fund in excess of $750,000,000. Fleet may
from time to time, in its discretion, waive advisory fees payable by the Fund in
order to help maintain a competitive expense ratio, and may from time to time
allocate a portion of its advisory fees to Fleet Bank or other subsidiaries of
Fleet Financial Group, Inc. in consideration for administrative and/or
shareholder support services which they provide to beneficial shareholders. For
the fiscal year ended October 31, 1997, Fleet received advisory fees at the
effective annual rate of .40% of the Fund's average daily net assets. During the
fiscal year ended October 31, 1997, Fleet reimbursed the Fund for certain
operating expenses, which reimbursement, may be revised or discontinued at any
time.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission ("SEC"), financial
institutions that are affiliated with Fleet or that have sold shares of the
Fund, if Fleet believes that the quality of the transaction and the commission
are comparable to what they would be with other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities such as Trust
Shares of the Fund, but such banking laws and regulations do not prohibit such a
bank holding company or affiliate from acting as investment adviser, transfer
agent, or custodian to such an investment company or from purchasing shares of
such a company as agent for and
12
<PAGE>
upon the order of customers. Fleet, the custodian and Institutions that are
banks or bank affiliates are subject to such banking laws and regulations.
Should legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Fund,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operations. It is not anticipated,
however, that any resulting change in the Funds' method of operations would
affect the Fund's net asset value per share or result in financial loss to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Fund, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of combined
average daily net assets of the Fund and the other portfolios offered by Galaxy
(collectively, the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily all or a portion of the
administration fee payable to it by the Fund. For the fiscal year ended October
31, 1997, the Fund paid Investor Services Group administration fees at the
effective annual rate of .082% of its average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each of two series in the Fund as follows:
Class F shares (Retail A Shares) and Class F-Special Series 1 shares (Trust
Shares), both series representing interests in the Fund. The Fund is classified
as a diversified company under the 1940 Act. The Board of Trustees has also
authorized the issuance of additional classes and series of shares representing
interests in other portfolios of Galaxy. For information regarding the Fund's
Retail A Shares and these other portfolios, which are offered through separate
prospectuses, contact FD Distributors at 1-800-628-0414.
Shares of each series in the Fund bear their pro rata portion of all
operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below. Currently, these payments are not
made with respect to the Fund's Trust Shares. In addition, shares of each series
in the Fund bear differing transfer agency expenses. Standardized yield
quotations are computed separately for each series of shares. The differences in
the expenses paid by the respective series will affect their performance.
Retail A Shares of the Fund are sold without a sales charge and have certain
exchange and other privileges which are not available with respect to Trust
Shares.
13
<PAGE>
Each share of Galaxy (irrespective of series designation) has a par value of
$.001, represents an equal proportionate interest in the related investment
portfolio with other shares of the same class, and is entitled to such dividends
and distributions out of the income earned on the assets belonging to such
investment portfolio as are declared in the discretion of Galaxy's Board of
Trustees.
Shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held, and will vote in the aggregate and
not by class or series, except as otherwise expressly required by law or when
the Board of Trustees determines that the matter to be voted on affects only the
interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which Galaxy
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to such servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares in consideration for payment of up to .25%
(on an annualized basis) of the average daily net asset value of Retail A Shares
beneficially owned by such Customers. Services under the Shareholder Services
Plan may include: aggregating and processing purchase and redemption requests
and placing net purchase and redemption orders with FD Distributors; processing
dividend payments from the Fund; providing Customers with information as to
their positions in Retail A Shares; providing sub-accounting with respect to
Retail A Shares or the information necessary for sub-accounting; and providing
periodic mailings to Customers. Such services are intended to supplement the
services provided by Investor Services Group as administrator and transfer
agent, and are described more fully in the Statement of Additional Information
under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .10% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to
14
<PAGE>
that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Fund to Investor Services Group have
been increased by an amount equal to these fees. In substance, therefore, the
holders of Trust Shares of the Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at One Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as custodian of the Fund's assets, and First Data Investor Services
Group, Inc. ("Investor Services Group"), a wholly-owned subsidiary of First Data
Corporation, serves as Galaxy's transfer and dividend disbursing agent. Services
performed by both entities for the Funds are described in the Statement of
Additional Information. Communications to Investor Services Group should be
directed to Investor Services Group at P.O. Box 5108, Westboro, Massachusetts
01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their advisory and administrative services
for the Fund. The Fund bears the expenses incurred in the Fund's operations.
Such expenses include taxes; interest; fees (including fees paid to its Trustees
and officers who are not affiliated with Investor Services Group); SEC fees;
state securities fees; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to shareholders; advisory,
administration, shareholder servicing, fund accounting and custody fees; charges
of the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; cost of independent pricing services; costs
of shareholder reports and meetings; and any extraordinary expenses. The Fund
also pays for any brokerage fees and commissions in connection with the purchase
of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
yield of the Fund, as a measure of its performance, may be quoted and compared
to that of other mutual funds with similar investment objectives and to other
relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, such data is reported in national financial publications such as
DONOGHUE'S MONEY FUND REPORT-Registered Trademark-, a widely recognized
independent publication that monitors the performance of mutual funds. Also, the
Fund's yield data may be reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or in publications of a local or regional nature. The
Fund's performance may also be compared to the average reported by the BANK RATE
MONITOR for money market deposit accounts offered by the 50 leasing bank and
thrift institutions in the top five standard metropolitan statistical areas.
Yield data will be calculated separately for Trust Shares and Retail A Shares of
the Fund.
The yield of the Fund refers to the income generated over a seven-day period
identified in the advertisement. This income is annualized, I.E., the income
during a particular week is assumed to be
15
<PAGE>
generated each week over a 52-week period, and is shown as a percentage of the
investment. The Fund may also advertise its "effective yield" which is
calculated similarly but, when annualized, the income from an investment in the
Fund is assumed to be reinvested. Consequently, the "effective yield" will be
slightly higher because of the compounding effect of the assumed reinvestment.
In addition, the Fund may calculate a "state flow through yield" which shows
the level of taxable yield needed to produce an after-tax yield equivalent to a
particular state's tax-exempt yield achieved by the Fund. The "state flow
through yield" refers to that portion of income which is derived from interest
income on direct obligations of the U.S. Government, its agencies or
instrumentalities and which qualifies for exemption from state taxes. The yield
calculation assumes that 100% of the interest income is exempt from state
personal income tax. A "state flow through yield" will be computed by dividing
the tax-exempt portion of the Fund's yield by a denominator consisting of one
minus a stated income tax rate. For illustrative purposes, state flow through
yields assume the payment of state income tax rates of 3%, 7% or 11%.
The Fund's yield will fluctuate and any quotation of yield should not be
considered as representative of the future performance of the Fund. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in the
Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
fees charged directly by Institutions with respect to accounts of Customers that
have invested in Trust Shares of the Fund will not be included in calculations
of yield.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
markets indices; shareholder profits and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the lesser of (a) more
than 50% of the outstanding shares of the Fund, or (b) 67% or more of the shares
of the Fund present at a meeting if more than 50% of the outstanding shares of
the Fund are represented at the meeting in person or by proxy.
16
<PAGE>
GALAXY
U.S. TREASURY
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-268 15015 (3/98)
<PAGE>
TRUST
THE GALAXY FUND
MONEY MARKET FUND
GOVERNMENT FUND
U.S. TREASURY FUND
TAX-EXEMPT FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR BY FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 4
INVESTMENT OBJECTIVES AND POLICIES.................................... 9
In General.......................................................... 9
Quality Requirements................................................ 9
Money Market Fund................................................... 9
Government Fund..................................................... 10
U.S. Treasury Fund.................................................. 10
Tax-Exempt Fund..................................................... 10
INVESTMENTS, STRATEGIES AND RISKS..................................... 11
U.S. Government Obligations......................................... 11
Money Market Instruments............................................ 11
Municipal Securities................................................ 12
Tender Option Bonds................................................. 13
Variable and Floating Rate Instruments.............................. 14
Repurchase and Reverse Repurchase Agreements........................ 14
When-Issued and Delayed Settlement Transactions..................... 15
Securities Lending--Money Market and Government Funds............... 15
Guaranteed Investment Contracts-- Money Market Fund................. 15
Asset-Backed Securities--Money Market Fund.......................... 15
Investment Company Securities--Tax-Exempt Fund...................... 16
Other Investment Policies of the Tax-Exempt Fund.................... 16
<CAPTION>
PAGE
----
<S> <C>
INVESTMENT LIMITATIONS................................................ 16
PRICING OF SHARES..................................................... 19
HOW TO PURCHASE AND REDEEM SHARES..................................... 19
Distributor......................................................... 19
Purchase of Shares.................................................. 20
Redemption of Shares................................................ 21
DIVIDENDS AND DISTRIBUTIONS........................................... 21
TAXES................................................................. 21
Federal............................................................. 21
State and Local..................................................... 22
Miscellaneous....................................................... 23
MANAGEMENT OF THE FUNDS............................................... 23
Investment Adviser.................................................. 23
Authority to Act as Investment Adviser.............................. 24
Administrator....................................................... 24
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 25
Shareholder Services Plan........................................... 26
Agreements for Sub-Account Services................................. 26
CUSTODIAN AND TRANSFER AGENT.......................................... 27
EXPENSES.............................................................. 27
PERFORMANCE REPORTING................................................. 27
MISCELLANEOUS......................................................... 28
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder
services, call 1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes four series of Galaxy shares (collectively, "Trust
Shares"), which represent interests in four separate diversified money market
portfolios (individually, a "Fund," collectively, the "Funds") offered to
investors by Galaxy, each having its own investment objective and policies:
The MONEY MARKET FUND'S investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund invests in "money market" instruments with remaining maturities of one year
or less, such as domestic and foreign bank certificates of deposit, bankers'
acceptances, commercial paper and corporate bonds in addition to obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
and repurchase agreements relating to such obligations.
The GOVERNMENT FUND'S investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund invests in obligations with remaining maturities of 397 days or less which
are issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
The U.S. TREASURY FUND'S investment objective is to seek current income with
liquidity and stability of principal. The Fund invests in securities with
remaining maturities of one year or less which are issued or guaranteed as to
principal and interest by the U.S. Government or by agencies or
instrumentalities thereof, the interest income from which generally will not be
subject to state income tax by reason of current federal law. The Fund invests
at least 65% of its total assets in direct U.S. Government obligations.
The TAX-EXEMPT FUND'S investment objective is to seek as high a level of
current interest income exempt from federal income tax as is consistent with
stability of principal. The Fund invests substantially all of its assets in high
quality debt obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their
authorities, agencies, instrumentalities and political subdivisions, the
interest on which, in the opinion of bond counsel or counsel to the issuer, is
exempt from federal income tax ("Municipal Securities"). The Fund's portfolio
securities will generally have remaining maturities of 397 days or less.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED. THERE IS NO ASSURANCE THAT THE FUNDS WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
This Prospectus describes Trust Shares in each Fund. Trust Shares are
offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and with respect to each Fund except the Tax-Exempt Fund, to participants
in employer-sponsored defined contribution plans. Galaxy is also authorized to
issue an additional series of shares, Retail A Shares, in the Government, U.S.
Treasury and Tax-Exempt Funds, and two additional series of shares, Retail A
Shares and Retail B Shares, in the Money Market Fund. Retail A Shares and Retail
B Shares are offered under a separate prospectus primarily to individuals,
corporations or other entities purchasing either for their own accounts or for
the accounts of others and to FIS Securities, Inc., Fleet Brokerage Securities,
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks and other qualified banks,
savings and loan associations and broker/ dealers on behalf of their customers.
Trust Shares, Retail A Shares and Retail B Shares in a Fund represent equal pro
rata interests in the Fund, except they bear different expenses which reflect
the difference in the range of services provided to them. See "Financial
Highlights," "Management of the Funds" and "Description of Galaxy and Its
Shares."
Each of the Funds is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Funds, contained in the Statement of Additional Information relating to the
Funds and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
------------------------
FEBRUARY 28, 1998
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of the operating expenses for Trust Shares of
each Fund. Examples based on the summary are also shown.
<TABLE>
<CAPTION>
MONEY GOVERN- U.S. TAX-
ANNUAL FUND OPERATING EXPENSES MARKET MENT TREASURY EXEMPT
(AS A PERCENTAGE OF AVERAGE NET ASSETS) FUND FUND FUND FUND
- ---------------------------------------- ------ ------- -------- ------
<S> <C> <C> <C> <C>
Advisory Fees (After Fee Waivers)....... .36% .39% .39% .40%
12b-1 Fees.............................. None None None None
Other Expenses.......................... .19% .15% .15% .14%
------ ------- -------- ------
Total Fund Operating Expenses (After Fee
Waivers)................................ .55% .54% .54% .54%
------ ------- -------- ------
------ ------- -------- ------
</TABLE>
- ---------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund....................... $6 $17 $30 $67
Government Fund......................... $5 $17 $30 $66
U.S. Treasury Fund...................... $5 $17 $30 $66
Tax-Exempt Fund......................... $5 $17 $30 $66
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Funds bears
directly or indirectly. The information contained in the Expense Summary and
Example is based on expenses incurred by the Funds during the last fiscal year,
restated to reflect the expenses which each Fund expects to incur during the
current fiscal year on its Trust Shares. Without voluntary fee waivers by Fleet,
Advisory Fees would be .40% and .40% and Total Fund Operating Expenses would be
.59% and .55% for Trust Shares of the Money Market Fund and Government Fund,
respectively. Fleet is under no obligation to waive fees and/or reimburse
expenses but has advised Galaxy that it intends to waive fees and/or reimburse
expenses during the current year to the extent necessary to maintain the Funds'
operating expenses at the levels set forth in the above table. For more complete
descriptions of these costs and expenses, see "Management of the Funds" and
"Description of Galaxy and Its Shares" in this Prospectus and the financial
statements and notes incorporated by reference into the Statement of Additional
Information relating to the Funds. Any fees that are charged by affiliates of
Fleet or any other institution directly to their customer accounts for services
related to an investment in Trust Shares of the Funds are in addition to and not
reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
Prior to November 1, 1994, each Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail Shares (now
designated Retail A Shares), and each Fund began offering a new series of shares
designated as Trust Shares. The Money Market Fund also offers an additional
series of shares, Retail B Shares. This Prospectus describes the Trust Shares in
the Funds. Retail A Shares in the Funds and Retail B shares in the Money Market
Fund are offered under a separate prospectus. As described below under
"Description of Galaxy and Its Shares," Trust Shares, Retail A Shares and Retail
B Shares in a Fund represent equal pro rata interests in the Fund, except that
(i) Retail A Shares of the Fund bear the expenses incurred under Galaxy's
Shareholder Services Plan at an annual rate of up to .10% of the average daily
net asset value of the Fund's outstanding Retail A Shares, (ii) Retail B Shares
of the Money Market Fund bear the expenses incurred under Galaxy's Distribution
and Services Plan for Retail B Shares at an annual rate of up to .75% of the
average daily net asset value of the Money Market Fund's outstanding Retail B
Shares, and (iii) Trust Shares, Retail A Shares and Retail B Shares bear
differing transfer agency expenses.
The financial highlights presented below have been audited by Coopers &
Lybrand L.L.P., Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Funds for the fiscal year
ended October 31, 1997 (the "Annual Report"). Such financial highlights should
be read in conjunction with the financial statements contained in the Annual
Report and incorporated by reference into the Statement of Additional
Information relating to the Funds. Information in the financial highlights for
periods prior to the fiscal year ended October 31, 1995 reflects the investment
results of Retail A Shares of the Funds and is intended to provide investors
with a long-term perspective of the Funds' financial history. More information
about the performance of the Funds is also contained in the Annual Report which
may be obtained without charge by contacting Galaxy at its telephone number or
address provided above.
4
<PAGE>
MONEY MARKET FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
1997 1996 1995
----------------------------
TRUST SHARES
----------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from
Investment Operations:
Net investment income(2,3)...................... 0.05 0.05 0.05
Net realized and unrealized gain (loss) on
investments.................................... -- -- --
-------- -------- --------
Total from Investment Operations:............. 0.05 0.05 0.05
-------- -------- --------
Less Dividends:
Dividends from net investment income............ 0.05 (0.05) (0.05)
Dividends from net realized capital gains(4).... -- -- --
-------- -------- --------
Total Dividends:.............................. (0.05) (0.05) (0.05)
-------- -------- --------
Net increase (decrease) in net asset value........ -- -- --
-------- -------- --------
Net Asset Value, End of Period.................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
-------- -------- --------
Total Return(5)................................... 5.13% 5.00% 5.43%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............... $1,138,185 $924,222 $334,054
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 5.04% 4.89% 5.30%
Operating expenses including
reimbursement/waiver........................... 0.50% 0.55% 0.55%
Operating expenses excluding
reimbursement/waiver........................... 0.54% 0.58% 0.56%
<CAPTION>
YEARS ENDED OCTOBER 31,(1)
--------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Income from
Investment Operations:
Net investment income(2,3)...................... 0.03 0.03 0.04 0.06 0.08 0.09 0.07
Net realized and unrealized gain (loss) on
investments.................................... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total from Investment Operations:............. 0.03 0.03 0.04 0.06 0.08 0.09 0.07
-------- -------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income............ (0.03) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07)
Dividends from net realized capital gains(4).... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Dividends:.............................. (0.03) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07)
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease) in net asset value........ -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Total Return(5)................................... 3.35% 2.78% 4.07% 6.40% 8.11% 9.09% 7.08%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............... $797,399 $577,558 $590,911 $415,541 $444,303 $410,121 $210,712
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 3.38% 2.74% 3.74% 6.24% 7.82% 8.73% 6.92%
Operating expenses including
reimbursement/waiver........................... 0.64% 0.63% 0.58% 0.59% 0.59% 0.58% 0.59%
Operating expenses excluding
reimbursement/waiver........................... 0.64% 0.63% 0.58% 0.59% 0.59% 0.59% 0.59%
</TABLE>
- ---------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996 and 1995 was $0.05, $0.05 and $0.05,
respectively.
(3) Net investment income per share for Retail Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1994, 1993, 1992, 1991, 1990, 1989 and 1988 was
$0.03, $0.03, $0.04, $0.06, $0.08, $0.09 and $0.07, respectively.
(4) Represents less than $0.01 per share for the year ended October 31, 1992.
(5) Total return for the year ended October 31, 1994 includes the effect of the
voluntary capital contribution of $1.6 million from Fleet in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.35%.
5
<PAGE>
GOVERNMENT FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
1997 1996 1995
----------------------------
TRUST SHARES
----------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from
Investment Operations:
Net investment income(2,3)...................... 0.05 0.05 0.05
Net realized and unrealized gain (loss) on
investments.................................... -- -- --
-------- -------- --------
Total from Investment Operations:............. 0.05 0.05 0.05
-------- -------- --------
Less Dividends:
Dividends from net investment income............ (0.05) (0.05) (0.05)
Dividends from net realized capital gains(4).... -- -- --
-------- -------- --------
Total Dividends:.............................. (0.05) (0.05) (0.05)
-------- -------- --------
Net increase (decrease) in net asset value........ -- -- --
-------- -------- --------
Net Asset Value End of Period..................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
-------- -------- --------
Total Return(5)................................... 5.06% 4.95% 5.39%
Ratios/Supplemental Data
Net Assets, End of Period (000's)............... $630,859 $733,759 $678,679
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 4.94% 4.85% 5.27%
Operating expenses including
reimbursement/waiver........................... 0.51% 0.52% 0.53%
Operating expenses excluding
reimbursement/waiver........................... 0.52% 0.53% 0.54%
<CAPTION>
YEARS ENDED OCTOBER 31,(1)
--------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Income from
Investment Operations:
Net investment income(2,3)...................... 0.03 0.03 0.04 0.06 0.08 0.09 0.07
Net realized and unrealized gain (loss) on
investments.................................... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total from Investment Operations:............. 0.03 0.03 0.04 0.06 0.08 0.09 0.07
-------- -------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income............ (0.03) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07)
Dividends from net realized capital gains(4).... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Dividends:.............................. (0.03) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07)
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease) in net asset value........ -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Asset Value End of Period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Total Return(5)................................... 3.49% 2.83% 4.19% 6.25% 8.10% 8.82% 6.91%
Ratios/Supplemental Data
Net Assets, End of Period (000's)............... $759,106 $685,304 $636,338 $436,232 $335,443 $303,181 $141,545
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 3.36% 2.79% 3.67% 6.05% 7.80% 8.59% 6.73%
Operating expenses including
reimbursement/waiver........................... 0.54% 0.55% 0.53% 0.56% 0.56% 0.60% 0.60%
Operating expenses excluding
reimbursement/waiver........................... 0.54% 0.55% 0.53% 0.56% 0.57% 0.61% 0.60%
</TABLE>
- ---------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996 and 1995 was $0.05, $0.05 and $0.05,
respectively.
(3) Net investment income per share for Retail Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1994, 1993, 1992, 1991, 1990, 1989 and 1988 was
$0.03, $0.03, $0.04, $0.06, $0.08, $0.09 and $0.07, respectively.
(4) Represents less than $0.01 per share for the years ended October 31, 1992,
1990, 1989 and 1988.
(5) Total return for the year ended October 31, 1994 includes the effect of the
voluntary capital contribution of $2.3 million from Fleet in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.49%.
6
<PAGE>
U.S. TREASURY FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
1997 1996 1995 YEARS ENDED OCTOBER 31,(1) PERIOD ENDED
---------------------------- ---------------------------- OCTOBER 31,
TRUST SHARES 1994 1993 1992 1991(1,2)
---------------------------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------------
Income from Investment Operations:
Net investment income(3,4)............ 0.05 0.05 0.05 0.03 0.03 0.04 0.04
Net realized and unrealized gain
(loss) on investments................ -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------------
Total from Investment Operations:... 0.05 0.05 0.05 0.03 0.03 0.04 0.04
-------- -------- -------- -------- -------- -------- -------------
Less Dividends:
Dividends from net investment
income............................... (0.05) (0.05) (0.05) (0.03) (0.03) (0.04) (0.04)
Dividends from net realized capital
gains................................ -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------------
Total Dividends:.................... (0.05) (0.05) (0.05) (0.03) (0.03) (0.04) (0.04)
-------- -------- -------- -------- -------- -------- -------------
Net increase (decrease) in net asset
value.................................. -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------------
Net Asset Value, End of Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------------
-------- -------- -------- -------- -------- -------- -------------
Total Return(5)......................... 4.85% 4.80% 5.18% 3.30% 2.75% 3.69% 4.51%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $393,175 $354,331 $271,036 $466,993 $447,960 $482,416 $170,177
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 4.75% 4.69% 5.06% 3.24% 2.71% 3.51% 4.26%(7)
Operating expenses including
reimbursement/ waiver................ 0.52% 0.53% 0.55% 0.56% 0.55% 0.49% 0.27%(7)
Operating expenses excluding
reimbursement/ waiver................ 0.53% 0.53% 0.55% 0.56% 0.55% 0.55% 0.65%(7)
</TABLE>
- ---------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) The Fund commenced operations on January 22, 1991.
(3) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996 and 1995 was $0.05, $0.05 and $0.05,
respectively.
(4) Net investment income per share for Retail Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the year ended October 31, 1994, 1993 and 1992 and for the period ended
October 31, 1991 was $0.03, $0.03, $0.04 and $0.04, respectively.
(5) Total return for the year ended October 31, 1994 includes the effect of the
voluntary capital contribution of $1 million from Fleet in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.30%.
(6) Not Annualized.
(7) Annualized.
7
<PAGE>
TAX-EXEMPT FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
1997 1996 1995
----------------------------
TRUST SHARES
----------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period......... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from Investment
Operations:
Net investment income(3,4)................. 0.03 0.03 0.03
Net realized and unrealized gain (loss) on
investments............................... -- -- --
-------- -------- --------
Total from Investment Operations:........ 0.03 0.03 0.03
-------- -------- --------
Less Dividends:
Dividends from net investment income....... (0.03) (0.03) (0.03)
Dividends from net realized capital
gains..................................... -- -- --
-------- -------- --------
Total Dividends:......................... (0.03) (0.03) (0.03)
-------- -------- --------
Net increase (decrease) in net asset value... -- -- --
-------- -------- --------
Net Asset Value, End of Period............... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
-------- -------- --------
Total Return................................. 3.10% 2.97% 3.29%
Ratios/Supplemental Data:
Net Assets, End of Period (000's).......... $169,316 $184,307 $180,706
Ratios to average net assets:
Net investment income including
reimbursement/ waiver..................... 3.05% 2.92% 3.24%
Operating expenses including
reimbursement/waiver...................... 0.53% 0.54% 0.55%
Operating expenses excluding
reimbursement/waiver...................... 0.53% 0.54% 0.56%
<CAPTION>
YEARS ENDED OCTOBER 31,(1) PERIOD ENDED
---------------------------------------------------------- OCTOBER 31,
1994 1993 1992 1991 1990 1989 1988(1,2)
-------- -------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- ------------
Income from Investment
Operations:
Net investment income(3,4)................. 0.02 0.02 0.03 0.04 0.05 0.06 0.02
Net realized and unrealized gain (loss) on
investments............................... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ------------
Total from Investment Operations:........ 0.02 0.02 0.03 0.04 0.05 0.06 0.02
-------- -------- -------- -------- -------- -------- ------------
Less Dividends:
Dividends from net investment income....... (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.02)
Dividends from net realized capital
gains..................................... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ------------
Total Dividends:......................... (0.02) (0.02) (0.03) (0.04) (0.05) (0.06) (0.02)
-------- -------- -------- -------- -------- -------- ------------
Net increase (decrease) in net asset value... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ------------
Net Asset Value, End of Period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- ------------
-------- -------- -------- -------- -------- -------- ------------
Total Return................................. 2.24% 1.93% 2.71% 4.51% 5.51% 5.96% 1.90%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's).......... $271,050 $301,399 $223,173 $194,098 $119,377 $131,358 $ 41,319
Ratios to average net assets:
Net investment income including
reimbursement/ waiver..................... 2.12% 1.92% 2.64% 4.37% 5.37% 5.82% 5.42%(6)
Operating expenses including
reimbursement/waiver...................... 0.58% 0.59% 0.57% 0.60% 0.60% 0.58% 0.32%(6)
Operating expenses excluding
reimbursement/waiver...................... 0.58% 0.59% 0.57% 0.60% 0.61% 0.61% 0.72%(6)
</TABLE>
- ---------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) The Fund commenced operations on June 23, 1988.
(3) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996 and 1995 was $0.03, $0.03, and
$0.03, respectively.
(4) Net investment income per share for Retail Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1994, 1993, 1992, 1991, 1990 and 1989 and for
the period ended October 31, 1988 was $0.02, $0.02, $0.03, $0.04, $0.05,
$0.06 and $0.02, respectively.
(5) Not Annualized.
(6) Annualized.
8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
Fleet Investment Advisors Inc. ("Fleet"), the Funds' investment adviser,
will use its best efforts to achieve each Fund's investment objective, although
such achievement cannot be assured. The investment objective of a Fund may not
be changed without the approval of the holders of a majority of its outstanding
shares (as defined under "Miscellaneous"). Except as noted herein under
"Tax-Exempt Fund" and below under "Investment Limitations," a Fund's investment
policies may be changed without shareholder approval. An investor should not
consider an investment in the Funds to be a complete investment program. Each
Fund will maintain a dollar-weighted average portfolio maturity of 90 days or
less in an effort to maintain a stable net asset value per share of $1.00. The
value of the Funds' portfolio securities will generally vary inversely with
changes in prevailing interest rates.
QUALITY REQUIREMENTS
Each Fund will purchase only those instruments which meet the applicable
quality requirements described below. The Money Market Fund will not purchase a
security (other than a U.S. Government security) unless the security or the
issuer with respect to comparable securities (i) is rated by at least two
nationally recognized statistical rating organizations ("Rating Agencies") (such
as Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's") or Fitch IBCA, Inc. ("Fitch IBCA")) in the highest category for
short-term debt securities, (ii) is rated by the only Rating Agency that has
issued a rating with respect to such security or issuer in such Rating Agency's
highest category for short-term debt, or (iii) if not rated, the security is
determined to be of comparable quality. The Tax-Exempt Fund will not purchase a
security (other than a U.S. Government security) unless the security (i) is
rated by at least two such Rating Agencies in one of the two highest categories
for short-term debt securities, (ii) is rated by the only Rating Agency that has
assigned a rating with respect to such security in one of such Rating Agency's
two highest categories for short-term debt, or (iii) if not rated, the security
is determined to be of comparable quality. These rating categories are
determined without regard to sub-categories and gradations. The Funds will
follow applicable regulations in determining whether a security rated by more
than one Rating Agency can be treated as being in the highest or, with respect
to the Tax-Exempt Fund one of the two highest, short-term rating categories. See
"Investment Limitations" below.
Determinations of comparable quality shall be made in accordance with
procedures established by the Board of Trustees. Generally, if a security has
not been rated by a Rating Agency, Fleet will acquire the security if it
determines that the security is of comparable quality to securities that have
received the requisite ratings. Fleet also considers other relevant information
in its evaluation of unrated short-term securities.
MONEY MARKET FUND
The Money Market Fund's investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund seeks to achieve its objective by investing in "money market" instruments
that are determined by Fleet to present minimal credit risk and meet certain
rating criteria. Instruments that may be purchased by the Money Market Fund
include obligations of domestic and foreign banks (including negotiable
certificates of deposit, non-negotiable time deposits, savings deposits and
bankers' acceptances); commercial paper; corporate bonds; obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities; and
repurchase agreements issued
9
<PAGE>
by financial institutions such as banks and broker/dealers. These instruments
have remaining maturities of one year or less (except for certain variable and
floating rate notes and securities underlying certain repurchase agreements).
For more information, including applicable quality requirements, see "Quality
Requirements" above and "Investments, Strategies and Risks" below.
GOVERNMENT FUND
The Government Fund's investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund seeks to achieve its objective by investing in obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements relating to such
obligations. These instruments have remaining maturities of 397 days or less
(except for certain variable and floating rate notes and securities underlying
certain repurchase agreements). See "Investments, Strategies and Risks" below.
U.S. TREASURY FUND
The U.S. Treasury Fund's investment objective is to seek current income with
liquidity and stability of principal. The Fund seeks to achieve its objective by
investing in those securities issued or guaranteed as to principal and interest
by the U.S. Government or by agencies or instrumentalities thereof, the interest
income from which generally will not be subject to state income tax by reason of
current federal law. Such instruments may include, but are not limited to,
securities issued by the U.S. Treasury and by certain U.S. Government agencies
or instrumentalities such as the Federal Home Loan Banks and Federal Farm Credit
Banks. The Fund invests at least 65% of its total assets in direct U.S.
Government obligations. Shareholders residing in a particular state that has an
income tax law should determine through consultation with their own tax advisers
whether such interest income, when distributed by the Fund, will be considered
by the state to have retained exempt status and whether the Fund's capital gain
and other income, if any, when so distributed will be subject to the state's
income tax. See "Taxes."
Portfolio securities held by the Fund have remaining maturities of one year
or less (with certain exceptions). The Fund may also invest in certain variable
and floating rate instruments as described under "Investments, Strategies and
Risks--Money Market Instruments." For more information, including applicable
quality requirements, see "Quality Requirements" above and "Investments,
Strategies and Risks" below.
TAX-EXEMPT FUND
The Tax-Exempt Fund's investment objective is to seek as high a level of
current interest income exempt from federal income tax as is consistent with
stability of principal by investing substantially all of its assets in Municipal
Securities that present minimal credit risk and meet the rating criteria
described above under "Quality Requirements." The Fund is designed for investors
in higher tax brackets who are seeking a relatively high amount of tax-free
income with stability of principal and less price volatility than would normally
be associated with intermediate-term and longer-term Municipal Securities.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its net assets in Municipal
Securities. However, the Fund may from time to time, during temporary defensive
periods, hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in the opinion of Fleet, prevailing market or economic
conditions warrant. Uninvested cash reserves will not earn income.
10
<PAGE>
Such taxable instruments may include (i) obligations of the U.S. Treasury; (ii)
obligations of agencies or instrumentalities of the U.S. Government; (iii)
"money market" instruments such as certificates of deposit, commercial paper or
bankers' acceptances; (iv) repurchase agreements collateralized by U.S.
Government obligations or other "money market" instruments; or (v) securities
issued by other investment companies that invest in high quality, short-term
Municipal Securities. For more information including applicable quality
requirements, see "Quality Requirements" above and "Investments, Strategies and
Risks" below.
In seeking to achieve its investment objective, the Tax-Exempt Fund may
invest in "private activity bonds" (see "Investments, Strategies and
Risks--Municipal Securities"), the interest on which may be subject to the
federal alternative minimum tax. Investments in such securities, however, will
not be treated as investments in Municipal Securities for purposes of the 80%
requirement mentioned above and, under normal market conditions, will not exceed
20% of the Fund's net assets when added together with any taxable investments
held by the Fund.
The Fund's portfolio securities will generally have remaining maturities of
397 days or less (except for certain variable and floating rate notes and
securities underlying certain repurchase agreements). See "Investments,
Strategies and Risks" below.
INVESTMENTS, STRATEGIES AND RISKS
U.S. GOVERNMENT OBLIGATIONS
Obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association, are supported
by the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some U.S. Government obligations may be issued
as variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal.
However, due to fluctuations in interest rates, the market value of such
securities may vary during the period a shareholder owns shares of the Funds.
MONEY MARKET INSTRUMENTS
"Money market" instruments include bank obligations and corporate
obligations, including commercial paper and corporate bonds with remaining
maturities of (i) one year or less with respect to the Money Market Fund and
U.S. Treasury Fund or (ii) 397 days or less with respect to the Government Fund
and Tax-Exempt Fund.
11
<PAGE>
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank that is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank that is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Investments in non-negotiable time
deposits are limited to no more than 5% of the Money Market Fund's total assets
at the time of purchase.
Domestic and foreign banks are subject to extensive but different government
regulations which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. Investments in the obligations of U.S. branches of foreign banks or
foreign branches of U.S. banks will be made only when Fleet believes that the
credit risk with respect to the instrument is minimal.
Commercial paper may include securities issued by corporations without
registration under the Securities Act of 1933, as amended, (the "1933 Act") in
reliance on the so-called "private placement" exemption in Section 4(2)
("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under
the federal securities laws in that any resale must similarly be made in an
exempt transaction. Section 4(2) Paper is normally resold to other institutional
investors through or with the assistance of investment dealers which make a
market in Section 4(2) Paper, thus providing liquidity. For purposes of each
Fund's 10% limitation on purchases of illiquid instruments described below,
Section 4(2) Paper will not be considered illiquid if Fleet has determined, in
accordance with guidelines approved by the Board of Trustees, that an adequate
trading market exists for such securities. The Money Market and Tax-Exempt Funds
may also purchase Rule 144A securities. See "Investment Limitations."
MUNICIPAL SECURITIES
Municipal Securities are generally issued to finance public works, such as
airports, bridges, highways, housing, health-related entities,
transportation-related projects, educational programs, water and pollution
control and sewer works. They are also issued to repay outstanding obligations,
to raise funds for general operating expenses and to make loans to other public
institutions and for other facilities. Municipal Securities include private
activity bonds issued by or on behalf of public authorities to provide financing
aid to acquire sites or construct and equip facilities for privately or publicly
owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby increases
local employment.
12
<PAGE>
The two principal classifications of Municipal Securities that may be held
by the Tax-Exempt Fund are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of private activity bonds is usually directly
related to the credit standing of the corporate user of the facility involved.
The Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment, but not a legal obligation, of the state or municipality which
created the issuer. There is no limitation on the amount of moral obligation
securities that may be held by the Fund.
Municipal Securities may include variable rate demand notes, which are
long-term Municipal Securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at its
stated principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at par. The
interest rate may float or be adjusted at regular intervals (ranging from daily
to annually), and is normally based on an applicable interest index or another
published interest rate or interest rate index. Most variable rate demand notes
allow the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security at
the time of each interest rate adjustment or at other fixed intervals. The Fund
treats variable rate demand notes as maturing on the later of the date of the
next interest rate adjustment or the date on which the Fund may next tender the
security for repurchase.
Municipal Securities purchased by the Tax-Exempt Fund in some cases may be
insured as to the timely payment of principal and interest. There is no
guarantee, however, that the insurer will meet its obligations in the event of a
default in payment by the issuer. In other cases, Municipal Securities may be
backed by letters of credit or guarantees issued by domestic or foreign banks or
other financial institutions which are not subject to federal deposit insurance.
Adverse developments affecting the banking industry generally or a particular
bank or financial institution that has provided its credit or guarantee with
respect to a Municipal Security held by the Tax-Exempt Fund, including a change
in the credit quality of any such bank or financial institution, could result in
a loss to the Fund and adversely effect the value of its shares. As described
above under "Money Market Instruments," letters of credit and guarantees issued
by foreign banks and financial institutions involve certain risks in addition to
those of similar instruments issued by domestic banks and financial
institutions.
TENDER OPTION BONDS
The Tax-Exempt Fund may purchase tender option bonds and similar securities.
A tender option bond generally has a long maturity and bears interest at a fixed
rate substantially higher than prevailing short-term tax-exempt rates, and is
coupled with an agreement by a third party, such as a bank, broker-dealer or
other financial institution, pursuant to which such institution grants the
security holders the option, usually upon not more than seven days notice or at
periodic intervals, to tender their securities to the institution and receive
the face value of the securities. In providing the option, the financial
institution receives a fee that reduces the fixed rate of the underlying bond
and results in the Fund effectively receiving a demand
13
<PAGE>
obligation that bears interest at the prevailing short-term tax-exempt rate.
Fleet will monitor, on an ongoing basis, the creditworthiness of the issuer of
the tender option bond, the financial institution providing the option, and any
custodian holding the underlying long-term bond. The bankruptcy, receivership or
default of any of the parties to a tender option bond will adversely affect the
quality and marketability of the security.
VARIABLE AND FLOATING RATE INSTRUMENTS
Securities purchased by the Funds may include variable and floating rate
instruments. Variable rate instruments provide for periodic adjustments in the
interest rate. Floating rate instruments provide for automatic adjustment of the
interest rate whenever some other specified interest rate changes. Some variable
and floating rate obligations are direct lending arrangements between the
purchaser and the issuer and there may be no active secondary market. However,
in the case of variable and floating rate obligations with a demand feature, a
Fund may demand payment of principal and accrued interest at a time specified in
the instrument or may resell the instrument to a third party. In the event an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, a Fund might be unable to dispose of the note because of the absence
of a secondary market and could, for this or other reasons, suffer a loss to the
extent of the default. Variable or floating rate instruments issued or
guaranteed by the U.S. Government or its agencies or instrumentalities are
similar in form but may have a more active secondary market. Substantial
holdings of variable and floating rate instruments could reduce portfolio
liquidity.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund, except the U.S. Treasury Fund, may purchase portfolio securities
subject to the seller's agreement to repurchase them at a mutually specified
date and price ("repurchase agreements"). Repurchase agreements will only be
entered into with financial institutions such as banks and broker/dealers that
are deemed to be creditworthy by Fleet under guidelines approved by Galaxy's
Board of Trustees. No Fund will enter into repurchase agreements with Fleet or
any of its affiliates. Unless a repurchase agreement has a remaining maturity of
seven days or less or may be terminated on demand upon notice of seven days or
less, the repurchase agreement will be considered an illiquid security and will
be subject to the 10% limit described in Investment Limitations Nos. 4 and 7
under "Investment Limitations" below.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by a Fund
might be delayed pending court action. Income on repurchase agreements is
taxable. The Tax-Exempt Fund's investment in repurchase agreements will be,
under normal market conditions, subject to the 20% overall limit on taxable
obligations.
The Money Market and Government Funds may also borrow funds for temporary
purposes by selling portfolio securities to financial institutions such as banks
and broker/dealers and agreeing to repurchase them at a mutually specified date
and price ("reverse repurchase agreements"). A reverse repurchase agreement
involves the risk that the market value of the securities sold by a Fund may
decline below the
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repurchase price. A Fund would pay interest on amounts obtained pursuant to a
reverse repurchase agreement.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase securities on a "when-issued" or "delayed settlement"
basis. When-issued transactions, which involve a commitment by a Fund to
purchase particular securities with payment and delivery taking place at a
future date (perhaps one or two months later) permit the Fund to lock in a price
or yield on a security it intends to purchase, regardless of future changes in
interest rates. Delayed settlement describes settlement of a securities
transaction in the secondary market sometime in the future. When-issued and
delayed settlement transactions involve the risk, however, that the yield or
price obtained in a transaction may be less favorable than the yield or price
available in the market when the securities delivery takes place. It is expected
that, absent unusual market conditions, commitments by a Fund to purchase
securities on a when-issued or delayed settlement basis, will not exceed 25% of
the value of its total assets. These transactions will not be entered into for
speculative purposes, but only in furtherance of a Fund's investment objective.
SECURITIES LENDING--MONEY MARKET AND GOVERNMENT FUNDS
The Money Market and Government Funds may lend their portfolio securities to
financial institutions such as banks and broker/dealers in accordance with their
investment limitations. Such loans would involve risks of delay in receiving
additional collateral or in recovering the securities loaned or even loss of
rights in the collateral should the borrower of the securities fail financially.
Any portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, and will be made only
to borrowers deemed by Fleet to be of good standing and only when, in Fleet's
judgment, the income to be earned from the loan justifies the attendant risks.
The Funds currently intend to limit the lending of their portfolio securities so
that, at any given time, securities loaned by a Fund represent not more than
one-third of the value of its total assets.
GUARANTEED INVESTMENT CONTRACTS--MONEY MARKET FUND
The Money Market Fund may invest in guaranteed investment contracts ("GICs")
issued by United States insurance companies. Pursuant to such contracts, the
Fund makes cash contributions to a deposit fund of the insurance company's
general account. The insurance company then credits to the Fund payments at
negotiated, floating or fixed interest rates. A GIC is a general obligation of
the issuing insurance company and not a separate account. The purchase price
paid for a GIC becomes part of the general assets of the insurance company, and
the contract is paid from the company's general assets. The Fund will only
purchase GICs that are issued or guaranteed by insurance companies that at the
time of purchase are rated in accordance with the applicable quality
requirements described above under "Quality Requirements." GICs are considered
illiquid securities and will be subject to the Fund's 10% limitation on illiquid
investments, unless there is an active and substantial secondary market for the
particular instrument and market quotations are readily available.
ASSET-BACKED SECURITIES--MONEY MARKET FUND
The Money Market Fund may purchase asset-backed securities which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another, such as motor vehicle receivables and credit card receivables. The Fund
will
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only purchase asset-backed securities that meet the applicable quality
requirements described above under "Quality Requirements." See "Asset-Backed
Securities" in the Statement of Additional Information relating to the Fund.
INVESTMENT COMPANY SECURITIES--TAX-EXEMPT FUND
The Tax-Exempt Fund may invest in securities issued by other open-end
investment companies that invest in high quality, short-term Municipal
Securities that meet the applicable quality requirements described above under
"Quality Requirements" and that determine their net asset value per share based
on the amortized cost or penny-rounding method. Investments in other investment
companies will cause the Fund (and, indirectly, the Fund's shareholders) to bear
proportionately the costs incurred in connection with the investment companies'
operations. Such securities may be acquired by the Fund within the limits
prescribed by the Investment Company Act of 1940, as amended, (the "1940 Act").
Except as otherwise permitted under the 1940 Act, the Fund currently intends to
limit its investments in other investment companies so that, as determined
immediately after a securities purchase is made: (a) not more than 5% of the
value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of investment companies as a group;
and (c) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Fund. The Fund will invest in other investment
companies primarily for the purpose of investing its short-term cash which has
not as yet been invested in other portfolio instruments.
OTHER INVESTMENT POLICIES OF THE TAX-EXEMPT FUND
The Tax-Exempt Fund may acquire "stand-by commitments" with respect to
Municipal Securities held by it. Under a stand-by commitment, a dealer agrees to
purchase at the Fund's option specified Municipal Securities at a specified
price. The Fund will acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. Stand-by commitments acquired by the Fund would be valued at zero in
determining the Fund's net asset value. The default or bankruptcy of a
securities dealer giving such a commitment would not affect the quality of the
Municipal Securities purchased by the Fund. However, without a stand-by
commitment, these securities could be more difficult to sell. The Fund will
enter into stand-by commitments only with those dealers whose credit Fleet
believes to be of high quality.
Although the Fund does not presently intend to do so on a regular basis, it
may invest more than 25% of its assets in Municipal Securities the interest on
which is paid solely from revenues of similar projects. To the extent that the
Fund's assets are concentrated in Municipal Securities payable from revenues on
similar projects, the Fund will be subject to the peculiar risks presented by
such projects to a greater extent than it would be if its assets were not so
invested.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to a Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
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No Fund may:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, (ii)
each Fund, except the U.S. Treasury Fund, may enter into repurchase
agreements with respect to portfolio securities, and (iii) the Money Market
and Government Funds each may lend portfolio securities against collateral
consisting of cash or securities that are consistent with the Fund's
permitted investments, where the value of the collateral is equal at all
times to at least 100% of the value of the securities loaned.
2. Purchase securities of any one issuer, if immediately after such
purchase more than 5% of the value of its total assets would be invested in
the securities of such issuer (the "5% limitation"), except that up to 25%
of the value of its total assets may be invested without regard to the 5%
limitation; notwithstanding the foregoing restriction, each Fund may invest
without regard to the 5% limitation in U.S. Government obligations and as
otherwise permitted in accordance with Rule 2a-7 under the 1940 Act or any
successor rule.
In addition, the Tax-Exempt Fund may not:
3. Borrow money or issue senior securities, except that the Fund may
borrow from banks for temporary purposes, and then in amounts not in excess
of 10% of the value of its total assets at the time of such borrowing; or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of its total assets at the time of such
borrowing. The Fund will not purchase any portfolio securities while
borrowings in excess of 5% of its total assets are outstanding.
4. Knowingly invest more than 10% of the value of its total assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days and other securities which are not
readily marketable.
5. Purchase any securities that would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry; provided, however, that there is no limitation with respect
to securities issued or guaranteed by the United States, any state,
territory or possession of the U.S. Government, the District of Columbia, or
any of their authorities, agencies, instrumentalities, or political
subdivisions.
In addition, the Money Market, Government and U.S. Treasury Funds may not:
6. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10% of the value of a Fund's total assets at the time of such
borrowing (provided that the Money Market and Government Funds may borrow
pursuant to reverse repurchase agreements in accordance with their
investment policies and in amounts not in excess of 10% of the value of
their respective total assets at the time of such borrowing); or mortgage,
pledge, or hypothecate any assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of a Fund's total assets at the time of such
borrowing. A Fund will not purchase securities while borrowings (including
reverse repurchase agreements) in excess of 5% of its total assets are
outstanding.
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7. Invest more than 10% of the value of a Fund's total assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in excess
of seven days, restricted securities, non-negotiable time deposits and other
securities which are not readily marketable.
In addition, the Money Market and U.S. Treasury Funds may not:
8. Invest in obligations having remaining maturities in excess of one
year, except that certain variable and floating rate instruments and
securities subject to repurchase agreements may bear longer maturities
(provided certain provisions are met).
In addition to the foregoing limitations, the Money Market, Government and
U.S. Treasury Funds may not purchase securities that would cause 25% or more of
the value of a Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry; provided, however, that (a) there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, or, with respect to the Money Market Fund, by domestic
banks or U.S. branches of foreign banks that are subject to the same regulation
as domestic banks; (b) with respect to the Money Market Fund, wholly-owned
finance companies will be considered to be in the industries of their parents if
their activities are primarily related to financing the activities of the
parents; and (c) with respect to the Money Market Fund, utilities will be
classified according to their services (for example, gas, gas transmission,
electric and gas, electric and telephone each will be considered a separate
industry).
With respect to Investment Limitation No. 2 above: (a) a security is
considered to be issued by the governmental entity or entities whose assets and
revenues back the security or, with respect to a private activity bond that is
backed only by the assets and revenues of a non-governmental user, such non-
governmental user; (b) in certain circumstances, the guarantor of a guaranteed
security may also be considered to be an issuer in connection with such
guarantee; and (c) securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (including securities backed by the full faith and
credit of the United States) are deemed to be U.S. Government obligations.
With respect to Investment Limitation No. 6 above, each of the Money Market
and Government Funds intends to limit any borrowings, including reverse
repurchase agreements, to not more than 10% of the value of its total assets at
the time of such borrowing.
With respect to Investment Limitations Nos. 4 and 7 above, each Fund intends
to limit its investments in illiquid securities to not more than 10% of the
value of its net assets.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of a Fund's
portfolio securities generally will not constitute a violation of the
limitation.
Each Fund may follow non-fundamental operating policies that are more
restrictive than its fundamental investment limitations, as set forth in this
Prospectus and the Statement of Additional Information relating to the Funds in
order to comply with applicable laws and regulations, including the provisions
of and regulations under the 1940 Act. In particular, each Fund will comply with
the various requirements of Rule 2a-7 under the 1940 Act, which regulates money
market funds. In accordance with Rule 2a-7, the Money Market Fund is subject to
the 5% limitation contained in Investment Limitation No. 2 above as to all of
its assets; however, in accordance with such Rule, the Money Market Fund will be
able to invest more
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than 5% (but no more than 25%) of its total assets in the securities of a single
issuer for a period of up to three business days after the purchase thereof,
provided that the Fund may not hold more than one such investment at any one
time. Adherence by the Government and Tax-Exempt Funds to the diversification
requirements of Rule 2a-7 is deemed to constitute adherence to the
diversification requirements of Investment Limitation No. 2 above. Subject to
Investment Limitation No. 8 above, applicable to the Money Market and U.S.
Treasury Funds, each Fund will determine the effective maturity of its
respective investments, as well as its ability to consider a security as having
received the requisite short-term ratings by Rating Agencies, according to Rule
2a-7. Except with respect to Investment Limitation No. 8 above applicable to the
Money Market and U.S. Treasury Funds, a Fund may change these operating policies
to reflect changes in the laws and regulations without the approval of its
shareholders.
Rule 144A under the 1933 Act allows for a broader institutional trading
market for securities otherwise subject to restrictions on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the 1933 Act for resales of certain securities to qualified institutional
buyers. Investment by the Money Market Fund or Tax-Exempt Fund in Rule 144A
securities could have the effect of increasing the level of illiquidity of the
Fund during any period that qualified institutional buyers were no longer
interested in purchasing these securities. For purposes of the Funds' 10%
limitation on purchases of illiquid instruments, Rule 144A securities will not
be considered to be illiquid if Fleet has determined, in accordance with
guidelines established by the Board of Trustees, that an adequate trading market
exists for such securities.
PRICING OF SHARES
Net asset value per share of each Fund is determined as of 11:00 a.m.
(Eastern Time) and the close of regular trading hours on the New York Stock
Exchange (the "Exchange"), currently 4:00 p.m. (Eastern Time), on each day the
Exchange is open. Currently, the holidays which Galaxy observes are New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value
per share for purposes of pricing sales and redemptions is calculated separately
for each series of shares of a Fund by dividing the value of all securities and
other assets attributable to a particular series of shares of the Fund, less the
liabilities attributable to shares of that series of the Fund, by the number of
outstanding shares of the Fund.
The assets in each Fund are valued based upon the amortized cost method.
Pursuant to this method, a security is valued by reference to a Fund's
acquisition cost as adjusted for amortization of premium or accretion of
discount. Although Galaxy seeks to maintain the net asset value per share of
each Fund at $1.00, there can be no assurance that the net asset value per share
will not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Funds are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
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PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc. and, with respect to each Fund other
than the Tax-Exempt Fund, to participants in employer-sponsored defined
contribution plans (such institutions and plans are referred to herein
collectively as "Institutions"). Trust Shares sold to such investors
("Customers") will be held of record by Institutions. Each Institution is
responsible for transmitting to FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that the Fund's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If an Institution accepts a purchase
order from its Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Funds and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Investors should contact their Institution (in the case of
employer-sponsored defined contribution plans, their employer) for further
information concerning the types of eligible Customer accounts and the related
purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirements with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by their Customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Funds (other than the Tax-Exempt Fund) may also be
available for purchase through different types of retirement plans offered by an
Institution to its Customers. Information pertaining to such plans is available
directly from the Institution.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which purchase orders must be
received in order to be processed on that Business Day.
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REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day will normally be wired on the following Business
Day to the Institution. Payment for redemption orders received on a non-Business
Day will normally be wired to the Institution on the next Business Day. However,
in both cases Galaxy reserves the right to wire redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect a Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. Each Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon sixty days
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of each Fund is declared daily as a dividend to
the persons who are shareholders of the respective Funds immediately after the
11:00 a.m. pricing of shares on the day of declaration. A Fund's net income for
dividend purposes is determined separately for each series of shares of the Fund
and consists of all accrued income, whether taxable or tax-exempt, plus discount
earned on the Fund's assets attributable to each series of shares, less
amortization of premium on such assets and accrued expenses attributable to each
series of shares of the Fund. None of the Funds expect to realize net capital
gains. However, if any such gains are realized, they will be paid out to
shareholders no less frequently than annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of a Fund at the net
asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
IN GENERAL. Each Fund qualified during its last taxable year and intends to
continue to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended, (the "Code").
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Such qualification generally relieves a Fund of liability for federal income
taxes to the extent its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that a Fund distribute to its shareholders an
amount equal to at least the sum of 90% of its investment company taxable
income. In general, a Fund's investment company taxable income will be its
taxable income (including interest), subject to certain adjustments and
excluding the excess of any net long-term capital gain for the taxable year over
the net short-term capital loss, if any, for such year. The Money Market,
Government and U.S. Treasury Funds intend to distribute substantially all of
their respective investment company taxable income and net exempt-interest
income each year. Such dividends will be taxable as ordinary income to each
Fund's shareholders who are not currently exempt from federal income taxes,
whether such income is received in cash or reinvested in additional Trust
Shares. (Federal income taxes for distributions to an IRA or a qualified
retirement plan are deferred under the Code.) Because all of each Fund's net
investment income is expected to be derived from earned interest, it is
anticipated that no part of any distribution will be eligible for the dividends
received deduction for corporations.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
THE TAX-EXEMPT FUND. The Tax-Exempt Fund's policy is to pay dividends with
respect to each taxable year equal to at least the sum of 90% of its net
exempt-interest income and 90% of its investment company taxable income, if any.
Dividends derived from exempt-interest income ("exempt-interest dividends") may
be treated by the Fund's shareholders as items of interest excludable from their
gross income under Section 103(a) of the Code, unless, under the circumstances
applicable to a particular shareholder, exclusion would be disallowed. (See the
Statement of Additional Information under "Additional Information Concerning
Taxes.")
If the Tax-Exempt Fund should hold certain "private activity bonds" issued
after August 7, 1986, shareholders must include, as an item of tax preference,
the portion of dividends paid by the Fund that is attributable to interest on
such bonds in their federal alternative minimum taxable income for purposes of
determining liability, if any, for the 26% to 28% alternative minimum tax for
individuals and the 20% alternative minimum tax applicable to corporations.
Corporate shareholders must also take all exempt-interest dividends into account
in determining certain adjustments for federal alternative minimum tax purposes.
Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
Dividends from the Tax-Exempt Fund which are derived from taxable income or
from long-term or short-term capital gains will be subject to federal income
tax, whether such dividends are paid in the form of cash or additional Trust
Shares of the Fund.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Tax-Exempt
Fund may be taxable to shareholders under state or local law as dividend income,
even though all or a portion of such distributions
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may be derived from interest on tax-exempt obligations which, if realized
directly, would be exempt from such income taxes.
The U.S. Treasury Fund is structured to provide shareholders, to the extent
permissible by federal and state law, with income that is exempt or excluded
from taxation at the state and local level. Many states, by statute, judicial
decision or administrative action, have taken the position that dividends of a
regulated investment company, such as the U.S. Treasury Fund, that are
attributable to interest on direct U.S. Treasury obligations or obligations of
certain U.S. Government agencies, are the functional equivalent of interest from
such obligations and are, therefore, exempt from state and local income taxes.
Shareholders should consult their own tax advisers about the status of
distributions from the Funds in their own state.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situation.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made each year.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Funds. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets at December 31, 1997 of approximately $85.5
billion. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients, and
manages the other portfolios of Galaxy: the Connecticut Municipal Money Market,
Massachusetts Municipal Money Market, Institutional Government Money Market,
Equity Value, Equity Growth, Equity Income, International Equity, Small Company
Equity, MidCap Equity, Asset Allocation, Small Cap Value, Growth and Income,
Strategic Equity, Short-Term Bond, Intermediate Government Income, High Quality
Bond, Corporate Bond, Tax-Exempt Bond, New Jersey Municipal Bond, New York
Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees, Fleet
manages the Funds, makes decisions with respect to and places orders for all
purchases and sales of their portfolio securities and maintains related records.
For the services provided and expenses assumed, Fleet is entitled to receive
advisory fees, computed daily and paid monthly, at the following annual rates:
with respect to the Money Market, Government and Tax-Exempt Funds, .40% of the
average daily net assets of each Fund, and with respect to the U.S.
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Treasury Fund, .40% of the first $750,000,000 of the average daily net assets of
the Fund plus .35% of the average daily net assets of the Fund in excess of
$750,000,000. Fleet may from time to time, in its discretion, waive advisory
fees payable by the Funds in order to help maintain competitive expense ratios,
and may from time to time allocate a portion of its advisory fees to Fleet Bank
or other subsidiaries of Fleet Financial Group, Inc. in consideration for
administrative and/or shareholder support services which they provide to
beneficial shareholders. Fleet has advised Galaxy that, with respect to the
Money Market, Government and Tax-Exempt Funds, it intends to waive advisory fees
payable to it by each Fund in an amount equal to .05% of the average daily net
assets of each Fund to the extent that a Fund's net assets exceed $750,000,000.
For the fiscal year ended October 31, 1997, Fleet received advisory fees (after
fee waivers) at the effective annual rates of .36%, .38%, .40%, and .40% of the
average daily net assets of the Money Market Fund, Government Fund, Tax-Exempt
Fund and U.S. Treasury Fund, respectively. In addition to fee waivers, during
the fiscal year ended October 31, 1997, Fleet also reimbursed each of the Funds
for certain operating expenses, which reimbursement may be revised or
discontinued at any time.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission ("SEC"), financial
institutions that are affiliated with Fleet or that have sold shares of the
Funds, if Fleet believes that the quality of the transaction and the commission
are comparable to what they would be with other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities such as Trust
Shares of the Funds, but such banking laws and regulations do not prohibit such
a bank holding company or affiliate from acting as investment adviser, transfer
agent, or custodian to such an investment company or from purchasing shares of
such a company as agent for and upon the order of customers. Fleet, the
custodian and Institutions that are banks or bank affiliates are subject to such
banking laws and regulations. Should legislative, judicial or administrative
action prohibit or restrict the activities of such companies in connection with
their services to the Funds, Galaxy might be required to alter materially or
discontinue its arrangements with such companies and change its method of
operations. It is not anticipated, however, that any resulting change in the
Funds' method of operations would affect a Fund's net asset value per share or
result in financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Funds' administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Funds in their administration
and operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Funds, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of combined
average daily net assets of the Funds and the other portfolios offered by Galaxy
(collectively the "Portfolios"), .085% of the next
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$2.5 billion of combined average daily net assets and .075% of combined average
daily net assets over $5 billion. In addition, Investor Services Group also
receives a separate annual fee from each Portfolio for certain fund accounting
services. From time to time, Investor Services Group may waive voluntarily all
or a portion of the administration fee payable to it by the Funds. For the
fiscal year ended October 31, 1997, the Money Market, Government, Tax-Exempt and
U.S. Treasury Funds paid Investor Services Group administration fees at the
effective annual rate of .082% of each Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each series in the Funds as follows: Class A
shares (Retail A Shares), Class A - Special Series 1 shares (Trust Shares) and
Class A - Special Series 2 shares (Retail B Shares), each series representing
interests in the Money Market Fund; Class B shares (Retail A Shares) and Class B
- -Special Series 1 shares (Trust Shares), both series representing interests in
the Government Fund; Class E shares (Retail A Shares) and Class E - Special
Series 1 shares (Trust Shares), both series representing interests in the
Tax-Exempt Fund; and Class F shares (Retail A Shares) and Class F - Special
Series 1 shares (Trust Shares), both series representing interests in the U.S.
Treasury Fund. Each Fund is classified as a diversified company under the 1940
Act. The Board of Trustees has also authorized the issuance of additional
classes and series of shares representing interests in other portfolios of
Galaxy. For information regarding the Funds' Retail A Shares and the Money
Market Fund's Retail B Shares and these other portfolios, which are offered
through separate prospectuses, contact FD Distributors at 1-800-628-0414.
Shares of each series in a Fund bear their pro rata portion of all operating
expenses paid by that Fund except as follows. Holders of a Fund's Retail A
Shares bear the fees that are paid to Institutions under Galaxy's Shareholder
Services Plan described below and holders of Retail B Shares of the Money Market
Fund bear the fees described in the prospectus for such shares that are paid
under Galaxy's Distribution and Services Plan at an annual rate of up to .75% of
the average daily net asset value of such Fund's outstanding Retail B Shares.
Currently, these payments are not made with respect to a Fund's Trust Shares. In
addition, shares of each series in a Fund bear differing transfer agency
expenses. Standardized yield quotations are computed separately for each series
of shares. The difference in the expenses paid by the respective series will
affect their performance.
Retail A Shares of the Funds are sold without a sales charge. Retail B
Shares of the Money Market Fund are subject to a maximum contingent deferred
sales charge of 5.0% and automatically convert to Retail A Shares six years
after the date of purchase. Retail A and Retail B Shares have certain exchange
and other privileges which are not available with respect to Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001, represents an equal proportionate interest in the related investment
portfolio with other shares of the same class, and is entitled to such dividends
and distributions out of the income earned on the assets belonging to such
investment portfolio as are declared in the discretion of Galaxy's Board of
Trustees.
Shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held, and will vote in the aggregate and
not by class or series, except as otherwise expressly required by law
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or when the Board of Trustees determines that the matter to be voted on affects
only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which Galaxy
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to such servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares in consideration for payment of up to .25%
(on an annualized basis) of the average daily net asset value of Retail A Shares
beneficially owned by such Customers. Services under the Shareholder Services
Plan may include aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with FD Distributors; processing
dividend payments from a Fund; providing Customers with information as to their
positions in Retail A Shares; providing sub-accounting with respect to Retail A
Shares or the information necessary for sub-accounting; and providing periodic
mailings to Customers. Such services are intended to supplement the services
provided by Investor Services Group as administrator and transfer agent and are
described more fully in the Statement of Additional Information under
"Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of each Fund, and
to limit the payment under these service agreements for each Fund to no more
than .10% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of each Fund (other than the
Tax-Exempt Fund) held by defined contribution plans, including maintaining
records reflecting separately with respect to each plan participant's
sub-account all purchases and redemptions of Trust Shares and the dollar value
of Trust Shares in each sub-account; crediting to each participant's sub-account
all dividends and distributions with respect to that sub-account; and
transmitting to each participant a periodic statement regarding the sub-account
as well as any proxy materials, reports and other material Fund communications.
Such entities are compensated by Investor Services Group for the Sub-Account
Services and in connection therewith the transfer agency fees payable by Trust
Shares of the Money Market, Government and U.S. Treasury Funds to Investor
Services Group have been increased by an amount equal to these fees. In
substance, therefore, the holders of Trust Shares of these Funds indirectly bear
these fees.
26
<PAGE>
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at One Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as custodian of the Funds' assets, and First Data Investor Services
Group, Inc. ("Investor Services Group"), a wholly-owned subsidiary of First Data
Corporation, serves as Galaxy's transfer and dividend disbursing agent. Services
performed by both entities for the Funds are described in the Statement of
Additional Information. Communications to Investor Services Group should be
directed to Investor Services Group at P.O. Box 5108, 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their advisory and administrative services
for the Funds. Galaxy bears the expenses incurred in the Funds' operations. Such
expenses include taxes; interest; fees (including fees paid to its Trustees and
officers who are not affiliated with Investor Services Group); SEC fees; state
securities fees; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to shareholders; advisory, administration,
shareholder servicing, Rule 12b-1 distributions (if applicable), fund accounting
and custody fees; charges of the transfer agent and dividend disbursing agent;
certain insurance premiums; outside auditing and legal expenses; cost of
independent pricing services; costs of shareholder reports and meetings; and any
extraordinary expenses. The Funds also pay for any brokerage fees and
commissions in connection with the purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
yields of the Funds, as a measure of their performance, may be quoted and
compared to those of other mutual funds with similar investment objectives and
to other relevant indices or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, such data is reported in national financial publications
such as DONOGHUE'S MONEY FUND REPORT-Registered Trademark-, a widely recognized
independent publication that monitors the performance of mutual funds. Also, the
Funds' yield data may be reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or in publications of a local or regional nature. The
performance of the Money Market, Government and U.S. Treasury Funds may also be
compared to the average yields reported by the Bank Rate Monitor for money
market deposit accounts offered by the 50 leading banks and thrift institutions
in the top five standard metropolitan statistical areas. Yield data will be
calculated separately for Trust Shares, Retail A Shares and/or Retail B Shares
of the Funds.
The yield of a Fund refers to the income generated over a seven-day period
identified in the advertisement. This income is annualized, i.e., the income
during a particular week is assumed to be generated each week over a 52-week
period, and is shown as a percentage of the investment. Each Fund may also
advertise its "effective yield" which is calculated similarly but, when
annualized, the income from an investment in the Fund is assumed to be
reinvested. Consequently, the "effective yield" will be slightly higher because
of the compounding effect of the assumed reinvestment. Also, the Tax-Exempt Fund
may from time to time advertise a "tax-equivalent yield" to demonstrate the
level of taxable yield necessary to
27
<PAGE>
produce an after-tax yield equivalent to that achieved by the Fund. The
"tax-equivalent yield" will be computed by dividing the tax-exempt portion of
the Fund's yield by a denominator consisting of one minus a stated federal
income tax rate and adding the product to that portion, if any, of the Fund's
yield which is not tax-exempt.
In addition, the U.S. Treasury Fund may calculate a "state flow through
yield" which shows the level of taxable yield needed to produce an after-tax
yield equivalent to a particular state's tax-exempt yield achieved by the Fund.
The "state flow through yield" refers to that portion of income which is derived
from interest income on direct obligations of the U.S. Government, its agencies
or instrumentalities and which qualifies for exemption from state taxes. The
yield calculation assumes that 100% of the interest income is exempt from state
personal income tax. A "state flow through yield" will be computed by dividing
the tax-exempt portion of the Fund's yield by a denominator consisting of one
minus a stated income tax rate. For illustrative purposes, state flow through
yields assume the payment of state income tax rates of 3%, 7% or 11%.
The Funds' yields will fluctuate and any quotation of yield should not be
considered as representative of the future performance of the Funds. Since
yields fluctuate, yield data cannot necessarily be used to compare an investment
in a Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged directly by Institutions to accounts of Customers that have
invested in Trust Shares of a Fund will not be included in calculations of
yield.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of a particular Fund means, with respect to the approval of
an investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of such Fund, or (b) 67% or more
of the shares of such Fund present at a meeting if more than 50% of the
outstanding shares of such Fund are represented at the meeting in person or by
proxy.
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<PAGE>
GALAXY
FUNDS
MONEY MARKET FUND
GOVERNMENT FUND
U.S. TREASURY FUND
TAX-EXEMPT FUND
[logo]
February 28, 1998
FN-001 15041 (3/98)
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information regarding
Westboro, Massachusetts purchases, redemptions, exchanges and other
01581-5108 shareholder services or for current performance,
call 1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus relates to six separate money market portfolios (individually, a
"Fund," collectively, the "Funds") offered to investors by Galaxy, each having
its own investment objective and policies:
The MONEY MARKET FUND'S investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund invests in "money market" instruments with remaining maturities of one year
or less, such as domestic and foreign bank certificates of deposit, bankers'
acceptances, commercial paper and corporate bonds in addition to obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
and repurchase agreements relating to such obligations.
The GOVERNMENT FUND'S investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund invests in obligations with remaining maturities of 397 days or less which
are issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
The U.S. TREASURY FUND'S investment objective is to seek current income with
liquidity and stability of principal. The Fund invests in securities with
remaining maturities of one year or less which are issued or guaranteed as to
principal and interest by the U.S. Government or by agencies or
instrumentalities thereof, the interest income from which generally will not be
subject to state income tax by reason of current federal law. The Fund invests
at least 65% of its total assets in direct U.S. Government obligations.
The TAX-EXEMPT FUND'S investment objective is to seek as high a level of
current interest income exempt from federal income tax as is consistent with
stability of principal. The Fund invests substantially all of its assets in high
quality debt obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their
authorities, agencies, instrumentalities and political subdivisions, the
interest on which, in the opinion of bond counsel or counsel to the issuer, is
exempt from federal income tax ("Municipal Securities"). The Fund's portfolio
securities will generally have remaining maturities of 397 days or less.
The CONNECTICUT MUNICIPAL MONEY MARKET FUND'S investment objective is to
provide current income exempt from federal regular income tax and the
Connecticut state income tax on individuals, trusts and estates, consistent with
relative stability of principal and liquidity. The Fund invests primarily in
Connecticut Municipal Securities (as defined below), including securities of
states, territories and possessions of the United States which are not issued by
or on behalf of Connecticut or its political subdivisions and financing
authorities, but the interest on which is exempt from the Connecticut state
income tax on individuals, trusts and estates (the "CSIT"). The Fund's portfolio
securities will generally have remaining maturities of not more than 397 days.
The Fund is a non-diversified investment portfolio under the Investment Company
Act of 1940, as amended, (the "1940 Act").
The MASSACHUSETTS MUNICIPAL MONEY MARKET FUND'S investment objective is to
provide current income exempt from federal regular income tax and the income
taxes imposed by the Commonwealth of Massachusetts, consistent with relative
stability of principal and liquidity. The Fund invests primarily in
Massachusetts Municipal Securities (as defined below), including securities of
states, territories and possessions of the United States which are not issued by
or on behalf of Massachusetts or its political subdivisions and financing
authorities, but which are exempt from income taxes imposed by the Commonwealth
of Massachusetts. The Fund's portfolio securities will generally have remaining
maturities of not more than 397 days. The Fund is a non-diversified investment
portfolio under the 1940 Act.
THE CONNECTICUT MUNICIPAL MONEY MARKET FUND AND THE MASSACHUSETTS MUNICIPAL
MONEY MARKET FUND ARE CONCENTRATED IN SECURITIES ISSUED BY, OR ENTITIES WITHIN,
THE STATE OF CONNECTICUT AND THE COMMONWEALTH OF MASSACHUSETTS, RESPECTIVELY,
AND EACH SUCH FUND MAY INVEST A SIGNIFICANT PERCENTAGE OF ITS ASSETS IN A SINGLE
ISSUER. THEREFORE, INVESTMENT IN THESE FUNDS MAY BE RISKIER THAN AN INVESTMENT
IN OTHER TYPES OF MONEY MARKET FUNDS.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL AMOUNT INVESTED. THERE IS NO ASSURANCE THAT THE FUNDS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
This Prospectus describes (i) Retail A Shares in the Money Market,
Government, U.S. Treasury and Tax-Exempt Funds, (ii) Retail B Shares in the
Money Market Fund, and (iii) Shares in the Connecticut Municipal Money Market
and Massachusetts Municipal Money Market Funds (which presently issue only one
series of shares). Such Retail A Shares, Retail B Shares and Shares are referred
to herein collectively as "Retail Shares." Retail Shares are offered to
customers ("Customers") of FIS Securities, Inc., Fleet Brokerage Securities,
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks, and other qualified banks,
savings and loan associations and broker/dealers ("Institutions"). Retail Shares
may also be purchased directly by individuals, corporations or other entities,
who submit a purchase application to Galaxy, purchasing either for their own
accounts or for the accounts of others ("Direct Investors"). Retail B Shares in
the Money Market Fund bear distribution fees, and are assessed a contingent
deferred sales charge upon redemption.
Galaxy is also authorized to issue an additional series of shares ("Trust
Shares") in the Money Market, Government, U.S. Treasury and Tax-Exempt Funds,
which are offered under a separate prospectus primarily to investors maintaining
qualified accounts at bank and trust institutions, including institutions
affiliated with Fleet Financial Group, Inc., and with respect to each Fund
except the Tax-Exempt Fund, to participants in employer-sponsored defined
contribution plans. Retail A Shares, Retail B Shares and Trust Shares in a Fund
represent equal pro rata interests in the Fund, except that they bear different
expenses and charges. See "Financial Highlights," "Management of the Funds" and
"Description of Galaxy and Its Shares" herein.
Each of the Funds is advised by Fleet Investment Advisors Inc. and sponsored
and distributed by First Data Distributors, Inc., which is not affiliated with
Fleet Investment Advisors Inc. or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Funds, contained in the respective Statements of Additional Information
relating to the Funds and bearing the same date has been filed with the
Securities and Exchange Commission. The current Statements of Additional
Information are available upon request without charge by contacting Galaxy at
its telephone number or address shown above. The Statements of Additional
Information, as they may be amended from time to time, are incorporated by
reference in their entireties into this Prospectus.
FEBRUARY 28, 1998
<PAGE>
HIGHLIGHTS
Q: WHAT IS THE GALAXY FUND?
A: Galaxy is an open-end management investment company (commonly known as a
mutual fund) that offers investors the opportunity to invest in different
investment portfolios having separate investment objectives and policies. This
Prospectus describes six of Galaxy's money market funds: THE MONEY MARKET FUND,
GOVERNMENT FUND, U.S. TREASURY FUND, TAX-EXEMPT FUND, CONNECTICUT MUNICIPAL
MONEY MARKET FUND AND MASSACHUSETTS MUNICIPAL MONEY MARKET FUND. See "Investment
Objectives and Policies" and "Investments, Strategies and Risks." Prospectuses
for Galaxy's INSTITUTIONAL GOVERNMENT MONEY MARKET, EQUITY VALUE, EQUITY GROWTH,
EQUITY INCOME, INTERNATIONAL EQUITY, SMALL COMPANY EQUITY, MIDCAP EQUITY, ASSET
ALLOCATION, SMALL CAP VALUE, GROWTH AND INCOME, STRATEGIC EQUITY, SHORT-TERM
BOND, INTERMEDIATE GOVERNMENT INCOME, HIGH QUALITY BOND, CORPORATE BOND,
TAX-EXEMPT BOND, NEW JERSEY MUNICIPAL BOND, NEW YORK MUNICIPAL BOND, CONNECTICUT
MUNICIPAL BOND, MASSACHUSETTS MUNICIPAL BOND AND RHODE ISLAND MUNICIPAL BOND
FUNDS may be obtained by calling 1-800-628-0414.
Q: WHO ADVISES THE FUNDS?
A: The Funds are advised by Fleet Investment Advisors Inc. ("Fleet"), an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc. Fleet Financial
Group, Inc. is a financial services company with total assets as of December 31,
1997 of approximately $85.5 billion. See "Management of the Funds--Investment
Adviser."
Q: WHAT ADVANTAGES DO THE FUNDS OFFER?
A: The Funds offer investors the opportunity to invest in a variety of
professionally managed investment portfolios without having to become involved
with the detailed accounting and safekeeping procedures normally associated with
direct investments in securities. The Funds also offer the economic advantages
of block trading in portfolio securities and the availability of a family of
twenty-seven mutual funds should your investment goals change.
Q: HOW TO BUY AND REDEEM SHARES?
A: The Funds are distributed by First Data Distributors, Inc. Retail Shares
may be purchased on behalf of customers ("Customers") of FIS Securities, Inc.,
Fleet Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises,
Inc., Fleet Financial Group, Inc., its affiliates, their correspondent banks and
other qualified banks, savings and loan associations and broker/dealers
("Institutions"). Retail Shares may also be sold to individuals, corporations or
other entities,who submit a purchase application to Galaxy, purchasing either
for their own accounts or for the accounts of others ("Direct Investors").
Retail B Shares of the Money Market Fund carry higher operating expenses than
other Retail Shares and may not be appropriate for investors that do not plan to
exchange into Retail B Shares of certain of Galaxy's non-money market
portfolios. Retail B Shares are also subject to a contingent deferred sales
charge. Six years after the date of purchase, Retail B Shares of the Money
Market Fund will automatically convert to Retail A Shares. Purchase and
redemption information for both Direct Investors and Customers is provided below
under "How to Purchase and Redeem Shares." Except as provided below under
"Investor Programs," the minimum initial investment for Direct Investors and the
minimum initial aggregate investment for Institutions purchasing on behalf of
their Customers is $2,500. The minimum investment for subsequent purchases is
$100. There are no minimum investment requirements for investors participating
in the Automatic Investment Program described below. Institutions may require
Customers to maintain certain minimum investments in Retail Shares of the Funds.
Q: WHEN ARE DIVIDENDS PAID?
A: Dividends from net investment income of each Fund are declared daily and
paid monthly. Net realized capital gains of each Fund, if any, are distributed
at least annually. See "Dividends and Distributions."
Q: WHAT POTENTIAL RISKS ARE PRESENTED BY THE FUNDS' INVESTMENT PRACTICES?
A: The Tax-Exempt Fund, Connecticut Municipal Money Market Fund and
Massachusetts Municipal Money Market Fund invest primarily in Municipal
Securities, Connecticut Municipal Securities and Massachusetts Municipal
Securities, respectively. The achievement of the investment objective of each of
these Funds is dependent upon the ability of the issuers of such Municipal
Securities to meet their continuing obligations for the payment of principal and
interest. In addition, because the Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds are non-diversified, their investment
returns may be dependent upon the performance of a smaller number or particular
type of securities relative to a diversified portfolio. Each Fund may purchase
eligible securities on a "when-issued" or "delayed settlement" basis. In
addition, the Tax-Exempt, Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds may acquire "stand-by commitments" with respect to
Municipal Securities held in their portfolios. The value of a Fund's portfolio
securities will generally vary inversely with changes in prevailing interest
rates. See "Investment Objectives and Policies" and "Investments, Strategies and
Risks".
Q: WHAT SHAREHOLDER PRIVILEGES ARE OFFERED BY THE FUNDS?
A: Investors may exchange Retail A Shares of the Money Market, Government,
Tax-Exempt and U.S. Treasury Funds and Shares of the Connecticut Municipal Money
Market and Massachusetts Municipal Money Market Funds having a value of at least
$100 for Retail A Shares of any other portfolio offered by Galaxy or otherwise
advised by Fleet or its affiliates in which the investor has an existing
account.
1
<PAGE>
Retail B Shares of the Money Market Fund may be exchanged for Retail B Shares of
certain of Galaxy's non-money market portfolios. Galaxy offers Individual
Retirement Accounts ("IRAs"), which can be established by contacting Galaxy's
distributor. Retail Shares are also available for purchase through Simplified
Employee Pension Plan ("SEP"), Multi-Employee Retirement Plan ("MERP") and Keogh
Plan accounts, which can be established directly with Fleet Brokerage
Securities, Inc. or its affiliates. Galaxy also offers an Automatic Investment
Program which allows Direct Investors to automatically invest in Retail Shares
of the Funds on a monthly or quarterly basis as well as other shareholder
privileges. See "Investor Programs."
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by each Fund with respect to its Retail A Shares (Shares with respect to
the Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds) and/or Retail B Shares, and (ii) the operating expenses for Retail A
Shares (Shares with respect to the Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds) and/or Retail B Shares of each Fund.
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or selling
shares of the Funds. ANNUAL FUND OPERATING EXPENSES are paid out of each Fund's
assets and include fees for portfolio management, maintenance of shareholder
accounts, general Fund administration, accounting and other services. Examples
based on the table are also shown.
<TABLE>
<CAPTION>
U.S. TAX- MASSACHUSETTS
MONEY MARKET GOVERNMENT TREASURY EXEMPT CONNECTICUT MUNICIPAL
FUND FUND FUND FUND MUNICIPAL MONEY
------------------ ------- ------- ------- MONEY MARKET MARKET
RETAIL RETAIL RETAIL RETAIL RETAIL FUND FUND
A B A A A ------------ -------
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
- ------------------------------
Maximum Front-End Sales Charge
Imposed on Purchases (as a
percentage of offering
price)....................... None None None None None None None
Maximum Deferred Sales Charge
(as a percentage of offering
price)....................... None 5.00%(1) None None None None None
Sales Charge Imposed on
Reinvested Dividends......... None None None None None None None
Redemption Fees(2)............ None None None None None None None
Exchange Fees................. None None None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
- ------------------------------
Advisory Fees (After Fee
Waivers)..................... .36% .36% .39% .39% .40% .40% .40%
12b-1 Fees.................... None .75%(3) None None None None None
Other Expenses (After Fee
Waivers)..................... .37% .33% .34% .32% .28% .22% .22%
------- ------- ------- ------- ------- ----- -------
Total Fund Operating Expenses
(After Fee Waivers).......... .73% 1.44% .73% .71% .68% .62% .62%
------- ------- ------- ------- ------- ----- -------
------- ------- ------- ------- ------- ----- -------
</TABLE>
- --------------------------
(1) This amount applies to redemptions during the first year. The charge
decreases to 4.00%, 3.00%, 3.00%, 2.00% and 1.00% for redemptions made
during the second though sixth years, respectively. Retail B Shares
automatically convert to Retail A Shares after six years. See "How to
Purchase and Redeem Shares--Applicable Sales Charge--Retail B Shares."
(2) Direct Investors are charged a $5.00 fee if redemption proceeds are paid by
wire.
(3) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the rules of the National
Association of Securities Dealers, Inc.
3
<PAGE>
- --------------------------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund (Retail A Shares)............... $ 7 $23 $ 40 $ 89
Money Market Fund (Retail B Shares)
Assuming complete redemption at end of
period(1)...................................... $64 $75 $ 97 $133(2)
Assuming no redemption.......................... $14 $45 $ 77 $133(2)
Government Fund (Retail A Shares)................. $ 7 $23 $ 40 $ 89
U.S. Treasury Fund (Retail A Shares).............. $ 7 $22 $ 39 $ 86
Tax-Exempt Fund (Retail A Shares)................. $ 7 $21 $ 37 $ 83
Connecticut Municipal Money Market Fund
(Shares)......................................... $ 6 $19 $ 34 $ 76
Massachusetts Municipal Money Market Fund
(Shares)......................................... $ 6 $19 $ 34 $ 76
</TABLE>
- --------------------------
(1) Assumes the deduction of the maximum applicable contingent deferred sales
charge.
(2) Based on the conversion of Retail B Shares to Retail A Shares after six
years.
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Funds bears
directly or indirectly. The information contained in the Expense Summary and
Example is based on expenses incurred by the Funds during the last fiscal year,
restated to reflect the expenses which each Fund expects to incur during the
current fiscal year on its Retail Shares. Without voluntary fee waivers by
Fleet, Advisory Fees would be .40%, .40%, .40%, .40% and .40%, Other Expenses
would be .37%, .34%, .28%, .26% and .29% and Total Fund Operating Expenses would
be .77%, .74%, .68%, .66% and .69% for Retail A Shares/Shares of the Money
Market Fund, Government Fund, Tax-Exempt Fund, Connecticut Municipal Money
Market Fund and Massachusetts Municipal Money Market Fund, respectively, and
Advisory Fees would be .40%, Other Expenses would be .33% and Total Fund
Operating Expenses would be 1.48% for Retail B Shares of the Money Market Fund.
Fleet is under no obligation to waive fees and/or reimburse expenses but has
advised Galaxy that it intends to waive fees and/or reimburse expenses during
the current year to the extent necessary to maintain the Funds' operating
expenses at the levels set forth in the above table. For more complete
descriptions of these costs and expenses, see "Management of the Funds" and
"Description of Galaxy and Its Shares" in this Prospectus, and the financial
statements and notes incorporated by reference into the respective Statements of
Additional Information relating to the Funds. Any fees that are charged by
affiliates of Fleet or any other Institutions directly to their Customer
accounts for services related to an investment in Retail Shares of the Funds are
in addition to and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
4
<PAGE>
FINANCIAL HIGHLIGHTS
Prior to November 1, 1994, each of the Money Market, Government, U.S.
Treasury and Tax-Exempt Funds offered a single series of shares. As of such
date, the existing series of shares was designated as Retail Shares (now
designated Retail A Shares), and each of these Funds began offering a new series
of shares designated as Trust Shares. This Prospectus describes the Retail A
Shares of these Funds and the Retail B Shares of the Money Market Fund. Trust
Shares in these Funds are offered under a separate prospectus. Retail A Shares,
Retail B Shares and Trust Shares in a Fund represent equal pro rata interests in
the Fund, except that (i) Retail A Shares of a Fund bear the expenses incurred
under Galaxy's Shareholder Services Plan at an annual rate of up to .10% of the
average daily net asset value of the Fund's outstanding Retail A Shares, (ii)
Retail B Shares of the Money Market Fund bear the expenses incurred under
Galaxy's Distribution and Services Plan at an annual rate of up to .75% of the
average daily net asset value of such Fund's outstanding Retail B Shares, and
(iii) Retail A Shares, Retail B Shares and Trust Shares bear differing transfer
agency expenses. See "Management of the Funds" and "Description of Galaxy and
Its Shares."
The financial highlights presented below for the Money Market, Government,
U.S. Treasury and Tax-Exempt Funds have been audited by Coopers & Lybrand
L.L.P., Galaxy's independent accountants, whose report is contained in Galaxy's
Annual Report to Shareholders relating to the Funds for the fiscal year ended
October 31, 1997 (the "Annual Report"). Such financial highlights should be read
in conjunction with the financial statements contained in the Annual Report and
incorporated by reference into the Statement of Additional Information relating
to these Funds. More information about the performance of each of these Funds is
also contained in the Annual Report, which may be obtained without charge by
contacting Galaxy at its telephone number or address provided above.
5
<PAGE>
MONEY MARKET FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
-----------------------------------------------------------------------------------------------------------
1997 1996 1995
-------- -------- --------
RETAIL RETAIL RETAIL
A SHARES A SHARES A SHARES 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
Investment
Operations:
Net investment
income(3,4,5).... 0.05 0.05 0.05 0.03 0.03 0.04 0.06 0.08 0.09 0.07
Net realized and
unrealized gain
(loss) on
investments...... -- -- -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
Investment
Operations:... 0.05 0.05 0.05 0.03 0.03 0.04 0.06 0.08 0.09 0.07
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net
investment
income........... (0.05) (0.05) (0.05) (0.03) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07)
Dividends from net
realized capital
gains(6)......... -- -- -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
Dividends:... (0.05) (0.05) (0.05) (0.03) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net increase
(decrease) in net
asset value........ -- -- -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End
of Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Return(7)..... 4.93% 4.78% 5.23% 3.35% 2.78% 4.07% 6.40% 8.11% 9.09% 7.08%
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's)... $1,877,889 $1,159,312 $580,762 $797,399 $577,558 $590,911 $415,541 $444,303 $410,121 $210,712
Ratios to average
net assets:
Net investment
income including
reimbursement/
waiver........... 4.85% 4.67% 5.12% 3.38% 2.74% 3.74% 6.24% 7.82% 8.73% 6.92%
Operating expenses
including
reimbursement/
waiver........... 0.69% 0.77% 0.74% 0.64% 0.63% 0.58% 0.59% 0.59% 0.58% 0.59%
Operating expenses
excluding
reimbursement/
waiver........... 0.73% 0.80% 0.76% 0.64% 0.63% 0.58% 0.59% 0.59% 0.59% 0.59%
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1997(2)
RETAIL
B SHARES
-------------
<S> <C>
Net Asset Value,
Beginning of
Period............. $ 1.00
------
Income from
Investment
Operations:
Net investment
income(3,4,5).... 0.03
Net realized and
unrealized gain
(loss) on
investments...... --
------
Total from
Investment
Operations:... 0.03
------
Less Dividends:
Dividends from net
investment
income........... (0.03)
Dividends from net
realized capital
gains(6)......... --
------
Total
Dividends:... (0.03)
------
Net increase
(decrease) in net
asset value........ --
------
Net Asset Value, End
of Period.......... $ 1.00
------
------
Total Return(7)..... 2.66%(8)
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's)... $ 749
Ratios to average
net assets:
Net investment
income including
reimbursement/
waiver........... 4.27%(9)
Operating expenses
including
reimbursement/
waiver........... 1.38%(9)
Operating expenses
excluding
reimbursement/
waiver........... 1.42%(9)
</TABLE>
- --------------------------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) The Fund began offering Retail B Shares on March 6, 1997.
(3) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1994, 1993, 1992, 1991, 1990, 1989 and 1988 was
$0.03, $0.03, $0.04, $0.06, $0.08, $0.09 and $0.07, respectively.
(4) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996 and 1995 was $0.05, $0.05 and $0.05,
respectively.
(5) Net investment income per share for Retail B Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the period ended October 31, 1997 was $0.03.
(6) Represents less than $0.01 per share for the year ended October 31, 1992.
(7) Total return for the year ended October 31, 1994 includes the effect of the
voluntary capital contribution of $1.6 million from Fleet in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.35%. Calculation does not include the effect of any sales charge for
Retail B Shares.
(8) Not Annualized.
(9) Annualized.
6
<PAGE>
GOVERNMENT FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
--------------------------------------------------------------------------------------------------
1997 1996 1995
-------- -------- --------
RETAIL RETAIL RETAIL
A SHARES A SHARES A SHARES 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment
income(2,3)......... 0.05 0.05 0.05 0.03 0.03 0.04 0.06 0.08 0.09 0.07
Net realized and
unrealized gain
(loss) on
investments......... -- -- -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
Investment
Operations:..... 0.05 0.05 0.05 0.03 0.03 0.04 0.06 0.08 0.09 0.07
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net
investment income... (0.05) (0.05) (0.05) (0.03) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07)
Dividends from net
realized capital
gains(4)............ -- -- -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
Dividends:...... (0.05) (0.05) (0.05) (0.03) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
in net asset value.... -- -- -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Return(5)........ 4.85% 4.72% 5.20% 3.49% 2.83% 4.19% 6.25% 8.10% 8.82% 6.91%
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's)...... $350,513 $326,411 $320,795 $759,106 $685,304 $636,338 $436,232 $335,443 $303,181 $141,545
Ratios to average net
assets:
Net investment income
including
reimbursement/waiver... 4.74% 4.62% 5.11% 3.36% 2.79% 3.67% 6.05% 7.80% 8.59% 6.73%
Operating expenses
including
reimbursement/waiver... 0.71% 0.75% 0.73% 0.54% 0.55% 0.53% 0.56% 0.56% 0.60% 0.60%
Operating expenses
excluding
reimbursement/waiver... 0.72% 0.76% 0.74% 0.54% 0.55% 0.53% 0.56% 0.57% 0.61% 0.60%
</TABLE>
- --------------------------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1994, 1993, 1992, 1991, 1990, 1989 and 1988 was
$0.03, $0.03, $0.04, $0.06, $0.08, $0.09 and $0.07, respectively.
(3) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996 and 1995 was $0.05, $0.05 and $0.05,
respectively.
(4) Represents less than $0.01 per share for the years ended October 31, 1992,
1990, 1989 and 1988.
(5) Total return for the year ended October 31, 1994 includes the effect of the
voluntary capital contribution of $2.3 million from Fleet in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.49%.
7
<PAGE>
U.S. TREASURY FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
---------------------------------------------------------------
PERIOD
1997 1996 1995 ENDED
-------- -------- -------- OCTOBER
RETAIL RETAIL RETAIL 31,
A SHARES A SHARES A SHARES 1994 1993 1992 1991(1,2)
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment
income(3,4)......... 0.05 0.05 0.05 0.03 0.03 0.04 0.04
Net realized and
unrealized gain
(loss) on
investments......... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total from
Investment
Operations:..... 0.05 0.05 0.05 0.03 0.03 0.04 0.04
-------- -------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net
investment income... (0.05) (0.05) (0.05) (0.03) (0.03) (0.04) (0.04)
Dividends from net
realized capital
gains............... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total
Dividends:...... (0.05) (0.05) (0.05) (0.03) (0.03) (0.04) (0.04)
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease)
in net asset value.... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Total Return(5)........ 4.67% 4.63% 4.99% 3.30% 2.75% 3.69% 4.51%(6)
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's)...... $585,969 $443,230 $318,621 $466,993 $447,960 $482,416 $170,177
Ratios to average net
assets:
Net investment income
including
reimbursement/waiver... 4.58% 4.53% 4.90% 3.24% 2.71% 3.51% 4.26%(7)
Operating expenses
including
reimbursement/waiver... 0.69% 0.69% 0.73% 0.56% 0.55% 0.49% 0.27%(7)
Operating expenses
excluding
reimbursement/waiver... 0.70% 0.69% 0.73% 0.56% 0.55% 0.55% 0.65%(7)
</TABLE>
- --------------------------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) The Fund commenced operations on January 22, 1991.
(3) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1994, 1993 and 1992 and for the period ended
October 31, 1991 was $0.03, $0.03, $0.04 and $0.04, respectively.
(4) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996 and 1995 was $0.05, $0.05, and
$0.05, respectively.
(5) Total return for the year ended October 31, 1994 includes the effect of the
voluntary capital contribution of $1 million from Fleet in order to
partially offset losses realized on the sale of certain securities held by
the Fund. Without this capital contribution, the total return would have
been 3.30%.
(6) Not Annualized.
(7) Annualized.
8
<PAGE>
TAX-EXEMPT FUND
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,(1)
---------------------------------------------------------------------------------------------
1997 1996 1995
----------- ----------- ---------
RETAIL RETAIL RETAIL
A SHARES A SHARES A SHARES 1994 1993 1992 1991 1990
----------- ----------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- --------- --------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment
income(3,4)................ 0.03 0.03 0.03 0.02 0.02 0.03 0.04 0.05
Net realized and unrealized
gain (loss) on
investments................ -- -- -- -- -- -- -- --
----------- ----------- --------- --------- -------- -------- -------- --------
Total from Investment
Operations:............ 0.03 0.03 0.03 0.02 0.02 0.03 0.04 0.05
----------- ----------- --------- --------- -------- -------- -------- --------
Less Dividends:
Dividends from net
investment income.......... (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) (0.05)
Dividends from net realized
capital gains.............. -- -- -- -- -- -- -- --
----------- ----------- --------- --------- -------- -------- -------- --------
Total Dividends:........ (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) (0.05)
----------- ----------- --------- --------- -------- -------- -------- --------
Net increase (decrease) in net
asset value.................. -- -- -- -- -- -- -- --
----------- ----------- --------- --------- -------- -------- -------- --------
Net Asset Value, End of
Period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- --------- --------- -------- -------- -------- --------
----------- ----------- --------- --------- -------- -------- -------- --------
Total Return.................. 2.95% 2.82% 3.16% 2.24% 1.93% 2.71% 4.51% 5.51%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................... $151,907 $117,548 $127,056 $ 271,050 $301,399 $223,173 $194,098 $119,377
Ratios to average net assets:
Net investment income
including
reimbursement/waiver....... 2.92% 2.78% 3.12% 2.12% 1.92% 2.64% 4.37% 5.37%
Operating expenses including
reimbursement/waiver....... 0.68% 0.68% 0.68% 0.58% 0.59% 0.57% 0.60% 0.60%
Operating expenses excluding
reimbursement/waiver....... 0.69% 0.69% 0.71% 0.58% 0.59% 0.57% 0.60% 0.61%
<CAPTION>
PERIOD
ENDED
OCTOBER 31,
1989 1988(1,2)
-------- -----------
<S> <C> <C>
Net Asset Value,
Beginning of Period.......... $ 1.00 $ 1.00
-------- -----------
Income from Investment
Operations:
Net investment
income(3,4)................ 0.06 0.02
Net realized and unrealized
gain (loss) on
investments................ -- --
-------- -----------
Total from Investment
Operations:............ 0.06 0.02
-------- -----------
Less Dividends:
Dividends from net
investment income.......... (0.06) (0.02)
Dividends from net realized
capital gains.............. -- --
-------- -----------
Total Dividends:........ (0.06) (0.02)
-------- -----------
Net increase (decrease) in net
asset value.................. -- --
-------- -----------
Net Asset Value, End of
Period....................... $ 1.00 $ 1.00
-------- -----------
-------- -----------
Total Return.................. 5.96% 1.90%(5)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................... $131,358 $41,319
Ratios to average net assets:
Net investment income
including
reimbursement/waiver....... 5.82% 5.42%(6)
Operating expenses including
reimbursement/waiver....... 0.58% 0.32%(6)
Operating expenses excluding
reimbursement/waiver....... 0.61% 0.72%(6)
</TABLE>
- --------------------------
(1) Prior to November 1, 1994, the Fund offered a single series of shares. As
of such date, the existing series of shares was designated as Retail Shares
(now designated Retail A Shares) and the Fund began issuing a second series
of shares designated as Trust Shares.
(2) The Fund commenced operations on June 23, 1988.
(3) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1994, 1993, 1992, 1991, 1990 and 1989 and for
the period ended October 31, 1988 was $0.02, $0.02, $0.03, $0.04, $0.05,
$0.06 and $0.02, respectively.
(4) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996 and 1995 was $0.03, $0.03, and
$0.03, respectively.
(5) Not Annualized.
(6) Annualized.
9
<PAGE>
The Connecticut Municipal Money Market Fund and Massachusetts Municipal
Money Market Fund commenced operations on October 4, 1993 and October 5, 1993,
respectively, as separate investment portfolios (the "Predecessor Connecticut
Fund" and the "Predecessor Massachusetts Fund", respectively, and collectively,
the "Predecessor Funds") of The Shawmut Funds, which was organized as a
Massachusetts business trust. On December 4, 1995, these Predecessor Funds were
reorganized as new investment portfolios of Galaxy. Prior to the reorganization,
the Predecessor Connecticut Fund offered and sold two series of shares of
beneficial interest, Investment Shares and Trust Shares. The shareholders of
both series received the same series of shares in the Connecticut Municipal
Money Market Fund in connection with the reorganization. Unlike the Trust
Shares, the Investment Shares of the Predecessor Connecticut Fund were similar
to the Shares of the Connecticut Municipal Money Market Fund. Accordingly, the
Trust Shares of the Predecessor Connecticut Fund have been excluded from the
financial highlights. Prior to the reorganization, the Predecessor Massachusetts
Fund offered and sold shares of beneficial interest that were similar to Shares
of the Massachusetts Municipal Money Market Fund.
The financial highlights presented below set forth certain information
concerning (i) the investment results of the Shares of the Connecticut Municipal
Money Market and Massachusetts Municipal Money Market Funds for the fiscal years
ended October 31, 1997 and October 31, 1996 and (ii) the investment results of
Investment Shares of the Predecessor Funds (the series that is similar to the
Shares of the Connecticut Municipal Money Market and Massachusetts Municipal
Money Market Funds) for the fiscal years ended October 31, 1995 and October 31,
1994 and the fiscal period ended October 31, 1993. The information about the
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds for the fiscal years ended October 31, 1997 and October 31, 1996 has been
audited by Coopers & Lybrand L.L.P., Galaxy's independent accountants, whose
report is contained in Galaxy's Annual Report to Shareholders relating to the
Funds dated October 31, 1997 (the "Annual Report"). The information about the
Predecessor Connecticut and Predecessor Massachusetts Funds for the fiscal years
ended October 31, 1995 and October 31, 1994 and the fiscal period ended October
31, 1993 was audited by other auditors. The financial highlights should be read
in conjunction with the financial statements and notes thereto contained in the
Annual Report and incorporated by reference into the Statement of Additional
Information relating to the Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds. More information about the performance of the
Funds is contained in the Annual Report which may be obtained without charge by
contacting Galaxy at its telephone numbers or address provided above.
10
<PAGE>
CONNECTICUT MUNICIPAL MONEY MARKET FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, PERIOD ENDED
----------------------------------------------------------- OCTOBER 31,
1997 1996(2) 1995 1994 1993(1)
-------- ------------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------------ ------------ ------
Income from Investment Operations
Net investment income(3,4,5).......... 0.03 0.03 0.03 0.02 --
Net realized and unrealized gain
(loss) on investments................ -- -- -- -- --
-------- -------- ------------ ------------ ------
Total from Investment
Operations:(3)................... 0.03 0.03 0.03 0.02 --
-------- -------- ------------ ------------ ------
Less Dividends:
Dividends from net investment
income(3)............................ (0.03) (0.03) (0.03) (0.02) --
Dividends from net realized gains..... -- -- -- -- --
-------- -------- ------------ ------------ ------
Total Dividends:(3)............... (0.03) (0.03) (0.03) (0.02) --
-------- -------- ------------ ------------ ------
Net increase (decrease) in net asset
value.................................. -- -- -- -- --
-------- -------- ------------ ------------ ------
Net Asset Value, End of Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------------ ------------ ------
-------- -------- ------------ ------------ ------
Total Return(6)......................... 2.94% %2.83 %2.94 %1.83 0.14%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $137,095 $ 110,544 $ 71,472 $ 80,663 $6,582
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 2.91% %2.79 %2.88 %1.99 2.12%(8)
Operating expenses including
reimbursement/waiver................. 0.60% %0.64 %0.82 %0.78 0.36%(8)
Operating expenses excluding
reimbursement/waiver................. 0.65% %0.73 %1.29 %1.50 5.82%(8)
</TABLE>
- --------------------------
(1) The Fund commenced operations on October 4, 1993 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds.
(2) On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy with a single series of shares. Prior to the
reorganization, the Predecessor Fund offered and sold two series of shares,
Investment Shares and Trust Shares. In connection with the reorganization,
the shareholders of the Predecessor Fund exchanged shares of each series
for Shares in the Fund.
(3) Represents less than $0.01 per share for year 1993.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or other parties for the fiscal years ended October 31, 1997 and
1996 was $0.03 and $0.03, respectively.
(5) Net investment income per share before reimbursement/waiver of fees by
other parties for the fiscal years ended October 31, 1995 and 1994 and for
the period ended October 31, 1993 was $0.03, $0.01 and $0.00, respectively
(unaudited).
(6) Calculation does not include the effect of any sales charge for Investment
Shares of the Predecessor Fund.
(7) Not Annualized.
(8) Annualized.
11
<PAGE>
MASSACHUSETTS MUNICIPAL MONEY MARKET FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED OCTOBER 31, ENDED
-------------------------------------------------------------------- OCTOBER 31,
1997 1996(3) 1995(2) 1994(2) 1993(1,2)
---------------- ---------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ----------- -----------
Income from Investment
Operations:
Net investment
income(4,5,6).............. 0.03 0.03 0.03 0.02 --
Net realized and unrealized
gain (loss) on
investments................ -- -- -- -- --
------- ------- ------- ----------- -----------
Total from Investment
Operations:............ 0.03 0.03 0.03 0.02 --
------- ------- ------- ----------- -----------
Less Dividends:
Dividends from net
investment income(4)....... (0.03) (0.03) (0.03) (0.02) --
Dividends from net realized
capital gains.............. -- -- -- -- --
------- ------- ------- ----------- -----------
Total Dividends:(4)..... (0.03) (0.03) (0.03) (0.02) --
------- ------- ------- ----------- -----------
Net increase (decrease) in net
asset value.................. -- -- -- -- --
------- ------- ------- ----------- -----------
Net Asset Value, End of
Period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ----------- -----------
------- ------- ------- ----------- -----------
Total Return.................. 2.92% 2.83% 3.21% 1.99% 0.12%(7)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................... $ 80,966 $ 47,066 $ 40,326 $ 31,516 $ 1,237
Ratios to average net assets:
Net investment income
including
reimbursement/waiver....... 2.90% 2.78% 3.16% 2.00% 2.75%(8)
Operating expenses including
reimbursement/waiver....... 0.61% 0.62% 0.57% 0.53% 0.11%(8)
Operating expenses excluding
reimbursement/waiver....... 0.69% 0.83% 1.06% 1.21% 35.42%(8)
</TABLE>
- --------------------------
(1) The Fund commenced operations on October 5, 1993 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds.
(2) The Predecessor Fund sold its shares without class designation.
(3) On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy. Prior to the reorganization, the Predecessor Fund
offered and sold one series of shares. In connection with the
reorganization, the shareholders of the Predecessor Fund exchanged shares
for Shares in the Fund.
(4) Represents less than $0.01 per share for year 1993.
(5) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or other parties for the fiscal years ended October 31, 1997 and
1996 was $0.03 and $0.03, respectively.
(6) Net investment income per share before reimbursement/waiver of fees by
other parties for the fiscal years ended October 31, 1995 and 1994 and for
the period ended October 31, 1993 was $0.03, $0.01 and ($0.01),
respectively (unaudited).
(7) Not Annualized.
(8) Annualized.
12
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
Fleet will use its best efforts to achieve each Fund's investment objective,
although such achievement cannot be assured. The investment objective of a Fund
may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted herein
under "Tax-Exempt Fund," "Connecticut Municipal Money Market Fund" and
"Massachusetts Municipal Money Market Fund" and below under "Investment
Limitations," a Fund's investment policies may be changed without shareholder
approval. An investor should not consider an investment in the Funds to be a
complete investment program. Each Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less in an effort to maintain a stable net
asset value per share of $1.00. The value of the Funds' portfolio securities
will generally vary inversely with changes in prevailing interest rates.
QUALITY REQUIREMENTS
Each Fund will purchase only those instruments which meet the applicable
quality requirements described below. The Money Market Fund will not purchase a
security (other than a U.S. Government security) unless the security or the
issuer with respect to comparable securities (i) is rated by at least two
nationally recognized statistical rating organizations ("Rating Agencies") (such
as Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's") or Fitch IBCA, Inc. ("Fitch IBCA")) in the highest category for
short-term debt securities, (ii) is rated by the only Rating Agency that has
issued a rating with respect to such security or issuer in such Rating Agency's
highest category for short-term debt, or (iii) if not rated, the security is
determined to be of comparable quality. The Tax-Exempt Fund, Connecticut
Municipal Money Market Fund and Massachusetts Municipal Money Market Fund
(collectively, the "Tax-Exempt Money Market Funds") will not purchase a security
(other than a U.S. Government security) unless the security (i) is rated by at
least two such Rating Agencies in one of the two highest categories for
short-term debt securities, (ii) is rated by the only Rating Agency that has
assigned a rating with respect to such security in one of such Rating Agency's
two highest categories for short-term debt, or (iii) if not rated, the security
is determined to be of comparable quality. These rating categories are
determined without regard to sub-categories and gradations. The Funds will
follow applicable regulations in determining whether a security rated by more
than one Rating Agency can be treated as being in the highest or, with respect
to the Tax-Exempt Money Market Funds one of the two highest, short-term rating
categories. See "Investment Limitations" below.
Determinations of comparable quality shall be made in accordance with
procedures established by the Board of Trustees. Generally, if a security has
not been rated by a Rating Agency, Fleet will acquire the security if it
determines that the security is of comparable quality to securities that have
received the requisite ratings. For example, with respect to the Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds, Fleet
will generally treat Connecticut Municipal Securities or Massachusetts Municipal
Securities, as the case may be, as eligible portfolio securities if the issuer
has received long-term bond ratings within the three highest rating categories
assigned by a Rating Agency with respect to other bond issues. Fleet also
considers other relevant information in its evaluation of unrated short-term
securities.
MONEY MARKET FUND
The Money Market Fund's investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund seeks to achieve its objective by investing in "money market" instruments
that are determined by Fleet to present minimal credit risk and meet certain
rating criteria. Instruments that may be purchased by the Money Market Fund
include obligations of domestic and foreign banks (including negotiable
certificates of deposit, non-negotiable time deposits, savings deposits and
bankers' acceptances); commercial paper; corporate bonds; obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities; and
repurchase agreements issued by financial institutions such as banks and broker/
dealers. These instruments have remaining maturities of one year or less (except
for certain variable and floating rate notes and securities underlying certain
repurchase agreements). For more information, including applicable quality
requirements, see "Quality Requirements" above and "Investments, Strategies and
Risks" below.
13
<PAGE>
GOVERNMENT FUND
The Government Fund's investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund seeks to achieve its objective by investing in obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements relating to such
obligations. These instruments have remaining maturities of 397 days or less
(except for certain variable and floating rate notes and securities underlying
certain repurchase agreements). See "Investments, Strategies and Risks" below.
U.S. TREASURY FUND
The U.S. Treasury Fund's investment objective is to seek current income with
liquidity and stability of principal. The Fund seeks to achieve its objective by
investing in those securities issued or guaranteed as to principal and interest
by the U.S. Government or by agencies or instrumentalities thereof, the interest
income from which generally will not be subject to state income tax by reason of
current federal law. Such instruments may include, but are not limited to,
securities issued by the U.S. Treasury and by certain U.S. Government agencies
or instrumentalities such as the Federal Home Loan Banks and Federal Farm Credit
Banks. The Fund invests at least 65% of its total assets in direct U.S.
Government obligations. Shareholders residing in a particular state that has an
income tax law should determine through consultation with their own tax advisers
whether such interest income, when distributed by the Fund, will be considered
by the state to have retained exempt status and whether the Fund's capital gain
and other income, if any, when so distributed will be subject to the state's
income tax. See "Taxes."
Portfolio securities held by the Fund have remaining maturities of one year
or less (with certain exceptions). The Fund may also invest in certain variable
and floating rate instruments as described under "Investments, Strategies and
Risks--Money Market Instruments." For more information, including applicable
quality requirements, see "Quality Requirements" above and "Investments,
Strategies and Risks" below.
TAX-EXEMPT FUND
The Tax-Exempt Fund's investment objective is to seek as high a level of
current interest income exempt from federal income tax as is consistent with
stability of principal by investing substantially all of its assets in Municipal
Securities that present minimal credit risk and meet the rating criteria
described above under "Quality Requirements." The Fund is designed for investors
in higher tax brackets who are seeking a relatively high amount of tax-free
income with stability of principal and less price volatility than would normally
be associated with intermediate-term and longer-term Municipal Securities.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its assets in Municipal
Securities. However, the Fund may from time to time, during temporary defensive
periods, hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in Fleet's opinion, prevailing market or economic conditions
warrant. Uninvested cash reserves will not earn income. Such taxable instruments
may include (i) obligations of the U.S. Treasury; (ii) obligations of agencies
or instrumentalities of the U.S. Government; (iii) "money market" instruments
such as certificates of deposit, commercial paper or bankers' acceptances; (iv)
repurchase agreements collateralized by U.S. Government obligations or other
"money market" instruments; or (v) securities issued by other investment
companies that invest in high quality, short-term Municipal Securities. For more
information including applicable quality requirements, see "Quality
Requirements" above and "Investments, Strategies and Risks" below.
In seeking to achieve its investment objective, the Tax-Exempt Fund may
invest in "private activity bonds" (see "Investments, Strategies and
Risks--Municipal Securities"), the interest on which may be subject to the
federal alternative minimum tax. Investments in such securities, however, will
not be treated as investments in Municipal Securities for purposes of the 80%
requirement mentioned above and, under normal market conditions, will not exceed
20% of the Fund's net assets when added together with any taxable investments
held by the Fund.
The Fund's portfolio securities will generally have remaining maturities of
397 days or less (except for certain variable and floating rate notes and
securities underlying certain repurchase agreements). See "Investments,
Strategies and Risks" below.
14
<PAGE>
CONNECTICUT MUNICIPAL MONEY MARKET FUND
The Connecticut Municipal Money Market Fund's investment objective is to
provide current income exempt from federal regular income tax and the CSIT,
consistent with stability of principal and liquidity. The Fund attempts to
achieve this objective by investing in a portfolio of Connecticut Municipal
Securities (as defined below) with remaining maturities of 397 days or less at
the time of purchase (with certain exceptions). As a matter of fundamental
policy that cannot be changed without shareholder approval, the Fund invests its
assets so that at least 80% of its annual interest income is exempt from federal
regular income tax or at least 80% of the total value of its assets is invested
in obligations the interest income from which is exempt from federal regular
income tax.
Under normal circumstances, at least 65% of the value of the Fund's assets
will be invested in debt obligations issued by or on behalf of the State of
Connecticut, its political subdivisions, or public instrumentalities, state or
local authorities, districts or similar public entities created under
Connecticut law, and obligations of territories and possessions of the United
States and any political sub-division or financing authority of any of these,
the interest income from which is, in the opinion of qualified legal counsel,
exempt from both federal regular income tax and the CSIT ("Connecticut Municipal
Securities"). Examples of Connecticut Municipal Securities include, but are not
limited to, municipal commercial paper and other short-term notes; variable rate
demand notes; municipal bonds (including bonds having remaining maturities of
less than 397 days without demand features); and tender option bonds. See
"Investments, Strategies and Risks" below.
From time to time on a temporary basis, when Fleet determines that market
conditions call for a temporary defensive posture, the Fund may invest in
short-term non-Connecticut municipal tax-exempt obligations or other taxable,
temporary investments. All temporary investments will satisfy the same credit
quality standards as Connecticut Municipal Securities. See "Quality
Requirements" above. Temporary investments include: investments in other mutual
funds; notes issued by or on behalf of municipal or corporate issuers;
marketable obligations issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; and repurchase agreements. Although the Fund
is permitted to make taxable, temporary investments, there is no current
intention of generating income subject to federal regular income tax or the
CSIT.
MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
The Massachusetts Municipal Money Market Fund's investment objective is to
provide current income exempt from federal regular income tax and the income
taxes imposed by the Commonwealth of Massachusetts, consistent with stability of
principal and liquidity. The Fund attempts to achieve this objective by
investing in a portfolio of Massachusetts Municipal Securities (as defined
below) with remaining maturities of 397 days or less at the time of purchase
(with certain exceptions). As a matter of fundamental policy that cannot be
changed without shareholder approval, the Fund invests its assets so that at
least 80% of its annual interest income is exempt from federal regular income
tax or at least 80% of the total value of its assets are invested in obligations
the interest income from which is exempt from federal regular income tax.
Under normal circumstances, at least 65% of the value of the Fund's assets
will be invested in debt obligations issued by or on behalf of the Commonwealth
of Massachusetts and its political subdivisions and financing authorities, and
obligations of other states, territories and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the interest income from which is, in the opinion of
qualified legal counsel, exempt from federal regular income tax and the income
taxes imposed by the Commonwealth of Massachusetts upon non-corporate taxpayers
("Massachusetts Municipal Securities"). Examples of Massachusetts Municipal
Securities include, but are not limited to, municipal commercial paper and other
short-term notes; variable rate demand notes; municipal bonds (including bonds
having remaining maturities of less than 397 days without demand features); and
tender option bonds. See "Investments, Strategies and Risks" below.
From time to time on a temporary basis, when Fleet determines that market
conditions call for a temporary defensive posture, the Fund may invest in
short-term non-Massachusetts municipal tax-exempt obligations or other taxable,
temporary investments. All temporary investments will satisfy the same credit
quality standards as Massachusetts Municipal Securities. See "Quality
Requirements" above. For a description of the types of temporary investments
permitted to be made by the Fund, see "Connecticut Municipal Money Market Fund"
above. Although the Fund is permitted to make taxable, temporary investments,
there is no current intention of generating income subject to federal regular
income tax or the income taxes imposed by the Commonwealth of Massachusetts.
15
<PAGE>
INVESTMENTS, STRATEGIES AND RISKS
U.S. GOVERNMENT OBLIGATIONS
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than 10
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association, are supported
by the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some U.S. Government obligations may be issued
as variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal.
However, due to fluctuations in interest rates, the market value of such
securities may vary during the period a shareholder owns shares of the Funds.
MONEY MARKET INSTRUMENTS
"Money market" instruments include bank obligations and corporate
obligations, including commercial paper and corporate bonds with remaining
maturities of (i) one year or less with respect to the Money Market Fund and
U.S. Treasury Fund or (ii) 397 days or less with respect to the Government Fund
and Tax-Exempt Fund.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank that is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank that is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Investments in non-negotiable time
deposits are limited to no more than 5% of the Money Market Fund's total assets
at the time of purchase.
Domestic and foreign banks are subject to extensive but different government
regulations which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. Investments in the obligations of U.S. branches of foreign banks or
foreign branches of U.S. banks will be made only when Fleet believes that the
credit risk with respect to the instrument is minimal.
Commercial paper may include securities issued by corporations without
registration under the Securities Act of 1933, as amended, (the "1933 Act") in
reliance on the so-called "private placement" exemption in Section 4(2)
("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under
the federal securities laws in that any resale must similarly be made in an
exempt transaction. Section 4(2) Paper is normally resold to other institutional
investors through or with the assistance of investment dealers which make a
market in Section 4(2) Paper, thus providing liquidity. For purposes of each
Fund's 10% limitation on purchases of illiquid instruments described below,
Section 4(2) Paper will not be considered illiquid if Fleet has determined, in
accordance with guidelines approved by the Board of Trustees, that an adequate
trading market exists for such securities. The Money Market Fund and each
Tax-Exempt Money Market Fund may also purchase Rule 144A securities. See
"Investment Limitations" below.
16
<PAGE>
MUNICIPAL SECURITIES
Municipal Securities are generally issued to finance public works, such as
airports, bridges, highways, housing, health-related entities,
transportation-related projects, educational programs, water and pollution
control and sewer works. They are also issued to repay outstanding obligations,
to raise funds for general operating expenses and to make loans to other public
institutions and for other facilities. Municipal Securities include private
activity bonds issued by or on behalf of public authorities to provide financing
aid to acquire sites or construct and equip facilities for privately or publicly
owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby increases
local employment.
The two principal classifications of Municipal Securities that may be held
by the Tax-Exempt Money Market Funds are "general obligation" securities and
"revenue" securities. General obligation securities are secured by the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue securities are payable only from the revenues derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as the
user of the facility being financed. Private activity bonds are in most cases
revenue securities and are not payable from the unrestricted revenues of the
issuer. Consequently, the credit quality of private activity bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
The Funds' portfolios may also include "moral obligation" securities, which
are normally issued by special-purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment, but not a legal obligation, of the state or municipality which
created the issuer. There is no limitation on the amount of moral obligation
securities that may be held by the Funds.
Municipal Securities may include variable rate demand notes, which are
long-term Municipal Securities that have variable or floating interest rates and
provide a Fund with the right to tender the security for repurchase at its
stated principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at par. The
interest rate may float or be adjusted at regular intervals (ranging from daily
to annually), and is normally based on an applicable interest index or another
published interest rate or interest rate index. Most variable rate demand notes
allow a Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit a Fund to tender the security at the
time of each interest rate adjustment or at other fixed intervals. The
Tax-Exempt Money Market Funds treat variable rate demand notes as maturing on
the later of the date of the next interest rate adjustment or the date on which
a Fund may next tender the security for repurchase.
Municipal Securities purchased by the Tax-Exempt Money Market Funds in some
cases may be insured as to the timely payment of principal and interest. There
is no guarantee, however, that the insurer will meet its obligations in the
event of a default in payment by the issuer. In other cases, Municipal
Securities may be backed by letters of credit or guarantees issued by domestic
or foreign banks or other financial institutions which are not subject to
federal deposit insurance. Adverse developments affecting the banking industry
generally or a particular bank or financial institution that has provided its
credit or guarantee with respect to a Municipal Security held by a Tax-Exempt
Money Market Fund, including a change in the credit quality of any such bank or
financial institution, could result in a loss to the Fund and adversely affect
the value of its shares. As described above under "Money Market Instruments",
letters of credit and guarantees issued by foreign banks and financial
institutions involve certain risks in addition to those of similar instruments
issued by domestic banks and financial institutions.
TENDER OPTION BONDS
The Tax-Exempt Money Market Funds may purchase tender option bonds and
similar securities. A tender option bond generally has a long maturity and bears
interest at a fixed rate substantially higher than prevailing short-term tax-
exempt rates, and is coupled with an agreement by a third party, such as a bank,
broker-dealer or other financial institution, pursuant to which such institution
grants the security holders the option, usually upon not more than seven days
notice or at periodic intervals, to tender their securities to the institution
and receive the face value of the securities. In providing the option, the
financial institution receives a fee that reduces the fixed rate of the
underlying bond and results in a Fund effectively receiving a demand obligation
that bears interest at the prevailing short-term tax-exempt rate. Fleet will
monitor, on an ongoing basis, the creditworthiness of the issuer of the tender
option bond, the financial institution providing the option, and any custodian
holding the underlying long-term bond. The bankruptcy, receivership or default
of any of the parties to a tender option bond will adversely affect the quality
and marketability of the security.
VARIABLE AND FLOATING RATE INSTRUMENTS
Securities purchased by the Funds may include variable and floating rate
instruments. Variable rate instruments provide for periodic adjustments in the
interest rate. Floating rate instruments provide for automatic adjustment of the
interest rate whenever some other specified interest rate changes. Some variable
and floating rate obligations are
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direct lending arrangements between the purchaser and the issuer and there may
be no active secondary market. However, in the case of variable and floating
rate obligations with a demand feature, a Fund may demand payment of principal
and accrued interest at a time specified in the instrument or may resell the
instrument to a third party. In the event an issuer of a variable or floating
rate obligation defaulted on its payment obligation, a Fund might be unable to
dispose of the note because of the absence of a secondary market and could, for
this or other reasons, suffer a loss to the extent of the default. Variable or
floating rate instruments issued or guaranteed by the U.S. Government or its
agencies or instrumentalities are similar in form but may have a more active
secondary market. Substantial holdings of variable and floating rate instruments
could reduce portfolio liquidity.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund, except the U.S. Treasury Fund, may purchase portfolio securities
subject to the seller's agreement to repurchase them at a mutually specified
date and price ("repurchase agreements"). Repurchase agreements will only be
entered into with financial institutions such as banks and broker/dealers that
are deemed to be creditworthy by Fleet under guidelines approved by Galaxy's
Board of Trustees. No Fund will enter into repurchase agreements with Fleet or
any of its affiliates. Unless a repurchase agreement has a remaining maturity of
seven days or less or may be terminated on demand upon notice of seven days or
less, the repurchase agreement will be considered an illiquid security and will
be subject to the 10% limit described in Investment Limitations Nos. 4 and 7
under "Investment Limitations" below with respect to the Money Market,
Government, U.S. Treasury and Tax-Exempt Funds, and to the 10% limit described
under "Investment Limitations" below with respect to the Connecticut Municipal
Money Market and Massachusetts Municipal Money Market Funds.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by a Fund
might be delayed pending court action. Income on repurchase agreements is
taxable. The Tax-Exempt Fund's investments in repurchase agreements will be,
under normal market conditions, subject to such Fund's 20% overall limit on
taxable obligations.
The Money Market and Government Funds may also borrow funds for temporary
purposes by selling portfolio securities to financial institutions such as banks
and broker/ dealers and agreeing to repurchase them at a mutually specified date
and price ("reverse repurchase agreements"). A reverse repurchase agreement
involves the risk that the market value of the securities sold by a Fund may
decline below the repurchase price. A Fund would pay interest on amounts
obtained pursuant to a reverse repurchase agreement.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase securities on a "when-issued" or "delayed settlement"
basis. When-issued transactions, which involve a commitment by a Fund to
purchase particular securities with payment and delivery taking place at a
future date (perhaps one or two months later) permit the Fund to lock in a price
or yield on a security it intends to purchase, regardless of future changes in
interest rates. Delayed settlement describes settlement of a securities
transaction in the secondary market sometime in the future. When-issued and
delayed settlement transactions involve the risk, however, that the yield or
price obtained in a transaction may be less favorable than the yield or price
available in the market when the securities delivery takes place. It is expected
that, absent unusual market conditions, commitments by a Fund to purchase
securities on a when-issued or delayed settlement basis will not exceed 25% of
the value of its total assets. These transactions will not be entered into for
speculative purposes, but only in furtherance of a Fund's investment objective.
SECURITIES LENDING--MONEY MARKET AND GOVERNMENT FUNDS
The Money Market and Government Funds may lend their portfolio securities to
financial institutions such as banks and broker/dealers in accordance with their
investment limitations. Such loans would involve risks of delay in receiving
additional collateral or in recovering the securities loaned or even loss of
rights in the collateral should the borrower of the securities fail financially.
Any portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, and will be made only
to borrowers deemed by Fleet to be of good standing and only when, in Fleet's
judgment, the income to be earned from the loan justifies the attendant risks.
The Funds currently intend to limit the lending of their portfolio securities so
that, at any given time, securities loaned by a Fund represent not more than
one-third of the value of its total assets.
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GUARANTEED INVESTMENT CONTRACTS--MONEY MARKET FUND
The Money Market Fund may invest in guaranteed investment contracts ("GICs")
issued by United States insurance companies. Pursuant to such contracts, the
Fund makes cash contributions to a deposit fund of the insurance company's
general account. The insurance company then credits to the Fund payments at
negotiated, floating or fixed interest rates. A GIC is a general obligation of
the issuing insurance company and not a separate account. The purchase price
paid for a GIC becomes part of the general assets of the insurance company, and
the contract is paid from the company's general assets. The Fund will only
purchase GICs that are issued or guaranteed by insurance companies that at the
time of purchase are rated in accordance with the applicable quality
requirements described above under "Quality Requirements." GICs are considered
illiquid securities and will be subject to the Fund's 10% limitation on illiquid
investments, unless there is an active and substantial secondary market for the
particular instrument and market quotations are readily available.
ASSET-BACKED SECURITIES--MONEY MARKET FUND
The Money Market Fund may purchase asset-backed securities which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another, such as motor vehicle receivables and credit card receivables. The Fund
will only purchase asset-backed securities that meet the applicable quality
requirements described above under "Quality Requirements." See "Asset-Backed
Securities" in the Statement of Additional Information relating to the Fund.
INVESTMENT COMPANY SECURITIES--TAX-EXEMPT MONEY MARKET FUNDS
The Tax-Exempt Money Market Funds may invest in securities issued by other
investment companies limited, with respect to the Tax-Exempt Fund, to open-end
investment companies that invest in high quality, short-term Municipal
Securities that meet the applicable quality requirements described above under
"Quality Requirements" and that determine their net asset value per share based
on the amortized cost or penny-rounding method. Investments in other investment
companies will cause a Fund (and, indirectly, the Fund's shareholders) to bear
proportionately the costs incurred in connection with the investment companies'
operations. Such securities may be acquired by a Fund within the limits
prescribed by the 1940 Act. Except as otherwise permitted under the 1940 Act,
each Fund currently intends to limit its investments in other investment
companies so that, as determined immediately after a securities purchase is
made: (a) not more than 5% of the value of its total assets will be invested in
the securities of any one investment company; (b) not more than 10% of the value
of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Fund. A Fund
will invest in other investment companies primarily for the purpose of investing
its short-term cash which has not as yet been invested in other portfolio
instruments. However, from time to time, on a temporary basis, the Connecticut
Municipal Money Market Fund and Massachusetts Municipal Money Market Fund may
invest exclusively in one other investment company managed similarly to the
particular Fund.
OTHER INVESTMENT POLICIES OF THE TAX-EXEMPT MONEY MARKET FUNDS
Each Tax-Exempt Money Market Fund may acquire "stand-by commitments" with
respect to Municipal Securities held by it. Under a stand-by commitment, a
dealer agrees to purchase at a Fund's option specified Municipal Securities at a
specified price. Each Fund will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. Stand-by commitments acquired by a Fund would
be valued at zero in determining the Fund's net asset value. The default or
bankruptcy of a securities dealer giving such a commitment would not affect the
quality of the Municipal Securities purchased by a Fund. However, without a
stand-by commitment, these securities could be more difficult to sell. A Fund
will enter into stand-by commitments only with those dealers whose credit Fleet
believes to be of high quality.
Although the Tax-Exempt Fund does not presently intend to do so on a regular
basis, it may invest more than 25% of its assets in Municipal Securities the
interest on which is paid solely from revenues of similar projects. To the
extent that the Fund's assets are concentrated in Municipal Securities payable
from revenues on similar projects, the Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so invested.
The Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds are non-diversified investment portfolios. As such, there is no
limit on the percentage of assets which can be invested in any single issuer. An
investment in one of these Funds, therefore, entails greater risk than would
exist in a diversified investment portfolio because the higher percentage of
investments among fewer issuers may result in greater fluctuation in the total
market value of the Fund's portfolio. Any economic, political, or regulatory
developments affecting the value of the securities in a Fund's portfolio will
have a greater impact on the total value of the portfolio than would be the case
if the
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portfolio was diversified among more issuers. The Connecticut Municipal Money
Market and Massachusetts Municipal Money Market Funds intend to comply with
Subchapter M of the Internal Revenue Code. This undertaking requires that at the
end of each quarter of a Fund's taxable year, with regard to at least 50% of its
total assets, no more than 5% of its total assets are invested in the securities
of a single issuer; beyond that, no more than 25% of its total assets are
invested in the securities of a single issuer.
CONNECTICUT INVESTMENT RISKS
Yields on Connecticut Municipal Securities that may be purchased by the
Connecticut Municipal Money Market Fund depend on a variety of factors,
including: the general conditions of the short-term municipal note market and of
the municipal bond market; the size and maturity of the particular offering; the
maturity of the obligations; and the rating of the issue. Further, any adverse
economic conditions or developments affecting the State of Connecticut or its
municipalities could impact the Fund's portfolio. The ability of the Connecticut
Municipal Money Market Fund to achieve its investment objective also depends on
the continuing ability of the issuers of Connecticut Municipal Securities and
demand features, or the issuers or guarantors of either, to meet their
obligations for the payment of interest and principal when due.
Investing in Connecticut Municipal Securities which meet the Connecticut
Municipal Money Market Fund's quality standards may not be possible if the State
of Connecticut or its municipalities do not maintain their current credit
ratings. An expanded discussion of the current economic risks associated with
the purchase of Connecticut Municipal Securities is contained in the Statement
of Additional Information relating to the Fund.
Manufacturing has historically been of prime economic importance to
Connecticut. However, as a result of a rise in employment in service-related
industries and a decline in manufacturing employment, manufacturing accounted
for only 17.39% of total non-agricultural employment in Connecticut in 1996. The
average unemployment rate in Connecticut was reported to be 5.8% in 1996, and
the average per capita personal income of Connecticut residents was reported to
be $33,875 in 1996. However, pockets of significant unemployment and poverty
exist in some Connecticut cities and towns.
For the four fiscal years ended June 30, 1991, the General Fund experienced
operating deficits but, for the six fiscal years ended June 30, 1997, the
General Fund recorded operation surpluses, based on Connecticut's budgetary
method of accounting. General Fund expenditures and revenues are budgeted to be
approximately $9,550,000,000 and $9,700,000,000 for the 1997-98 and 1998-99
fiscal years, respectively. The State's budgeted expenditures have increased
more than 35% from approximately $7,008,000,000 for the 1991-92 fiscal year to
approximately $9,700,000,000 for the 1998-99 fiscal year. In 1991, legislation
was enacted by the State authorizing the State Treasurer to issue Economic
Recovery Notes to fund the General Fund's accumulated deficit. The notes were to
be payable no later than June 30, 1996, but payment of the notes scheduled to be
paid during the 1995-96 fiscal year was rescheduled to be made over the four
fiscal years ending June 30, 1999. Connecticut's general obligation bonds are
rated AA- by S&P and Aa3 by Moody's. On March 17, 1995, Fitch reduced its
ratings of Connecticut's general obligations bonds from AA+ to AA.
Certain Connecticut municipalities have experienced severe fiscal
difficulties and have reported operating and accumulated deficits in recent
years. The most notable of them is the City of Bridgeport, which filed a
bankruptcy petition on June 7, 1991. The State opposed the petition. The United
States Bankruptcy Court for the District of Connecticut held that Bridgeport had
authority to file such a petition but that its petition should be dismissed on
the grounds that Bridgeport was not insolvent when the petition was filed. State
legislation enacted in 1993 prohibits municipal bankruptcy filings without the
prior written consent of the Governor. Regional economic difficulties,
reductions in revenues, and increased expenses could lead to further fiscal
problems for the State and its political subdivisions, authorities, and
agencies. This could result in declines in the value of their outstanding
obligations, increases in their future borrowing, costs, and impairment of their
ability to pay debt service on their obligations.
MASSACHUSETTS INVESTMENT RISKS
The Massachusetts Municipal Money Market Fund's ability to achieve its
investment objective depends on the ability of issuers of Massachusetts
Municipal Securities to meet their continuing obligations to pay principal and
interest. Since the Fund invests primarily in Massachusetts Municipal
Securities, the value of the Fund's shares may be especially affected by factors
pertaining to the economy of Massachusetts and other factors specifically
affecting the ability of issuers of Massachusetts Municipal Securities to meet
their obligations. As a result, the value of the Fund's shares may fluctuate
more widely than the value of shares of a portfolio investing in securities of
issuers in a number of different states. The ability of Massachusetts and its
political subdivisions to meet their obligations will depend primarily on the
availability of tax and other revenues to those governments and on their fiscal
conditions generally. The amount of tax and other revenues available to
governmental issuers of Massachusetts Municipal Securities may be affected from
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time to time by economic, political and demographic conditions within
Massachusetts. In addition, constitutional or statutory restrictions may limit a
government's power to raise revenues or increase taxes. The availability of
federal, state and local aid to an issuer of Massachusetts Municipal Securities
may also affect that issuer's ability to meet its obligations. Payments of
principal and interest on limited obligation bonds will depend on the economic
condition of the facility or specific revenue source from whose revenues the
payments will be made, which in turn could be affected by economic, political
and demographic conditions in Massachusetts or a particular locality. Any
reduction in the actual or perceived ability of an issuer of Massachusetts
Municipal Securities to meet its obligations (including a reduction in the
rating of its outstanding securities) would likely affect adversely the market
value and marketability of its obligations and could affect adversely the values
of other Massachusetts Municipal Securities as well.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to a Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the respective Statements
of Additional Information under "Investment Objectives and Policies."
The Money Market, Government, U.S. Treasury and Tax-Exempt Funds may not:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, (ii)
each Fund, except the U.S. Treasury Fund, may enter into repurchase
agreements with respect to portfolio securities, and (iii) the Money Market
and Government Funds each may lend portfolio securities against collateral
consisting of cash or securities that are consistent with the Fund's
permitted investments, where the value of the collateral is equal at all
times to at least 100% of the value of the securities loaned.
2. Purchase securities of any one issuer if immediately after such
purchase more than 5% of the value of its total assets would be invested in
the securities of such issuer (the "5% limitation"), except that up to 25%
of the value of its total assets may be invested without regard to the 5%
limitation; notwithstanding the foregoing restriction, each Fund may invest
without regard to the 5% limitation in U.S. Government obligations and as
otherwise permitted in accordance with Rule 2a-7 under the 1940 Act or any
successor rule.
In addition, the Tax-Exempt Fund may not:
3. Borrow money or issue senior securities, except that the Fund may
borrow from banks for temporary purposes, and then in amounts not in excess
of 10% of the value of its total assets at the time of such borrowing; or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of its total assets at the time of such
borrowing. The Fund will not purchase any portfolio securities while
borrowings in excess of 5% of its total assets are outstanding.
4. Knowingly invest more than 10% of the value of its total assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days and other securities which are not
readily marketable.
5. Purchase any securities that would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry; provided, however, that there is no limitation with respect
to securities issued or guaranteed by the United States, any state,
territory or possession of the U.S. Government, the District of Columbia, or
any of their authorities, agencies, instrumentalities, or political
subdivisions.
In addition, the Money Market, Government and U.S. Treasury Funds may not:
6. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10% of the value of a Fund's total assets at the time of such
borrowing (provided that the Money Market and Government Funds may borrow
pursuant to reverse repurchase agreements in accordance with their
investment policies and in amounts not in excess of 10% of the value of
their respective total assets at the time of such borrowing); or mortgage,
pledge, or hypothecate any assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of a Fund's total assets at the time of such
borrowing. A Fund will not purchase securities while borrowings (including
reverse repurchase agreements) in excess of 5% of its total assets are
outstanding.
7. Invest more than 10% of the value of its total assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other securities
which are not readily marketable.
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In addition, the Money Market and U.S. Treasury Funds may not:
8. Invest in obligations having remaining maturities in excess of one
year, except that certain variable and floating rate instruments and
securities subject to repurchase agreements may bear longer maturities
(provided certain provisions are met).
In addition, the Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds may not:
8. Borrow money directly or pledge securities except, under certain
circumstances, each Fund may borrow up to one-third of the value of its
total assets and pledge up to 10% of the value of its total assets to secure
such borrowings.
The following investment limitation with respect to the Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds may be
changed by Galaxy's Board of Trustees without shareholder approval (shareholders
will be notified before any material change in this limitation becomes
effective):
9. The Connecticut Municipal Money Market and Massachusetts Municipal
Money Market Funds will not invest more than 5% of their respective total
assets in industrial development bonds or other Municipal Securities when
the payment of principal and interest is the responsibility of companies (or
guarantors, where applicable) with less than three years of continuous
operations, including the operation of any predecessor.
The Connecticut Municipal Money Market and Massachusetts Municipal Money
Market Funds may purchase restricted securities, which are any securities in
which a Fund may otherwise invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities laws. Certain restricted securities may be considered liquid pursuant
to guidelines established by the Board of Trustees. To the extent restricted
securities are deemed illiquid, each Fund will limit their purchase, together
with other securities considered to be illiquid, to 10% of its net assets.
In addition to the foregoing limitations, (a) the Money Market, Government
and U.S. Treasury Funds may not purchase securities that would cause 25% or more
of the value of a Fund's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that (i) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, or, with respect to the Money
Market Fund, by domestic banks or by U.S. branches of foreign banks that are
subject to the same regulation as domestic banks; (ii) with respect to the Money
Market Fund, wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents; and (iii) with respect to the Money
Market Fund, utilities will be classified according to their services (for
example, gas, gas transmission, electric and gas, electric and telephone each
will be considered a separate industry); and (b) the Connecticut Municipal Money
Market and Massachusetts Municipal Money Market Funds may not purchase
securities that would cause 25% or more of the value of a Fund's total assets at
the time of purchase to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry; provided,
however, that there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, any state, territory or possession of the
U.S. Government, the District of Columbia, or any of their authorities,
agencies, instrumentalities or political subdivisions.
With respect to Investment Limitation No. 2 above, (a) a security is
considered to be issued by the governmental entity or entities whose assets and
revenues back the security or, with respect to a private activity bond that is
backed only by the assets and revenues of a non-governmental user, such
non-governmental user; (b) in certain circumstances, the guarantor of a
guaranteed security may also be considered to be an issuer in connection with
such guarantee; and (c) securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities (including securities backed by the full faith
and credit of the United States) are deemed to be U.S. Government obligations.
With respect to Investment Limitation No. 6 above, each of the Money Market
and Government Funds intends to limit any borrowings, including reverse
repurchase agreements, to not more than 10% of the value of its total assets at
the time of such borrowing.
With respect to Investment Limitation Nos. 4 and 7 above, each of the Money
Market, Government, U.S. Treasury and Tax-Exempt Funds intends to limit its
investments in illiquid securities to not more than 10% of the value of its
total assets.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of a Fund's
portfolio securities generally will not constitute a violation of the
limitation.
Each Fund may follow non-fundamental operating policies that are more
restrictive than its fundamental investment limitations, as set forth in this
Prospectus and the respective Statements of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the 1940 Act. In particular, each Fund will comply with the
various requirements of Rule 2a-7 under the 1940 Act which regulates money
market funds. In accordance with Rule 2a-7, the Money Market Fund is subject to
the 5% limitation contained in Investment Limitation No. 2 above as to all of
its assets; however in accordance with such Rule, the Money Market Fund will be
able to invest more than 5% (but no more than 25%) of its total assets in the
securities of a single issuer for a period of up to three business days after
the purchase thereof, provided that the Fund may not hold more than one such
investment at any one time. Adherence by the Government and Tax-Exempt Funds
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to the diversification requirements of Rule 2a-7 is deemed to constitute
adherence to the diversification requirements of Investment Limitation No. 2
above. Subject to Investment Limitation No. 8 above applicable to the Money
Market and U.S. Treasury Funds, each Fund will determine the effective maturity
of its respective investments, as well as its ability to consider a security as
having received the requisite short-term ratings by Rating Agencies, according
to Rule 2a-7. Except with respect to Investment Limitation No. 8 above
applicable to the Money Market and U.S. Treasury Funds, a Fund may change these
operating policies to reflect changes in the laws and regulations without the
approval of its shareholders.
Rule 144A under the 1933 Act allows for a broader institutional trading
market for securities otherwise subject to restrictions on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the 1933 Act for resales of certain securities to qualified institutional
buyers. Investment by the Money Market Fund or any Tax-Exempt Money Market Fund
in Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of each
Fund's 10% limitation on purchases of illiquid instruments described above, Rule
144A securities will not be considered to be illiquid if Fleet has determined,
in accordance with guidelines established by the Board of Trustees, that an
adequate trading market exists for such securities.
PRICING OF SHARES
Net asset value per share of each Fund is determined as of 11:00 a.m.
(Eastern Time) and the close of regular trading hours on the New York Stock
Exchange (the "Exchange"), currently 4:00 p.m. (Eastern Time), on each day the
Exchange is open. Currently, the holidays which Galaxy observes are New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value
per share for purposes of pricing sales and redemptions is calculated separately
for each series of shares of a Fund by dividing the value of all securities and
other assets attributable to a particular series of shares of the Fund, less the
liabilities attributable to shares of that series of the Fund, by the number of
outstanding shares of that series of the Fund.
The assets in each Fund are valued based upon the amortized cost method.
Pursuant to this method, a security is valued by reference to a Fund's
acquisition cost as adjusted for amortization of premium or accretion of
discount, regardless of the impact of fluctuating interest rates on the market
value of the security. Although Galaxy seeks to maintain the net asset value per
share of each Fund at $1.00, there can be no assurance that a Fund's net asset
value per share will not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Funds are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered broker/
dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
Investments in Retail Shares of the Funds (other than Retail B Shares of the
Money Market Fund) are not subject to any sales charge. Investments in Retail B
Shares of the Money Market Fund are subject to a back-end sales charge. This
back-end sales charge declines over time and is known as a "contingent deferred
sales charge." See "Applicable Sales Charge--Retail B Shares" below. RETAIL B
SHARES OF THE MONEY MARKET FUND HAVE HIGHER OPERATING EXPENSES THAN RETAIL A
SHARES OF THE FUND AND MAY NOT BE APPROPRIATE FOR INVESTORS THAT DO NOT PLAN TO
EXCHANGE INTO RETAIL B SHARES OF CERTAIN OF GALAXY'S NON-MONEY MARKET
PORTFOLIOS.
FD Distributors has established several procedures to enable different types
of investors to purchase Retail Shares of the Funds. Retail Shares may be
purchased by FIS Securities, Inc., Fleet Brokerage Securities, Inc., Fleet
Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its
affiliates, their correspondent banks and other qualified banks, saving and loan
associations and broker/dealers ("Institutions") on behalf of their customers
("Customers"). Retail Shares may also be purchased by individuals, corporations
or other entities, who submit a purchase application to Galaxy, purchasing
directly for their own accounts or for the accounts of others ("Direct
Investors"). Purchases may take place only on days on which FD Distributors,
Galaxy's custodian and Galaxy's transfer agent are open for business ("Business
Days"). If an Institution accepts a purchase order from a Customer on a
non-Business Day, the order will not be executed until it is received and
accepted by FD Distributors
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on a Business Day in accordance with FD Distributors' procedures.
PURCHASE PROCEDURES--CUSTOMERS OF INSTITUTIONS
Purchase orders for Retail Shares are placed by Customers of Institutions
through their Institutions. The Institution is responsible for transmitting
Customer purchase orders to FD Distributors and for wiring required funds in
payment to Galaxy's custodian on a timely basis. FD Distributors is responsible
for transmitting such orders to Galaxy's transfer agent for execution. Retail
Shares purchased by Institutions on behalf of their Customers will normally be
held of record by the Institutions and beneficial ownership of Retail Shares
will be recorded by the Institutions and reflected in the account statements
provided to their Customers. Galaxy's transfer agent may establish an account of
record for each Customer of an Institution reflecting beneficial ownership of
Retail Shares. Depending on the terms of the arrangement between a particular
Institution and Galaxy's transfer agent, confirmations of Retail Share purchases
and redemptions and pertinent account statements will either be sent by Galaxy's
transfer agent directly to a Customer with a copy to the Institution, or will be
furnished directly to the Customer by the Institution. Other procedures for the
purchase of Retail Shares established by Institutions in connection with the
requirements of their Customer accounts may apply. Customers wishing to purchase
Retail Shares through their particular Institution should contact such entity
directly for appropriate purchase instructions.
PURCHASE PROCEDURES--DIRECT INVESTORS
PURCHASES BY MAIL. Retail Shares may be purchased by completing a purchase
application and mailing it, together with a check payable to each Fund in which
a Direct Investor wishes to invest, to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
All purchase orders placed by mail must be accompanied by a purchase
application. Applications may be obtained by calling FD Distributors at
1-800-628-0414.
Subsequent investments in an existing account in any Fund may be made at any
time by sending a check for a minimum of $100 payable to the Fund in which the
additional investment is being made to Galaxy at the address above along with
either (a) the detachable form that regularly accompanies confirmation of a
prior transaction, (b) a subsequent order form that may be obtained from FD
Distributors, or (c) a letter stating the amount of the investment, the name of
the Fund and the account number in which the investment is to be made. If a
Direct Investor's check does not clear, the purchase will be cancelled.
PURCHASES BY WIRE. Direct Investors may also purchase Retail Shares by
arranging to transmit federal funds by wire to Fleet Bank of Massachusetts, N.A.
as agent for First Data Investor Services Group, Inc. ("Investor Services
Group"), Galaxy's transfer agent. Prior to making any purchase by wire, a Direct
Investor must telephone FD Distributors at 1-800-628-0414 to place an order and
to obtain instructions. Federal funds and registration instructions should be
wired through the Federal Reserve System to:
Fleet Bank of Massachusetts, N.A.
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
[Shareholder Name]
[Shareholder Account Number]
Direct Investors making initial investments by wire must promptly complete a
purchase application and forward it to The Galaxy Fund, P.O. Box 5108, 4400
Computer Drive, Westboro, Massachusetts 01581-5108. Applications may be obtained
by calling FD Distributors at 1-800-628-0414. Redemptions will not be processed
until the application in proper form has been received by FD Distributors.
Direct Investors making subsequent investments by wire should follow the
instructions above.
OTHER PURCHASE INFORMATION
INVESTMENT MINIMUMS. Except as provided under "Investor Programs" below,
the minimum initial investment by a Direct Investor, or initial aggregate
investment by an Institution investing on behalf of its Customers, is $2,500.
The minimum investment for subsequent purchases is $100. The minimum investment
requirement with respect to IRAs, SEPs, MERPs and Keogh Plans (see below under
"Retirement Plans") is $500 (including spousal IRA accounts). There are no
minimum investment requirements for Direct Investors participating in the
Automatic Investment Program described below. Customers may agree with a
particular Institution to varying minimum initial and minimum subsequent
purchase requirements with respect to their accounts.
Galaxy reserves the right to reject any purchase order, in whole or in part,
or to waive any minimum investment
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<PAGE>
requirement. The issuance of Retail Shares to Direct Investors and Institutions
is recorded on the books of Galaxy and share certificates will not be issued.
Investors may be charged a separate fee if they effect transactions in
Retail Shares through a broker or other agent.
EFFECTIVE TIME OF PURCHASES. A purchase order for Retail Shares in a Fund
received and accepted by FD Distributors by 11:00 a.m. (Eastern Time) on a
Business Day will be executed at the net asset value per share next determined
after receipt of the order and will receive the dividend declared on the day of
purchase if Galaxy's custodian receives the purchase price in federal funds or
other immediately available funds by 11:00 a.m. (Eastern Time) that day.
Purchase orders received after 11:00 a.m. (Eastern Time) and prior to 4:00 p.m.
(Eastern Time) on a Business Day for which such funds have been received by 4:00
p.m. will be effective as of 4:00 p.m., and investors will begin receiving
dividends the following day. Purchase orders made by Direct Investors are not
effective until the amount to be invested has been converted to federal funds.
In those cases in which a Direct Investor pays for Retail Shares by check,
federal funds will generally become available two Business Days after a purchase
order is received. In certain circumstances, Galaxy may not require that amounts
invested by Institutions on behalf of their Customers be converted into federal
funds. If an Institution accepts a purchase order from a Customer on a
non-Business Day, the order will not be executed until it is received and
accepted by FD Distributors on a Business Day in accordance with the above
procedures. On a Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which purchase orders must
be received in order to be processed on that Business Day.
APPLICABLE SALES CHARGES--RETAIL B SHARES
The public offering price for Retail B Shares of the Money Market Fund is
the net asset value of the Retail B Shares purchased. Although Direct Investors
and Customers pay no front-end sales charge on purchases of Retail B Shares,
such Shares are subject to a contingent deferred sales charge at the rates set
forth below if they are redeemed within six years of purchase. Securities
dealers, brokers, financial institutions and other industry professionals will
receive commissions from FD Distributors in connection with sales of Retail B
Shares. These commissions may be different than the reallowances or placement
fees paid to dealers in connection with sales of Retail A Shares of Galaxy's
non-money market portfolios. Certain affiliates of Fleet may, at their own
expense, provide additional compensation to Fleet Enterprises, Inc., a
broker-dealer affiliate of Fleet, whose customers purchase significant amounts
of Retail B Shares of the Fund. Such compensation will not represent an
additional expense to the Fund or its shareholders, since it will be paid from
the assets of Fleet's affiliates. The contingent deferred sales charge on Retail
B Shares is based on the lesser of the offering price or the net asset value of
the Shares on the redemption date. As a result, no sales charge is imposed on
any increase in the principal value of a Direct Investor's or Customer's Retail
B Shares. In addition, a contingent deferred sales charge will not be assessed
on Retail B Shares purchased through reinvestment of dividends or capital gains
distributions.
The amount of any contingent deferred sales charge Direct Investors and
Customers must pay depends on the number of years that elapse between the
purchase date and the date such Retail B Shares are redeemed. Solely for
purposes of this determination, all payments during a month will be aggregated
and deemed to have been made on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
(AS A PERCENTAGE OF
NUMBER OF YEARS DOLLAR AMOUNT SUBJECT
ELAPSED SINCE PURCHASE TO THE CHARGE)
- -------------------------------- ---------------------
<S> <C>
Less than one................... 5.00%
More than one but less than
two........................... 4.00%
More than two but less than
three......................... 3.00%
More than three but less than
four.......................... 3.00%
More than four but less than
five.......................... 2.00%
More than five but less than
six........................... 1.00%
After six....................... None
</TABLE>
When a Direct Investor or Customer redeems his or her Retail B Shares, the
redemption request is processed to minimize the amount of the contingent
deferred sales charge that will be charged. Retail B Shares are redeemed first
from those shares that are not subject to a contingent deferred sales charge
(I.E., Retail B Shares that were acquired through reinvestment of dividends or
distributions or that qualify for other deferred sales charge exemptions) and
after that from the Retail B Shares that have been held the longest.
The proceeds from the contingent deferred sales charge that a Direct
Investor or Customer may pay upon redemption go to FD Distributors, which may
use such amounts to defray the expenses associated with the distribution-related
services involved in selling Retail B Shares.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. Certain types of
redemptions may also qualify for an exemption from the contingent deferred sales
charge. To receive exemptions (i), (vi) or (viii) listed below, a Direct
Investor or Customer must explain the status of his or her redemption at the
time Retail B Shares are redeemed. The contingent deferred sales charge with
respect to Retail B Shares is not
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<PAGE>
assessed on: (i) exchanges described under "Investor Programs--Exchange
Privilege" below; (ii) redemptions in connection with required (or, in some
cases, discretionary) distributions to participants or beneficiaries of an
employee pension, profit-sharing or other trust or qualified retirement or Keogh
plan, individual retirement account or custodial account maintained pursuant to
Section 403(b)(7) of the Internal Revenue Code of 1986, as amended (the "Code");
(iii) redemptions in connection with required (or, in some cases, discretionary)
distributions to participants in qualified retirement or Keogh plans, individual
retirement accounts or custodial accounts maintained pursuant to Section
403(b)(7) of the Code due to death, disability or the attainment of a specified
age; (iv) redemptions effected pursuant to the Money Market Fund's right to
liquidate a shareholder's account if the aggregate net asset value of Retail B
Shares held in the account is less than the minimum account size; (v)
redemptions in connection with the combination of the Money Market Fund with any
other investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (vi) redemptions in connection with the
death or disability of a shareholder; (vii) redemptions resulting from a
tax-free return of an excess contribution pursuant to Section 408(d)(4) or (5)
of the Code; or (viii) any redemption of Retail B Shares held by Direct
Investors or Customers, provided the Direct Investor or Customer was the
beneficial owner of shares of the Money Market Fund (or any of the other
portfolios offered by Galaxy or otherwise advised by Fleet or its affiliates)
before December 1, 1995. In addition to the foregoing exemptions, no contingent
deferred sales charge will be imposed on redemptions made pursuant to the
Systematic Withdrawal Plan, subject to the limitations set forth under "Investor
Programs--Automatic Investment Program and Systematic Withdrawal Plan" below.
Six years after purchase, Retail B Shares of the Money Market Fund will
convert automatically to Retail A Shares of the Fund. The purpose of the
conversion is to relieve a holder of Retail B Shares of the higher ongoing
expenses charged to those Shares. The conversion from Retail B Shares to Retail
A Shares takes place at net asset value, as a result of which a Direct Investor
or Customer receives dollar-for-dollar the same value of Retail A Shares as he
or she had of Retail B Shares. The conversion occurs six years after the
beginning of the calendar month in which the Retail B Shares are purchased. Upon
conversion, an investor would hold Retail A Shares subject to the operating
expenses for Retail A Shares.
Retail B Shares of the Money Market Fund acquired through a reinvestment of
dividends or distributions are also converted at the earlier of two dates--six
years after the beginning of the calendar month in which the reinvestment
occurred or the date of conversion of the most recently purchased Retail B
Shares that were not acquired through reinvestment of dividends or
distributions. For example, if a Direct Investor or Customer makes a one-time
purchase of Retail B Shares of the Fund, and subsequently acquires additional
Retail B Shares of the Fund only through reinvestment of dividends and/or
distributions, all of such Direct Investor's or Customer's Retail B Shares in
the Fund, including those acquired through reinvestment, will convert to Retail
A Shares of the Fund on the same date.
REDEMPTION OF SHARES
Redemption orders are effected at the net asset per share next determined
after receipt of the order by FD Distributors, except that proceeds from the
redemption of Retail B Shares of the Money Market Fund will be reduced by the
amount of any applicable contingent deferred sales charge. On a Business Day
when the Exchange closes early due to a partial holiday or otherwise, Galaxy
will advance the time at which redemption orders must be received in order to be
processed on that Business Day. When redeeming Retail Shares in the Money Market
Fund, Customers of Institutions and Direct Investors should indicate whether
they are redeeming Retail A Shares or Retail B Shares of the Fund. If a Customer
or Direct Investor owns both Retail A Shares and Retail B Shares of the Money
Market Fund, the Retail A Shares will be redeemed first unless the Customer or
Direct Investor indicates otherwise. Galaxy reserves the right to transmit
redemption proceeds within seven days after receiving the redemption order if,
in its judgment, an earlier payment could adversely affect a Fund.
REDEMPTION PROCEDURES--CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or part of their Retail Shares in
accordance with procedures governing their accounts at Institutions. It is the
responsibility of the Institutions to transmit redemption orders to FD
Distributors and credit their Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy, although Institutions may charge a Customer's account for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institutions.
Direct Investors may redeem all or part of their Retail Shares in accordance
with any of the procedures described below.
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<PAGE>
REDEMPTION PROCEDURES--DIRECT INVESTORS
REDEMPTION BY MAIL. Retail Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
A written redemption request must (i) state the name of the Fund and the
number and series, if applicable, of Retail Shares to be redeemed, (ii) identify
the shareholder account number and tax identification number, and (iii) be
signed by each registered owner exactly as the shares are registered. A
redemption request for an amount in excess of $50,000, or for any amount where
(i) the proceeds are to be sent elsewhere than the address of record (excluding
the transfer of assets to a successor custodian), (ii) the proceeds are to be
sent to an address of record which has changed in the preceding 30 days, or
(iii) the check is to be made payable to someone other than the registered
owner(s), must be accompanied by signature guarantees. The guarantor of a
signature must be a bank which is a member of the FDIC, a trust company, a
member firm of a national securities exchange or any other eligible guarantor
institution. FD Distributors will not accept guarantees from notaries public. FD
Distributors may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees and guardians. A redemption
request will not be deemed to be properly received until FD Distributors
receives all required documents in proper form. The Funds ordinarily will make
payment for Retail Shares redeemed by mail within three Business Days after
proper receipt by FD Distributors of the redemption request. Questions with
respect to the proper form for redemption requests should be directed to FD
Distributors at 1-800-628-0414.
REDEMPTION BY TELEPHONE. Direct Investors who have not otherwise indicated
on the application, or in a subsequent notification in writing, may redeem
Retail Shares by calling 1-800-628-0414 and instructing FD Distributors to mail
a check for redemption proceeds of up to $50,000 to the address of record. A
redemption request for an amount in excess of $50,000 or for any amount where
(i) the proceeds are to be sent elsewhere than the address of record (excluding
the transfer of assets to a successor custodian), (ii) the proceeds are to be
sent to an address of record which has changed in the preceding 30 days, or
(iii) the check is to be made payable to someone other than the registered
owner(s), must be accompanied by signature guarantees. See "Redemption by Mail"
above for details regarding signature guarantees.
REDEMPTION BY WIRE. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
Retail Shares by instructing FD Distributors by wire or telephone to wire
redemption proceeds of $1,000 or more directly to a Direct Investor's account at
any commercial bank in the United States. FD Distributors charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption proceeds.
The redemption proceeds must be paid to the same bank and account as designated
on the application or in written instructions subsequently received by FD
Distributors.
Direct Investors may request that Retail Shares be redeemed and redemption
proceeds be wired on the same day if telephone redemption instructions are
received by FD Distributors by 11:00 a.m. (Eastern Time) on the day of
redemption. Retail Shares redeemed and wired on the same day will not receive
the dividend declared on the day of redemption. Redemption requests made after
11:00 a.m. (Eastern Time) will receive the dividend declared on the day of
redemption, and redemption proceeds will be wired the following Business Day. To
request redemption of Retail Shares by wire, Direct Investors should call FD
Distributors at 1-800-628-0414.
In order to arrange for redemption by wire or telephone after an account has
been opened or to change the bank or account designated to receive redemption
proceeds, a written request must be sent to Galaxy at the address listed above
under "Redemption by Mail." Such requests must be signed by the investor and
accompanied by a signature guarantee (see "Redemption by Mail" above for details
regarding signature guarantees). Further documentation may be requested from
corporations, executors, administrators, trustees, or guardians. If, due to
temporary adverse conditions, Direct Investors are unable to effect telephone
transactions, Direct Investors are encouraged to follow the procedures for
transactions by wire or mail which are described above.
Galaxy reserves the right to refuse a wire or telephone redemption if it
believes it is advisable to do so. Procedures for redeeming Retail Shares by
wire or telephone may be modified or terminated at any time by Galaxy or FD
Distributors. In attempting to confirm that telephone instructions are genuine,
Galaxy will use such procedures as are considered reasonable, including
recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security number, address and/or bank). If Galaxy fails to follow established
procedures for the authenticity of telephone instructions, it may be liable for
losses due to unauthorized or fraudulent telephone transactions.
NO REDEMPTION BY A DIRECT INVESTOR IN ANY FUND WILL BE PROCESSED UNTIL
GALAXY HAS RECEIVED A COMPLETED APPLICATION WITH RESPECT TO THE DIRECT
INVESTOR'S ACCOUNT.
IF ANY PORTION OF THE RETAIL SHARES TO BE REDEEMED REPRESENTS AN INVESTMENT
MADE BY PERSONAL CHECK, GALAXY RESERVES THE RIGHT TO DELAY PAYMENT OF PROCEEDS
UNTIL FD DISTRIBUTORS IS REASONABLY SATISFIED THAT THE CHECK HAS BEEN COLLECTED,
WHICH COULD TAKE UP TO 15 DAYS FROM THE PURCHASE DATE. A DIRECT
27
<PAGE>
INVESTOR WHO ANTICIPATES THE NEED FOR MORE IMMEDIATE ACCESS TO HIS OR HER
INVESTMENT SHOULD PURCHASE RETAIL SHARES BY FEDERAL FUNDS OR BANK WIRE OR BY
CERTIFIED OR CASHIER'S CHECK. BANKS NORMALLY IMPOSE A CHARGE IN CONNECTION WITH
THE USE OF BANK WIRES, AS WELL AS CERTIFIED CHECKS, CASHIER'S CHECKS AND FEDERAL
FUNDS.
OTHER REDEMPTION INFORMATION
Galaxy reserves the right to redeem accounts (other than retirement plan
accounts) involuntarily, upon 60 days' written notice, if the account's net
asset value falls below $250 as a result of redemptions. In addition, if an
investor has agreed with a particular Institution to maintain a minimum balance
in his or her account at the Institution with respect to Retail Shares of a
Fund, and the balance in such account falls below that minimum, the Customer may
be obliged by the Institution to redeem all of his or her Retail Shares.
Galaxy may redeem Retail Shares involuntarily or make payment for redemption
in securities if it appears appropriate to do so in light of Galaxy's
responsibilities under the 1940 Act. See the respective Statements of Additional
Information under "Net Asset Value" or "Net Asset Value--Connecticut Municipal
Money Market and Massachusetts Municipal Money Market Funds" for examples of
when such redemptions might be appropriate.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Direct Investors and Customers of Institutions may, after appropriate prior
authorization, exchange Retail A Shares (Shares in the case of the Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds) of a Fund
having a value of at least $100 for Retail A Shares in any of the other Funds or
portfolios offered by Galaxy or otherwise advised by Fleet or its affiliates in
which the Direct Investor or Customer maintains an existing account, provided
that such other shares may legally be sold in the state of the investor's
residence. Direct Investors and Customers of Institutions may exchange Retail B
Shares of the Money Market Fund for Retail B Shares of Galaxy's Short-Term Bond,
High Quality Bond, Tax Exempt Bond, Equity Value, Equity Growth, Small Company
Equity, MidCap Equity, Asset Allocation, Growth and Income, and Strategic Equity
Funds in which the Direct Investor or Customer maintains an existing account,
provided that the Retail B Shares acquired in the exchange may legally be sold
in the state of the investor's residence.
Unless an exception applies, a front-end sales charge will be charged in
connection with exchanges of Retail A Shares of a Fund for Retail A Shares of
Galaxy's non-money market portfolios. Retail B Shares may be exchanged without
the payment of any contingent deferred sales charge at the time the exchange is
made. In determining the holding period for calculating the contingent deferred
sales charge payable on redemptions of Retail B Shares, the holding period of
the Retail B Shares originally held will be added to the holding period of the
Retail B Shares acquired through exchange.
The minimum initial investment to establish a new account in another
eligible fund by exchange, except for the Institutional Government Money Market
Fund, is $2,500 unless, with respect to Direct Investors, at the time of the
exchange the Direct Investor elects, with respect to the Fund into which the
exchange is being made, to participate in the Automatic Investment Program
described below, in which event there is no minimum initial investment
requirement, or in the College Investment Program described below, in which
event the minimum initial investment is generally $100. The minimum initial
investment to establish an account by exchange in the Institutional Government
Money Market Fund is $2 million.
An exchange involves a redemption of all or a portion of the Retail Shares
of a Fund and the investment of the redemption proceeds in Retail Shares of
another Fund or portfolio offered by Galaxy or, with respect to Retail A Shares,
otherwise advised by Fleet or its affiliates. The redemption will be made at the
per share net asset value next determined after the exchange request is
received. The Retail Shares of a Fund or portfolio to be acquired will be
purchased at the net asset value per share next determined after acceptance of
the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege, Direct
Investors should call FD Distributors at 1-800-628-0414. Customers of
Institutions should call their Institution for such information. Customers
exercising the exchange privilege into other portfolios should request and
review the prospectuses for these portfolios prior to making an exchange.
Telephone 1-800-628-0414 for a prospectus or to make an exchange. See "How to
Purchase and Redeem Shares--Redemption Procedures--Direct Investors--Redemption
by Wire" above for a description of Galaxy's policy regarding telephone
instructions.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the
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<PAGE>
level of expense to Galaxy which will result from effecting additional exchange
requests. The exchange privilege may be modified or terminated at any time. At
least 60 days' notice of any material modification or termination will be given
to shareholders except where notice is not required under the regulations of the
Securities and Exchange Commission ("SEC") .
Galaxy does not charge any exchange fee. Institutions may charge such fees
with respect to either all exchange requests or with respect to any request
which exceeds the permissible number of free exchanges during a particular
period. Customers of Institutions should contact their respective Institutions
for applicable information.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, a Customer or Direct Investor should consult a tax
or other financial adviser to determine the tax consequences.
RETIREMENT PLANS
Retail Shares of the Funds, other than the Tax-Exempt Money Market Funds,
are available for purchase in connection with the following tax-deferred
prototype retirement plans:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") (including traditional, Roth and
Education IRAs and "rollovers" from existing retirement plans), a retirement
savings vehicle for qualifying individuals. The minimum initial investment for
an IRA account is $500 (including a spousal account).
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPS"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
MULTI-EMPLOYEE RETIREMENT PLANS ("MERPS"), a retirement vehicle established
by employers for their employees which is qualified under Sections 401(k) and
403(b) of the Internal Revenue Code. The minimum initial investment for a MERP
is $500.
KEOGH PLANS, a retirement vehicle for self-employed individuals. The minimum
initial investment for a Keogh Plan is $500.
Investors purchasing Retail Shares pursuant to a retirement plan are not
subject to the minimum investment provisions described above under "How to
Purchase and Redeem Shares--Other Purchase Information." Detailed information
concerning eligibility, service fees and other matters related to these plans,
and the form of application, is available from FD Distributors (call
1-800-628-0414) with respect to IRAs, SEPs and Keogh Plans and from Fleet
Brokerage Securities, Inc. (call 1-800-221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits a Direct Investor to purchase
Retail Shares (minimum of $50 per transaction) each month or each quarter.
Provided a Direct Investor's financial institution allows automatic withdrawals,
Retail Shares are purchased by transferring funds from a Direct Investor's
checking, bank money market, NOW or savings account designated by the Direct
Investor. The account designated will be debited in the specified amount and
Retail Shares will be purchased on a monthly or quarterly basis, on any Business
Day designated by a Direct Investor. If the designated day falls on a weekend or
holiday, the purchase will be made on the Business Day closest to the designated
day. Only an account maintained at a domestic financial institution which is an
Automated Clearing House member may be so designated.
The Systematic Withdrawal Plan permits a Direct Investor to automatically
redeem Retail Shares on a monthly, quarterly, semi-annual, or annual basis on
any Business Day designated by a Direct Investor, if the account has a starting
value of at least $10,000. If the designated day falls on a weekend or holiday,
the redemption will be made on the Business Day closest to the designated day.
Proceeds of the redemption will be sent to the shareholder's address of record
or financial institution within three Business Days of the redemption. If
redemptions exceed purchases and dividends, the number of shares in the account
will be reduced. Investors may terminate the Systematic Withdrawal Plan at any
time upon written notice to Galaxy's transfer agent (but not less than five days
before a payment date). No contingent deferred sales charge will be assessed on
redemptions of Retail B Shares of the Money Market Fund made through the
Systematic Withdrawal Plan that do not exceed 12% of an account's net asset
value on an annualized basis. For example, monthly, quarterly and semi-annual
Systematic Withdrawal Plan redemptions of Retail B Shares will not be subject to
the contingent deferred sales charge if they do not exceed 1%, 3% and 6%,
respectively, of an account's net asset value on the redemption date. Systematic
Withdrawal Plan redemptions of Retail B Shares in excess of this limit are still
subject to the applicable contingent deferred sales charge.
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits an investor
to open an account with Galaxy and purchase Retail Shares of a Fund with a
minimum amount of $100 for initial or subsequent investments, except
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<PAGE>
that if the investor purchases Retail Shares through the Automatic Investment
Program, the minimum per transaction is $50. The College Program is designed to
assist investors who want to finance a college savings plan. See "Investor
Programs--Automatic Investment Program and Systematic Withdrawal Plan" for
information on the Automatic Investment Program. Galaxy reserves the right to
redeem accounts participating in the College Program involuntarily, upon 60
days' written notice, if the account's net asset value falls below the
applicable minimum initial investment as a result of redemptions. See "How to
Purchase and Redeem Shares-- Other Redemption Information" above for further
information.
Investors in the College Program will receive consolidated monthly
statements of their accounts. Detailed information concerning College Program
accounts and applications may be obtained from FD Distributors (call
1-800-628-0414).
CHECKWRITING
Checkwriting is available for Direct Investors. A charge for use of the
checkwriting privilege may be imposed by Galaxy. There is no limit to the number
of checks a Direct Investor may write per month in an amount per check of $250
or more. To obtain checks, a Direct Investor must complete the signature card
that accompanies the account application. To establish this checkwriting service
after opening an account in a Fund, Direct Investors must contact FD
Distributors by telephone (1-800-628-0414) or mail to obtain a signature card. A
signature guarantee may be required. A Direct Investor will receive the daily
dividends declared on the Retail Shares to be redeemed up to the day that a
check is presented to Galaxy's custodian for payment. Upon 30 days' written
notice to Direct Investors, the checkwriting privilege may be modified or
terminated. An account in a Fund may not be closed by writing a check.
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for the
Direct Deposit Program. This Program enables a Direct Investor to purchase
Retail Shares of a Fund by having social security payments automatically
deposited into his or her Fund account. There is no minimum deposit requirement.
For instructions on how to enroll in the Direct Deposit Program, Direct
Investors should call FD Distributors at 1-800-628-0414. Death or legal
incapacity will terminate a Direct Investor's participation in the Program. A
Direct Investor may elect at any time to terminate his or her participation by
notifying in writing the Social Security Administration. Further, Galaxy may
terminate a Direct Investor's participation upon 30 days' notice to the Direct
Investor.
INFORMATION SERVICES
GALAXY INFORMATION CENTER--24 HOUR INFORMATION SERVICE
The Galaxy Information Center provides Fund performance and investment
information 24 hours a day, 7 days a week. To access the Galaxy Information
Center just call 1-800-628-0414.
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to Fund
and account information as well as the ability to make telephone redemptions and
exchanges. These transactions are subject to the terms and conditions described
under "How to Purchase and Redeem Shares" and "Investor Programs" below. To
access the Voice Response System, just call 1-800-628-0414 from any touch-tone
telephone and follow the recorded instructions.
GALAXY SHAREHOLDER SERVICES
For account information and recent exchange transactions, Direct Investors
can call Galaxy Shareholder Services Monday through Friday, between the hours of
9:00 a.m. to 5:00 p.m. (Eastern Time) at 1-800-628-0414.
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, 7 days a week.
Direct Investors residing outside the United States can contact Galaxy by
calling 1-508-855-5237.
The Funds' yields reflect any fee waivers in effect, represent past
performance and will vary. If fee waivers are in effect and fees are not waived,
yields would be reduced. Past performance is no guarantee of future results.
Current yield refers to income earned by a Fund's investments over a 7-day
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period. It is then annualized and stated as a percentage of the investment.
Effective yield is the same as current yield except that it assumes the income
earned by an investment in a Fund will be reinvested. An investment in any one
of the Funds is neither insured nor guaranteed by the U.S. Government nor is
there any assurance the Funds will be able to maintain a stable net asset value
of $1.00 per share.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of each Fund is declared daily as a dividend to
the persons who are shareholders of the respective Funds immediately after the
11:00 a.m. pricing of shares on the day of declaration. Net investment income
for dividend purposes is determined separately for each series of shares of a
Fund and consists of all accrued income, whether taxable or tax-exempt, plus
discount earned on the Fund's assets attributable to each series of shares, less
amortization of premium on such assets and accrued expenses attributable to each
series of shares of the Fund. None of the Funds expect to realize net capital
gains. However, if any such gains are realized, they will be paid out to
shareholders no less frequently than annually.
Dividends are paid monthly within five Business Days after the end of each
calendar month or within five Business Days after a shareholder's complete
redemption of Retail Shares in a Fund. Institutions, unless they request
otherwise, will automatically receive dividends and distributions in cash.
Institutions may pay dividends to Customers in cash or reinvest such cash
distributions in additional Retail Shares of the same series of a Fund. Direct
Investors will have the option as provided on the application of electing to (a)
automatically receive dividends and distributions in additional Retail Shares of
the same series of a Fund at the net asset value of such Retail Shares on the
payment date or (b) receive dividends and distributions in cash. Any revocation
of such election must be made in writing to Galaxy's transfer agent (see
"Custodian and Transfer Agent" below) and will become effective with respect to
dividends paid after its receipt.
TAXES
FEDERAL
IN GENERAL. Each of the Funds qualified during its last taxable year and
intends to continue to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, (the "Code"). Such qualification
generally relieves each Fund of liability for federal income taxes to the extent
its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that each Fund distribute to its shareholders
an amount equal to at least the sum of 90% of its investment company taxable
income. In general, a Fund's investment company taxable income will be its
taxable income (including interest) subject to certain adjustments and excluding
the excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. The Money Market, Government and
U.S. Treasury Funds intend to distribute substantially all of their respective
investment company taxable income and net exempt-interest income each year. Such
dividends will be taxable as ordinary income to each Fund's shareholders who are
not currently exempt from federal income taxes, whether such income is received
in cash or reinvested in additional Retail Shares. (Federal income taxes for
distributions to an IRA or a qualified retirement plan are deferred under the
Code.) Because all of each Fund's net investment income is expected to be
derived from earned interest, it is anticipated that no part of any distribution
will be eligible for the dividends received deduction for corporations.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
THE TAX-EXEMPT MONEY MARKET FUNDS. It is the policy of each Tax-Exempt
Money Market Fund to pay dividends with respect to each taxable year equal to at
least the sum of 90% of its net exempt-interest income and 90% of its investment
company taxable income, if any. Dividends derived from exempt-interest income
("exempt-interest dividends") may be treated by a Fund's shareholders as items
of interest excludable from their gross income under Section 103(a) of the Code,
unless, under the circumstances applicable to a particular shareholder,
exclusion would be disallowed. (See the respective Statements of Additional
Information under "Additional Information Concerning Taxes.")
If a Tax-Exempt Money Market Fund should hold certain "private activity
bonds" issued after August 7, 1986, shareholders must include, as an item of tax
preference, the portion of dividends paid by the Fund that is attributable to
interest on such bonds in their federal alternative minimum taxable income for
purposes of determining liability, if any, for the 26% to 28% alternative
minimum tax for individuals
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and the 20% alternative minimum tax applicable to corporations. Corporate
shareholders must also take all exempt-interest dividends into account in
determining certain adjustments for federal alternative minimum tax purposes.
Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
Dividends from a Tax-Exempt Money Market Fund which are derived from taxable
income or from long-term or short-term capital gains will be subject to federal
income tax, whether such dividends are paid in the form of cash or additional
Retail Shares of the Fund.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Tax-Exempt
Money Market Funds may be taxable to shareholders under state or local law as
dividend income, even though all or a portion of such distributions may be
derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income taxes.
Dividends paid by the Connecticut Municipal Money Market Fund that qualify
as exempt-interest dividends for federal income tax purposes will not be subject
to the Connecticut personal income tax imposed on resident and non-resident
individuals, trusts and estates to the extent that they are derived from
Connecticut Municipal Securities (as defined above). Other Fund dividends and
distributions, whether received in cash or additional shares, are subject to
this tax, except that distributions treated as capital gain dividends for
federal income tax purposes are not subject to the tax to the extent that they
are derived from obligations issued by or on behalf of the State of Connecticut,
its political subdivisions, or public instrumentalities, state or local
authorities, districts or similar public entities created under Connecticut law.
Dividends and distributions paid by the Fund that constitute items of tax
preference for purposes of the federal alternative minimum tax, other than any
derived from Connecticut Municipal Securities, could cause liability for the net
Connecticut minimum tax applicable to investors subject to the Connecticut
personal income tax who are required to pay the federal alternative minimum tax.
Dividends paid by the Connecticut Municipal Money Market Fund, including those
that qualify as exempt-interest dividends for federal income tax purposes, are
taxable for purposes of the Connecticut Corporation Business Tax; however, 70%
(100% if the investor owns at least 20% of the total voting power and value of
the Fund's shares) of amounts that are treated as dividends and not as
exempt-interest dividends or capital gain dividends for federal income tax
purposes are deductible for purposes of this tax, but no deduction is allowed
for expenses related thereto. Shares of the Fund are not subject to property tax
by the State of Connecticut or its political subdivisions.
Distributions by the Massachusetts Municipal Money Market Fund to its
shareholders are exempt from Massachusetts personal income taxation to the
extent they are derived from (and designated by the Fund as being derived from)
(i) interest on Massachusetts Municipal Securities, or (ii) capital gains
realized by the Fund from the sale of certain Massachusetts Municipal
Securities. Distributions from the Fund's other net investment income and
short-term capital gains will be taxable as ordinary income. Distributions from
the Fund's net long-term capital gains will be taxable as long-term capital
gains regardless of how long the shareholder has owned Fund shares. The tax
treatment of distributions is the same whether distributions are paid in cash or
in additional shares of the Fund. Distributions by the Fund to corporate
shareholders, including exempt-interest dividends, may be subject to
Massachusetts corporate excise tax.
The U.S. Treasury Fund is structured to provide shareholders, to the extent
permissible by federal and state law, with income that is exempt or excluded
from taxation at the state and local level. Many states, by statute, judicial
decision or administrative action, have taken the position that dividends of a
regulated investment company, such as the Fund, that are attributable to
interest on direct U.S. Treasury obligations or obligations of certain U.S.
Government agencies, are the functional equivalent of interest from such
obligations and are, therefore, exempt from state and local income taxes.
Shareholders should consult their own tax advisers about the status of
distributions from the Fund in their own state.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situation.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made each year. Shareholders of the Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds will also
be advised as to the Connecticut personal income tax and Massachusetts personal
income tax consequences, respectively, of distributions made each year.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees. The Funds' State-
ments of Additional Information contain the names of and general background
information concerning the Trustees.
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INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Funds. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets at December 31, 1997 of $85.5 billion. Fleet,
which commenced operations in 1984, also provides investment management and
advisory services to individual and institutional clients and manages the other
portfolios of Galaxy.
Subject to the general supervision of Galaxy's Board of Trustees, Fleet
manages the Funds, makes decisions with respect to and places orders for all
purchases and sales of their portfolio securities and maintains related records.
For the services provided and expenses assumed, Fleet is entitled to receive
advisory fees, computed daily and paid monthly, at the following annual rates:
with respect to the Money Market, Government and Tax-Exempt Funds, .40% of the
average daily net assets of each Fund, and with respect to the U.S. Treasury,
Connecticut Municipal Money Market and Massachusetts Municipal Money Market
Funds, .40% of the first $750,000,000 of average daily net assets of each Fund
plus .35% of the average daily net assets of each Fund in excess of
$750,000,000. Fleet may from time to time, in its discretion, waive advisory
fees payable by the Funds in order to help maintain competitive expense ratios,
and may from time to time allocate a portion of its advisory fees to Fleet Bank
or other subsidiaries of Fleet Financial Group, Inc. in consideration for
administrative and/or shareholder support services which they provide to
beneficial shareholders. Fleet has advised Galaxy that, with respect to the
Money Market, Government and Tax-Exempt Funds, it intends to waive advisory fees
payable to it by each Fund in an amount equal to 0.05% of the average daily net
assets of each Fund to the extent that a Fund's net assets exceed $750,000,000.
For the fiscal year ended October 31, 1997, Fleet received advisory fees (after
fee waivers) at the effective annual rates of 0.36%, 0.38%, 0.40%, 0.40%, 0.40%
and 0.40% of the average daily net assets of the Money Market Fund, Government
Fund, Tax-Exempt Fund, U.S. Treasury Fund, Connecticut Municipal Money Market
Fund and Massachusetts Municipal Money Market Fund, respectively. In addition to
fee waivers, during the fiscal year ended October 31, 1997, Fleet also
reimbursed each of the Funds for certain operating expenses, which reimbursement
may be revised or discontinued at any time.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities such as Retail
Shares of the Funds, but such banking laws and regulations do not prohibit such
a bank holding company or affiliate from acting as investment adviser, transfer
agent, or custodian to such an investment company or from purchasing shares of
such a company as agent for and upon the order of customers. Fleet, the
custodian and Institutions that are banks or bank affiliates are subject to such
banking laws and regulations. Should legislative, judicial or administrative
action prohibit or restrict the activities of such companies in connection with
their services to the Funds, Galaxy might be required to alter materially or
discontinue its arrangements with such companies and change its method of
operations. It is not anticipated, however, that any resulting change in the
Funds' method of operations would affect a Fund's net asset value per share or
result in financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Funds' administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Funds in their administration
and operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Funds, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of combined
average daily net assets of the Funds and the other portfolios offered by Galaxy
(collectively, the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily all or a portion of the
administration fee payable to it by the Funds. For the fiscal year ended October
31, 1997, the Money Market, Government, Tax-Exempt, U.S. Treasury, Connecticut
Municipal Money Market and Massachusetts Municipal Money Market Funds paid
Investor Services Group administration fees at the effective annual rate of
.082% of each Fund's average daily net assets.
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DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each series in the Funds as follows: Class A
Shares (Retail A Shares), Class A--Special Series 1 Shares (Trust Shares) and
Class A--Special Series 2 Shares (Retail B Shares), each series representing
interests in the Money Market Fund; Class B Shares (Retail A Shares) and Class
B--Special Series 1 Shares (Trust Shares), both series representing interests in
the Government Fund; Class E Shares (Retail A Shares) and Class E--Special
Series 1 Shares (Trust Shares), both series representing interests in the
Tax-Exempt Fund; Class F Shares (Retail A Shares) and Class F--Special Series 1
Shares (Trust Shares), both series representing interests in the U.S. Treasury
Fund; Class V Shares, representing interests in the Connecticut Municipal Money
Market Fund; and Class W Shares, representing interests in the Massachusetts
Municipal Money Market Fund. Each Fund (other than the Connecticut Municipal
Money Market and Massachusetts Municipal Money Market Funds) is classified as a
diversified company under the 1940 Act. The Board of Trustees has also
authorized the issuance of additional classes and series of shares representing
interests in other portfolios of Galaxy. For information regarding Trust Shares
of the Money Market, Government, U.S. Treasury and Tax-Exempt Funds and these
other portfolios, which are offered through separate prospectuses, contact FD
Distributors at 1-800-628-0414.
Shares of each series in the Money Market, Government, U.S. Treasury and
Tax-Exempt Funds bear their pro rata portion of all operating expenses paid by a
particular Fund except as follows: Holders of a Fund's Retail A Shares bear the
fees that are paid under Galaxy's Shareholder Services Plan described below and
holders of Retail B Shares of the Money Market Fund bear the fees that are paid
under Galaxy's Distribution and Services Plan described below. Currently, these
payments are not made with respect to a Fund's Trust Shares. In addition, shares
of each series in a Fund bear differing transfer agency expenses. Standardized
yield quotations are computed separately for each series of shares. The
difference in the expenses paid by the respective series will affect their
performance.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001, represents an equal proportionate interest in the related investment
portfolio with other shares of the same class, and is entitled to such dividends
and distributions out of the income earned on the assets belonging to such
investment portfolio as are declared in the discretion of Galaxy's Board of
Trustees.
Shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held, and will vote in the aggregate and
not by class or series, except as otherwise expressly required by law or when
the Board of Trustees determines that the matter to be voted on affects only the
interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which Galaxy
intends to enter into servicing agreements with Institutions (including Fleet
Bank and its affiliates). Pursuant to such servicing agreements, Institutions
will render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares (Shares of the Connecticut Municipal Money
Market and Massachusetts Municipal Money Market Funds) in consideration for
payment of up to .25% (on an annualized basis) of the average daily net asset
value of Retail A Shares/ Shares of a Fund beneficially owned by such Customers.
Services under the Shareholder Services Plan may include: aggregating and
processing purchase and redemption requests and placing net purchase and
redemption orders with FD Distributors; processing dividend payments from a
Fund; providing Customers with information as to their positions in Retail A
Shares/Shares; providing sub-accounting with respect to Retail A Shares/Shares
or the information necessary for sub-accounting; and providing periodic mailings
to Customers. Such services are intended to supplement the services provided by
Investor Services Group as administrator and transfer agent, and are described
more fully in the Statements of Additional Information under "Shareholder
Services Plan."
Although the Shareholder Services Plan has been approved with respect to
Retail A Shares of the Funds (Shares of the Connecticut Municipal Money Market
and Massachusetts Municipal Money Market Funds) and Trust Shares of the Money
Market, Government, U.S. Treasury and Tax-Exempt Funds, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares/Shares of each
Fund, and to limit the payment under these servicing agreements for each Fund to
no more than .10% (on an annualized basis) of the average daily net asset value
of the Retail A Shares of the Fund beneficially owned by Customers of
Institutions. Galaxy understands that Institutions may charge fees to their
Customers who are the beneficial owners of Retail A Shares/Shares in connection
with their accounts with such Institutions. Any such fees would be in
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addition to any amounts which may be received by an Institution under the
Shareholder Services Plan. Under the terms of each servicing agreement entered
into with Galaxy, Institutions are required to provide to their Customers a
schedule of any fees that they may charge in connection with Customer
investments in Retail A Shares/Shares.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act with respect to Retail B Shares of the Money Market Fund.
Under the Distribution and Services Plan, Galaxy may pay (a) FD Distributors or
another person for expenses and activities intended to result in the sale of
Retail B Shares, including the payment of commissions to broker-dealers and
other industry professionals who sell Retail B Shares and the direct or indirect
cost of financing such payments, (b) Institutions for shareholder liaison
services, which means personal services for holders of Retail B Shares and/or
the maintenance of shareholder accounts, such as responding to customer
inquiries and providing information on accounts, and (c) Institutions for
administrative support services, which include but are not limited to (i)
transfer agent and sub-transfer agent services for beneficial owners of Retail B
Shares; (ii) aggregating and processing purchase and redemption orders; (iii)
providing beneficial owners with statements showing their positions in Retail B
Shares; (iv) processing dividend payments; (v) providing sub-accounting services
for Retail B Shares held beneficially; (vi) forwarding shareholder
communications, such as proxies, shareholder reports, dividend and tax notices,
and updating prospectuses to beneficial owners; and (vii) receiving, translating
and transmitting proxies executed by beneficial owners.
Under the Distribution and Services Plan for Retail B Shares, payments by
Galaxy (i) for distribution expenses may not exceed an annual rate of .65% of
the average daily net assets attributable to the Money Market Fund's outstanding
Retail B Shares, and (ii) to an Institution for shareholder liaison services
and/or administrative support services may not exceed the annual rates of .25%
and .25%, respectively, of the average daily net assets attributable to the
Money Market Fund's outstanding Retail B Shares which are owned of record or
beneficially by that Institution's Customers for whom the Institution is the
dealer of record or shareholder of record or with whom it has a servicing
relationship. As of the date of this Prospectus, Galaxy intends to limit the
Money Market Fund's payments for shareholder liaison and administrative support
services under the Plan to an aggregate fee of not more than .10% (on an
annualized basis) of the average daily net asset value of Retail B Shares owned
of record or beneficially by Customers of Institutions.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of the Money Market, Government
and U.S. Treasury Funds held by defined contribution plans, including
maintaining records reflecting separately with respect to each plan
participant's sub-account all purchases and redemptions of Trust Shares and the
dollar value of Trust Shares in each sub-account; crediting to each
participant's sub-account all dividends and distributions with respect to that
sub-account; and transmitting to each participant a periodic statement regarding
the sub-account as well as any proxy materials, reports and other material Fund
communications. Such entities are compensated by Investor Services Group for the
Sub-Account Services and in connection therewith the transfer agency fees
payable by Trust Shares of the Money Market, Government and U.S. Treasury Funds
to Investor Services Group have been increased by an amount equal to these fees.
In substance, therefore, the holders of Trust Shares of these Funds indirectly
bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at One Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as custodian of the Funds' assets, and First Data Investor Services
Group, Inc. ("Investor Services Group"), a wholly-owned subsidiary of First Data
Corporation, serves as Gal axy's transfer and dividend disbursing agent.
Services performed by both entities for the Funds are described in the
Statements of Additional Information. Communications to Investor Services Group
should be directed to Investor Services Group at P.O. Box 5108, 4400 Computer
Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their advisory and administrative services
for the Funds. Galaxy bears the expenses incurred in the Funds' operations. Such
expenses include taxes; interest; fees (including fees paid to its Trustees and
officers who are not affiliated with Investor Services Group); SEC fees; state
securities qualification fees; costs of preparing and printing prospectuses for
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<PAGE>
regulatory purposes and for distribution to shareholders; advisory,
administration, shareholder servicing, Rule 12b-1 distribution, fund accounting
and custody fees; charges of the transfer agent and dividend disbursing agent;
certain insurance premiums; outside auditing and legal expenses; costs of
independent pricing services; costs of shareholder reports and meetings; and any
extraordinary expenses. The Funds also pay for any brokerage fees and
commissions in connection with the purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
yields of the Funds, as a measure of their performance, may be quoted and
compared to those of other mutual funds with similar investment objectives and
to other relevant indexes or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, such data is reported in national financial publications
such as DONOGHUE'S MONEY FUND REPORT-Registered Trademark-, a widely recognized
independent publication that monitors the performance of mutual funds. Also, the
Funds' yield data may be reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL,
and THE NEW YORK TIMES, or in publications of a local or regional nature. The
performance of the Money Market, Government and U.S. Treasury Funds may also be
compared to the average yields reported by the BANK RATE MONITOR for money
market deposit accounts offered by the 50 leading banks and thrift institutions
in the top five standard metropolitan statistical areas. Yield data will be
calculated separately for Trust Shares, Retail A Shares and/or Retail B Shares
of the Money Market, Government, U.S. Treasury and Tax-Exempt Funds.
The yield of a Fund refers to the income generated over a seven-day period
identified in the advertisement. This income is annualized, i.e., the income
during a particular week is assumed to be generated each week over a 52-week
period, and is shown as a percentage of the investment. Each Fund may also
advertise its "effective yield" which is calculated similarly but, when
annualized, the income from an investment in the Fund is assumed to be
reinvested. Consequently, the "effective yield" will be slightly higher because
of the compounding effect of the assumed reinvestment. Also, each Tax-Exempt
Money Market Fund may from time to time advertise a "tax-equivalent yield" to
demonstrate the level of taxable yield necessary to produce an after-tax yield
equivalent to that achieved by the Fund. The "tax-equivalent yield" will be
computed by dividing the tax-exempt portion of a Fund's yield by a denominator
consisting of one minus a stated federal income tax rate and adding the product
to that portion, if any, of the Fund's yield which is not tax-exempt.
In addition, the U.S. Treasury Fund may calculate a "state flow through
yield" which shows the level of taxable yield needed to produce an after-tax
yield equivalent to a particular state's tax-exempt yield achieved by the Fund.
The "state flow through yield" refers to that portion of income which is derived
from interest income on direct obligations of the U.S. Government, its agencies
or instrumentalities and which qualifies for exemption from state taxes. The
yield calculation assumes that 100% of the interest income is exempt from state
personal income tax. A "state flow through yield" will be computed by dividing
the tax-exempt portion of the Fund's yield by a denominator consisting of one
minus a stated income tax rate. For illustrative purposes, state flow through
yields assume the payment of state income tax rates of 3%, 7% or 11%.
The Funds' yields will fluctuate and any quotation of yield should not be
considered as representative of the future performance of the Funds. Since
yields fluctuate, yield data cannot necessarily be used to compare an investment
in a Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
fees charged directly by Institutions to accounts of Customers that have
invested in Retail Shares of a Fund will not be included in calculations of
yield.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of a particular Fund or a particular series of shares means,
with respect to the approval of an investment advisory agreement, a distribution
plan or a change in an investment objective or fundamental investment policy,
the affirmative vote of the holders of the lesser of (a) more than 50% of the
outstanding shares of such Fund or such series of shares, or (b) 67% or more of
the shares of such Fund or such series of shares present at a meeting if more
than 50% of the outstanding shares of such Fund or such series of shares are
represented at the meeting in person or by proxy.
36
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENTS OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR BY FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HIGHLIGHTS................................................................ 1
EXPENSE SUMMARY........................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 5
INVESTMENT OBJECTIVES AND POLICIES........................................ 13
In General.............................................................. 13
Quality Requirements.................................................... 13
Money Market Fund....................................................... 13
Government Fund......................................................... 14
U.S. Treasury Fund...................................................... 14
Tax-Exempt Fund......................................................... 14
Connecticut Municipal Money Market Fund................................. 15
Massachusetts Municipal Money Market Fund............................... 15
INVESTMENTS, STRATEGIES AND RISKS......................................... 16
U.S. Government Obligations............................................. 16
Money Market Instruments................................................ 16
Municipal Securities.................................................... 17
Tender Option Bonds..................................................... 17
Variable and Floating Rate Instruments.................................. 17
Repurchase and Reverse Repurchase Agreements............................ 18
When-Issued and Delayed Settlement Transactions......................... 18
Securities Lending--Money Market and Government Funds................... 18
Guaranteed Investment Contracts--Money Market Fund...................... 19
Asset-Backed Securities--Money Market Fund.............................. 19
Investment Company Securities--Tax-Exempt Money Market Funds............ 19
Other Investment Policies of the Tax-Exempt Money Market Funds.......... 19
Connecticut Investment Risks............................................ 20
Massachusetts Investment Risks.......................................... 20
INVESTMENT LIMITATIONS.................................................... 21
PRICING OF SHARES......................................................... 23
HOW TO PURCHASE AND REDEEM SHARES......................................... 23
Distributor............................................................. 23
Purchase of Shares...................................................... 23
Purchase Procedures--Customers of Institutions.......................... 24
<CAPTION>
PAGE
----
<S> <C>
Purchase Procedures--Direct Investors................................... 24
Other Purchase Information.............................................. 24
Applicable Sales Charges--Retail B Shares............................... 25
Redemption of Shares.................................................... 26
Redemption Procedures--Customers of Institutions........................ 26
Redemption Procedures--Direct Investors................................. 27
Other Redemption Information............................................ 28
INVESTOR PROGRAMS......................................................... 28
Exchange Privilege...................................................... 28
Retirement Plans........................................................ 29
Automatic Investment Program and Systematic Withdrawal Plan............. 29
College Investment Program.............................................. 29
Checkwriting............................................................ 30
Direct Deposit Program.................................................. 30
INFORMATION SERVICES...................................................... 30
Galaxy Information Center--24 Hour Information Service.................. 30
Voice Response System................................................... 30
Galaxy Shareholder Services............................................. 30
DIVIDENDS AND DISTRIBUTIONS............................................... 31
TAXES..................................................................... 31
Federal................................................................. 31
State and Local......................................................... 32
Miscellaneous........................................................... 32
MANAGEMENT OF THE FUNDS................................................... 32
Investment Adviser...................................................... 33
Authority to Act as Investment Adviser.................................. 33
Administrator........................................................... 33
DESCRIPTION OF GALAXY AND ITS SHARES...................................... 34
Shareholder Services Plan............................................... 34
Distribution and Services Plan.......................................... 35
Agreements for Sub-Account Services..................................... 35
CUSTODIAN AND TRANSFER AGENT.............................................. 35
EXPENSES.................................................................. 35
PERFORMANCE REPORTING..................................................... 36
MISCELLANEOUS............................................................. 36
</TABLE>
[LOGO]
50% Recycled Paper
10% Post-Consumer Waste
<PAGE>
THE GALAXY FUND
INSTITUTIONAL GOVERNMENT MONEY MARKET FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
BY FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
PAGE
----
HIGHLIGHTS............................................................ 2
EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 4
INVESTMENT OBJECTIVE AND POLICIES..................................... 5
TYPES OF OBLIGATIONS AND OTHER INVESTMENT INFORMATION................. 5
U.S. Government Obligations......................................... 5
Repurchase Agreements............................................... 6
When-Issued and Delayed Settlement Transactions..................... 6
Investment Company Securities....................................... 6
INVESTMENT LIMITATIONS................................................ 6
PRICING OF SHARES..................................................... 7
HOW TO PURCHASE AND REDEEM SHARES..................................... 8
Distributor......................................................... 8
Purchase of Shares.................................................. 8
Purchase Procedures................................................. 8
Other Purchase Information.......................................... 8
Redemption Procedures............................................... 9
Other Redemption Information........................................ 9
PAGE
----
EXCHANGE PRIVILEGE.................................................... 9
DIVIDENDS AND DISTRIBUTIONS........................................... 10
TAXES................................................................. 11
Federal............................................................. 11
State and Local..................................................... 11
Miscellaneous....................................................... 11
MANAGEMENT OF THE FUND................................................ 11
Investment Adviser.................................................. 11
Authority to Act as Investment Adviser.............................. 12
Administrator....................................................... 12
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 13
CUSTODIAN AND TRANSFER AGENT.......................................... 13
EXPENSES.............................................................. 13
PERFORMANCE REPORTING................................................. 14
MISCELLANEOUS......................................................... 14
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance, call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes the INSTITUTIONAL GOVERNMENT MONEY MARKET FUND (the
"Fund") offered by Galaxy.
The Fund's investment objective is to seek current income with liquidity and
stability of principal. The Fund invests in obligations with remaining
maturities of 397 days or less which are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase agreements
relating to such obligations. The Fund was formerly known as the Institutional
Treasury Money Market Fund.
The Fund is advised by Fleet Investment Advisors Inc. and sponsored and
distributed by First Data Distributors, Inc., which is not affiliated with Fleet
Investment Advisors Inc. or its parent, Fleet Financial Group, Inc., and
affiliates. The shares described in this Prospectus are offered to customers
("Customers") of FIS Securities, Inc., Fleet Brokerage Securities Inc., Fleet
Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its
affiliates, their correspondent banks, and other qualified banks, savings and
loan associations and broker/dealers ("Institutions").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should consider before investing. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Fund, contained in the Statement of Additional Information relating to the
Fund and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY,
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
FEBRUARY 28, 1998
<PAGE>
HIGHLIGHTS
Q: WHAT IS THE GALAXY FUND?
A: Galaxy is an open-end management investment company (commonly known as a
mutual fund) that offers investors the opportunity to invest in different
investment portfolios having separate investment objectives and policies. This
Prospectus describes Galaxy's Institutional Government Money Market Fund. See
"Investment Objective and Policies" and "Types of Obligations and Other
Investment Information." Galaxy also offers twenty-six other investment
portfolios: the Money Market, Government, U.S. Treasury, Tax-Exempt, Connecticut
Municipal Money Market, Massachusetts Municipal Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Small Company Equity, MidCap
Equity, Asset Allocation, Small Cap Value, Growth and Income, Strategic Equity,
Short-Term Bond, Intermediate Government Income, High Quality Bond, Corporate
Bond, Tax-Exempt Bond, New Jersey Municipal Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds. The Prospectuses for these Funds may be obtained by
calling 1-800-628-0414.
Q: WHO ADVISES THE FUND?
A: The Fund is advised by Fleet Investment Advisors Inc. ("Fleet"), an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc. Fleet Financial
Group, Inc. is a financial services company with total assets as of December 31,
1997 of approximately $85.5 billion. See "Management of the Fund -- Investment
Adviser."
Q: WHAT ADVANTAGES DOES THE FUND OFFER?
A: The Fund offers a professionally managed diversified investment portfolio
and the economic advantages of block trading in portfolio securities, and
provides detailed accounting and safekeeping for securities. The Fund also
offers the availability of a family of twenty-seven mutual funds should your
investment goals change.
Q: HOW TO BUY AND REDEEM SHARES?
A: The Fund is distributed by First Data Distributors, Inc., a subsidiary of
First Data Investor Services Group, Inc. ("Investor Services Group"). Shares may
be purchased on behalf of customers ("Customers") of FIS Securities, Inc., Fleet
Brokerage Securities Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers
("Institutions"). Share purchase and redemption information is provided below
under "How to Purchase and Redeem Shares." The minimum initial investment for
Institutions purchasing on behalf of their Customers is $2,000,000. There is no
minimum investment for subsequent purchases. Institutions may require Customers
to maintain certain minimum investments in shares of the Fund.
Q: WHEN ARE DIVIDENDS PAID?
A: Dividends from net investment income of the Fund are declared daily and
paid monthly. Net realized capital gains of the Fund, if any, are distributed at
least annually. See "Dividends and Distributions."
Q: WHAT SHAREHOLDER PRIVILEGES ARE OFFERED BY THE FUND?
A: Investors may exchange shares of the Fund having a value of at least $100
for shares of any other portfolio offered by Galaxy or otherwise advised by
Fleet or its affiliates in which the investor has an existing account, provided
that such shares may legally be sold in the state of the investor's residence.
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of the Fund's operating expenses. Examples
based on the summary are also shown.
<TABLE>
<CAPTION>
INSTITUTIONAL
ANNUAL FUND OPERATING EXPENSES GOVERNMENT MONEY
(AS A PERCENTAGE OF AVERAGE NET ASSETS) MARKET FUND
- ---------------------------------------------------------------------------------------------- -------------------
<S> <C>
Advisory Fees (After Fee Waivers)............................................................. .10%
12b-1 Fees.................................................................................... None
Other Expenses (After Fee Waivers and Expense Reimbursements)................................. .10%
------
Total Fund Operating Expenses (After Fee Waivers and Expense Reimbursements).................. .20%
------
------
</TABLE>
- ---------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Institutional Government Money Market
Fund.................................... $2 $ 6 $11 $25
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund bears directly
or indirectly. The information contained in the Expense Summary and Example is
based on expenses incurred by the Fund during the last fiscal year, restated to
reflect the expenses the Fund expects to incur during the current fiscal year.
Without voluntary fee waivers and expense reimbursements by Fleet and/or
Investor Services Group, Advisory Fees would be .20%, Other Expenses would be
.15%, and Total Fund Operating Expenses would be .35%. Fleet and/or Investor
Services Group is under no obligation to waive fees and/or reimburse expenses
but has advised Galaxy that it intends to waive fees and/or reimburse expenses
during the current year to the extent necessary to maintain the Fund's operating
expenses at the level set forth in the above table. For more complete
descriptions of these costs and expenses, see "Management of the Fund" in this
Prospectus and the financial statements and notes incorporated by reference into
the Statement of Additional Information relating to the Fund. Any fees that are
charged by affiliates of Fleet or any other Institutions directly to their
Customer accounts for services related to an investment in shares of the Fund
are in addition to and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights presented below set forth certain information
concerning the Fund's investment results for the periods presented. The
financial highlights have been audited by Coopers & Lybrand L.L.P., Galaxy's
independent accountants, whose report is contained in Galaxy's Annual Report to
Shareholders relating to the Fund for the fiscal year ended October 31, 1997
(the "Annual Report"). Such financial highlights should be read in conjunction
with the financial statements contained in the Annual Report and incorporated by
reference into the Statement of Additional Information. More information about
the performance of the Fund is contained in the Annual Report, which may be
obtained without charge by contacting Galaxy at its telephone number or address
provided above.
INSTITUTIONAL GOVERNMENT MONEY MARKET FUND(1)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED OCTOBER 31, ENDED
------------------------------ OCTOBER 31,
1997 1996 1995 1994 1993(2)
------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ -----------
Income From
Investment
Operations:
Net investment
income(3)........ 0.05 0.05 0.05 0.04 0.02
Net realized and
unrealized gain
(loss) on
investments...... -- -- -- -- --
------ ------ ------ ------ -----------
Total From
Investment
Operations..... 0.05 0.05 0.05 0.04 0.02
------ ------ ------ ------ -----------
Less Dividends:
Dividends from net
investment
income........... (0.05) (0.05) (0.05) (0.04) (0.02)
Dividends from net
realized capital
gains............ -- -- -- -- --
------ ------ ------ ------ -----------
Total
Dividends...... (0.05) (0.05) (0.05) (0.04) (0.02)
------ ------ ------ ------ -----------
Net increase
(decrease) in net
asset value........ -- -- -- -- --
------ ------ ------ ------ -----------
Net Asset Value, End
of Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ -----------
------ ------ ------ ------ -----------
Total Return........ 5.09% 5.12% 5.53% 3.56% 1.59%(4)
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's)..... $175,141 $500,927 $506,692 $326,225 1$58,890
Ratio to average net
assets:
Net investment
income including
reimbursement/waiver... 4.94% 5.00% 5.38% 3.63% 2.85%(5)
Operating expenses
including
reimbursement/waiver... 0.19% 0.19% 0.17% 0.17% 0.14%(5)
Operating expenses
excluding
reimbursement/waiver... 0.33% 0.33% 0.33% 0.39% 0.46%(5)
</TABLE>
- ------------
(1) The Fund was formerly known as the Institutional Treasury Money Market Fund.
(2) The Fund commenced operations on April 15, 1993.
(3) Net investment income per share before reimbursement/waiver of fees by Fleet
and/or the Fund's administrator for the years ended October 31, 1997, 1996,
1995 and 1994 and for the period ended October 31, 1993 was $0.05, $0.05,
$0.05, $0.04 and $0.01, respectively.
(4) Not Annualized.
(5) Annualized.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek current income with liquidity and
stability of principal. The Fund seeks to achieve its objective by investing in
obligations issued or guaranteed as to payment of principal and interest by the
U.S. Government, its agencies or instrumentalities, and repurchase agreements
relating to such obligations. These instruments have remaining maturities of 397
days or less (except for certain variable and floating rate notes and securities
underlying certain repurchase agreements). See "Types of Obligations and Other
Investment Information" below.
Fleet will use its best efforts to achieve the investment objective of the
Fund, although such achievement cannot be assured. The investment objective of
the Fund may not be changed without the approval of the holders of a majority of
its outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program. The Fund will maintain a
dollar-weighted average portfolio maturity of 90 days or less in an effort to
maintain a stable net asset value per share of $1.00.
TYPES OF OBLIGATIONS AND
OTHER INVESTMENT INFORMATION
U.S. GOVERNMENT OBLIGATIONS
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association, are supported
by the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal.
However, due to fluctuations in interest rates, the market value of such
securities may vary during the period a shareholder owns shares of the Fund.
Some U.S. Government obligations may be issued as variable or floating rate
instruments. Variable rate instruments provide for periodic adjustments in the
interest rate. Floating rate instruments provide for automatic adjustment of the
interest rate whenever some other specified interest rate changes. Because there
may not always be an active secondary market for these instruments, substantial
holdings of variable and floating rate instruments could reduce portfolio
liquidity.
5
<PAGE>
REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will only be entered into with financial
institutions such as banks and broker/dealers that are deemed to be creditworthy
by Fleet under guidelines approved by Galaxy's Board of Trustees. The Fund will
not enter into repurchase agreements with Fleet or any of its affiliates. Unless
a repurchase agreement has a remaining maturity of seven days or less or may be
terminated on demand upon notice of seven days or less, the repurchase agreement
will be considered an illiquid security and will be subject to the 10% limit
described in Investment Limitation No. 4 under "Investment Limitations" below.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase securities on a "when-issued" or "delayed settlement"
basis. When-issued transactions, which involve a commitment by the Fund to
purchase particular securities with payment and delivery taking place at a
future time (perhaps one or two months later) permit the Fund to lock in a price
or yield on a security it intends to purchase, regardless of future changes in
interest rates. Delayed settlement describes settlement of a securities
transaction in the secondary market sometime in the future. When-issued and
delayed settlement transactions involve the risk, however, that the yield or
price obtained in a transaction may be less favorable than the yield and price
available in the market when the securities delivery takes place. It is expected
that, absent unusual market conditions, commitments by the Fund to purchase
securities on a when-issued or delayed settlement basis will not exceed 25% of
the value of its total assets. These transactions will not be endured into for
speculative purposes, but only in furtherance of the Fund's investment
objective.
INVESTMENT COMPANY SECURITIES
The Fund may invest up to 5% of its total assets in securities issued by
other open-end investment companies that invest in the types of obligations in
which the Fund may invest and that determine their net asset value per share
based on the amortized cost or penny-rounding method. Investments in other
investment companies will cause the Fund (and, indirectly, the Fund's
shareholders) to bear proportionately the costs incurred in connection with the
investment companies' operations. The Fund will invest in other investment
companies primarily for the purpose of investing its short-term cash which has
not as yet been invested in other portfolio instruments.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as
6
<PAGE>
defined under "Miscellaneous"). Other investment limitations that also cannot be
changed without such a vote of shareholders are contained in the Statement of
Additional Information under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that the Fund (i) may purchase or hold debt
instruments in accordance with its investment objective and policies, and
(ii) may enter into repurchase agreements with respect to portfolio
securities.
2. Invest in obligations having remaining maturities in excess of 397
days, except that certain variable and floating rate instruments may bear
longer maturities (provided certain provisions are met).
3. Borrow money or issue senior securities, except that the Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10% of the value of the Fund's total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of its total
assets at the time of such borrowing. The Fund will not purchase securities
while borrowings in excess of 5% of its total assets are outstanding.
4. Invest more than 10% of the value of the Fund's total assets in
illiquid securities.
In addition to the foregoing limitations, the Fund may not purchase
securities that would cause 25% or more of the value of its total assets at the
time of purchase to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry; provided,
however, that there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
With respect to Investment Limitation No. 4 above, the Fund intends to limit
investments in illiquid securities to not more than 10% of the value of its net
assets.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of 11:00 a.m.
(Eastern Time) and the close of regular trading hours on the New York Stock
Exchange (the "Exchange"), currently 4:00 p.m. (Eastern Time), on each day the
Exchange is open. Currently, the holidays which Galaxy observes are New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value
per share for purposes of pricing sales and redemptions is calculated by
dividing the value of all securities and other assets belonging to the Fund,
less the liabilities charged to the Fund, by the number of outstanding shares of
the Fund.
The assets in the Fund are valued based upon the amortized cost method.
Pursuant to this method, a security is valued by reference to the Fund's
acquisition cost as adjusted for amortization of premium or accretion of
discount. Although Galaxy seeks to maintain the net asset value per share of the
Fund at $1.00, there can be no assurance that the net asset value per share will
not vary.
7
<PAGE>
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
Shares may be purchased by FIS Securities, Inc., Fleet Brokerage Securities
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks and other qualified banks,
saving and loan associations and broker/dealers ("Institutions") on behalf of
their customers ("Customers"). Purchases may take place only on days on which FD
Distributors, Galaxy's custodian and Galaxy's transfer agent are open for
business ("Business Days"). If an Institution accepts a purchase order from a
Customer on a non-Business Day, the order will not be executed until it is
received and accepted by FD Distributors on a Business Day in accordance with FD
Distributors' procedures.
PURCHASE PROCEDURES
Purchase orders for shares of the Fund are placed by Customers of
Institutions through their Institutions. Each Institution is responsible for
transmitting Customer purchase orders to FD Distributors and for wiring required
funds in payment to Galaxy's custodian on a timely basis. FD Distributors is
responsible for transmitting such orders to Galaxy's transfer agent for
execution. Shares purchased by Institutions on behalf of their Customers will
normally be held of record by the Institutions and beneficial ownership of
shares will be recorded by the Institutions and reflected in the account
statements provided to their Customers. Depending on the terms of the
arrangement between a particular Institution and Galaxy's transfer agent,
confirmations of share purchases and redemptions and pertinent account
statements will either be sent by Galaxy's transfer agent directly to a Customer
with a copy to the Institution, or will be furnished directly to the Customer by
the Institution. Other procedures for the purchase of shares established by
Institutions in connection with the requirements of their Customer accounts may
apply. Customers wishing to purchase shares through their Institution should
contact such entity directly for appropriate purchase instructions.
OTHER PURCHASE INFORMATION
The minimum initial aggregate investment by an Institution investing on
behalf of its Customers is $2,000,000. There is no minimum investment for
subsequent purchases. Customers may agree with a particular Institution to
varying minimum initial and minimum subsequent purchase requirements with
respect to their accounts.
Galaxy reserves the right to reject any purchase order, in whole or in part,
or to waive any minimum investment requirement. The issuance of shares to
Institutions is recorded on the books of Galaxy and share certificates will not
be issued.
A purchase order for shares in the Fund received and accepted by FD
Distributors by 11:00 a.m. (Eastern Time) on a Business Day will be executed at
the net asset value per share next determined after
8
<PAGE>
receipt of the order and will receive the dividend declared on the day of
purchase if Galaxy's custodian receives the purchase price in federal funds or
other immediately available funds by 11:00 a.m. (Eastern Time) that day.
Purchase orders received after 11:00 a.m. (Eastern Time) and prior to 4:00 p.m.
(Eastern Time) on a Business Day for which such funds have been received by 4:00
p.m. will be effective as of 4:00 p.m., and investors will begin receiving
dividends the following day. In certain circumstances, Galaxy may not require
that amounts invested by Institutions on behalf of their Customers be converted
into federal funds. If an Institution accepts a purchase order from a Customer
on a non-Business Day, the order will not be executed until it is received and
accepted by FD Distributors on a Business Day in accordance with the above
procedures. On a Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which purchase orders must
be received in order to be processed on that Business Day.
REDEMPTION PROCEDURES
Customers of Institutions may redeem all or part of their shares in
accordance with procedures governing their accounts at their respective
Institutions. It is the responsibility of an Institution to transmit redemption
orders to FD Distributors and credit its Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments to an
Institution is imposed by Galaxy, although the Institution may charge its
Customers' accounts for redemption services. Information relating to such
redemption services and charges, if any, is available from the Institutions.
OTHER REDEMPTION INFORMATION
Galaxy requires that an Institution maintain an average balance of
$2,000,000 in an account. If the balance in such account falls below that
minimum, the Institution may be obliged by Galaxy to redeem all of the shares in
the account.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form. On a Business Day when the
Exchange closes early due to a partial holiday or otherwise, Galaxy will advance
the time at which redemption orders must be received in order to be processed on
that Business Day. Galaxy reserves the right to wire redemption proceeds within
seven days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect a Fund.
Galaxy may redeem shares involuntarily or make payment for redemption in
securities if it appears appropriate to do so in light of Galaxy's
responsibilities under the Investment Company Act of 1940, as amended, (the
"1940 Act"). See the Statement of Additional Information under "Net Asset Value"
for examples of when such redemptions might be appropriate.
EXCHANGE PRIVILEGE
Customers of Institutions may, after appropriate prior authorization,
exchange shares of the Fund having a value of at least $100 for Retail A Shares
or shares, as the case may be, of any of the other portfolios offered by Galaxy
or otherwise advised by Fleet or its affiliates in which the Customer maintains
an existing account, provided that such other shares may legally be sold in the
state of the Customer's residence. The minimum initial investment to establish
an account by exchange in another portfolio offered by Galaxy or otherwise
advised by Fleet or its affiliates is $2,500.
9
<PAGE>
An exchange involves a redemption of all or a portion of the shares of the
Fund and the investment of the redemption proceeds in shares of another
portfolio offered by Galaxy or otherwise advised by Fleet or its affiliates. The
redemption will be made at the per share net asset value next determined after
the exchange request is received. The shares of the portfolio to be acquired
will be purchased at the net asset value per share next determined after
acceptance of the exchange request, plus any applicable sales charge. Unless an
exception applies, a front-end sales charge will be charged in connection with
an exchange of shares of the Fund for Retail A Shares of Galaxy's non-money
market portfolios.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in the Fund. For
further information regarding Galaxy's exchange privilege, Customers of
Institutions should call their particular Institution. Customers exercising the
exchange privilege into other portfolios should request and review the
prospectuses for these portfolios prior to making an exchange. Telephone
1-800-628-0414 for a prospectus or to make an exchange.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the Securities and Exchange Commission ("SEC").
Galaxy does not charge any exchange fee. Institutions may charge such fees
either with respect to all exchange requests or with respect to any request
which exceeds the permissible number of free exchanges during a particular
period. Customers of Institutions should contact their Institutions for
applicable information.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, an investor should consult a tax or other financial
adviser to determine the tax consequences.
DIVIDENDS AND DISTRIBUTIONS
The net investment income of the Fund is declared daily as a dividend to the
persons who are shareholders of the Fund immediately after the 11:00 a.m.
pricing of shares on the day of declaration. Net income for dividend purposes
consists of all accrued income plus discount earned on the Fund's assets, less
amortization of premium on such assets and accrued expenses attributable to the
Fund. The Fund does not expect to realize net capital gains. However, if any
such gains are realized, they will be paid out to shareholders no less
frequently than annually.
Dividends are paid monthly within five Business Days after the end of each
calendar month or within five Business Days after a shareholder's complete
redemption of shares in the Fund. Institutions, unless they request otherwise,
will automatically receive dividends and distributions in cash. Institutions may
pay dividends to Customers in cash or reinvest such cash distributions in
additional shares.
10
<PAGE>
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent its earnings are distributed
in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that the Fund distribute to its shareholders
an amount equal to at least 90% of its investment company taxable income. In
general, the Fund's investment company taxable income will be its taxable income
(including interest) subject to certain adjustments and excluding the excess of
any net long-term capital gain for the taxable year over the net short-term
capital loss, if any, for such year. The Fund intends to distribute
substantially all of its investment company taxable income each year. Such
dividends will be taxable as ordinary income to the Fund's shareholders who are
not currently exempt from federal income taxes, whether such income is received
in cash or reinvested in additional shares. Because all of the Fund's net
investment income is expected to be derived from earned interest, it is
anticipated that no part of any distribution will be eligible for the dividends
received deduction for corporations.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
STATE AND LOCAL
Shareholders should consult their own tax advisers about the status of
distributions from the Fund in their own state.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations generally
affecting the Fund and its shareholders and is not intended as a substitute for
careful tax planning. Accordingly, potential investors in the Fund should
consult their tax advisers with specific reference to their own tax situation.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made that year.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets at December 31, 1997 of approximately $85.5
billion. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients, and
manages the other portfolios of Galaxy.
11
<PAGE>
Subject to the general supervision of Galaxy's Board of Trustees, Fleet
manages the Fund, makes decisions with respect to and places orders for all
purchases and sales of its portfolio securities and maintains related records.
For the services provided and expenses assumed, Fleet is entitled to receive
advisory fees from the Fund, computed daily and paid monthly, at the annual rate
of .20% of the average daily net assets of the Fund. Fleet may from time to
time, in its discretion, waive advisory fees payable by the Fund in order to
help maintain a competitive expense ratio, and may from time to time allocate a
portion of its advisory fees to Fleet Bank or other subsidiaries of Fleet
Financial Group, Inc. in consideration for administrative and/ or shareholder
support services which they provide to beneficial shareholders. For the fiscal
year ended October 31, 1997, Fleet received advisory fees (after fee waivers) at
the effective annual rate of .10% of the Fund's average daily net assets. In
addition to fee waivers, during the fiscal year ended October 31, 1997, Fleet
also reimbursed the Fund for certain operating expenses, which reimbursement may
be revised or discontinued at any time.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities such as shares of
the Fund, but such banking laws and regulations do not prohibit such a bank
holding company or affiliate from acting as investment adviser, transfer agent
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions that are banks or bank affiliates are subject to such banking laws
and regulations. Should legislative, judicial or administrative action prohibit
or restrict the activities of such companies in connection with their services
to the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operations. It is not
anticipated, however, that any resulting change in the Fund's method of
operations would affect the Fund's net asset value per share or result in
financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For services provided to the Fund, Investor Services Group
is entitled to receive administration fees, computed daily and paid monthly, at
the annual rate of .09% of the first $2.5 billion of the combined average daily
net assets of the Fund and the other portfolios offered by Galaxy (collectively,
the "Portfolios"), .085% of the next $2.5 billion of combined average daily net
assets and .075% of combined average daily net assets over $5 billion. In
12
<PAGE>
addition, Investor Services Group also receives a separate annual fee from each
Portfolio for certain fund accounting services. From time to time, Investor
Services Group may waive voluntarily all or a portion of the administration fee
payable to it by the Fund. For the fiscal year ended October 31, 1997, Investor
Services Group received administration fees (after fee waivers) at the effective
annual rate of .05% of the Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of Class S shares representing interests in the
Institutional Government Money Market Fund, which is classified as a diversified
company under the 1940 Act. The Board of Trustees has also authorized the
issuance of additional classes and series of shares representing interest in
other investment portfolios of Galaxy. For information concerning these other
portfolios, which are offered through other prospectuses, contact FD
Distributors at 1-800-628-0414.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001, represents an equal proportionate interest in the related investment
portfolio with other shares of the same class, and is entitled to such dividends
and distributions out of the income earned on the assets belonging to such
investment portfolio as are declared in the discretion of Galaxy's Board of
Trustees.
Shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held, and will vote in the aggregate and
not by class or series, except as otherwise expressly required by law or when
the Board of Trustees determines that the matter to be voted on affects only the
interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at One Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as custodian of the Fund's assets, and First Data Investor Services
Group, Inc. ("Investor Services Group"), a wholly-owned subsidiary of First Data
Corporation, serves as Galaxy's transfer and dividend disbursing agent. Services
performed by both entities for the Fund are described in the Statement of
Additional Information. Communications to Investor Services Group should be
directed to Investor Services Group at P.O. Box 5108, 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their advisory and administrative services
for the Fund. Galaxy bears the expenses incurred in the Fund's operations. Such
expenses include taxes; interest; fees (including fees paid to its Trustees and
officers who are not affiliated with Investor Services Group); SEC fees; state
securities fees; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to shareholders; advisory, administration, fund
accounting and custody fees; charges of the transfer agent and dividend
disbursing
13
<PAGE>
agent; certain insurance premiums; outside auditing and legal expenses; costs of
independent pricing services; costs of shareholder reports and meetings; and any
extraordinary expenses. The Fund also pays for any brokerage fees and
commissions in connection with the purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
yield of the Fund, as a measure of its performance, may be quoted and compared
to that of other mutual funds with similar investment objectives and to other
relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, such data is reported in national financial publications such as
DONOGHUE'S MONEY FUND REPORT-Registered Trademark-, a widely recognized
independent publication that monitors the performance of mutual funds. Also, the
Fund's yield data may be reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or in publications of a local or regional nature. The
Fund's performance may also be compared to the average yields reported by the
BANK RATE MONITOR for money market deposit accounts offered by the 50 leading
banks and thrift institutions in the top five standard metropolitan statistical
areas.
The yield of the Fund refers to the income generated over a seven-day period
identified in the advertisement. This income is annualized, I.E., the income
during a particular week is assumed to be generated each week over a 52-week
period, and is shown as a percentage of the investment. The Fund may also
advertise its "effective yield" which is calculated similarly but, when
annualized, the income from an investment in the Fund is assumed to be
reinvested. Consequently, the "effective yield" will be slightly higher because
of the compounding effect of the assumed reinvestment.
The Fund's yield will fluctuate and any quotation of yield should not be
considered as representative of the future performance of the Fund. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in the
Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that yield is generally a
function of the kind and quality of the instruments held in a portfolio,
portfolio maturity, operating expenses, and market conditions. Any fees charged
by Institutions with respect to accounts of Customers that have invested in
shares of the Fund will not be included in calculations of yield.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the lesser of (a) more
than 50% of the outstanding shares of the Fund, or (b) 67% or more of the shares
of the Fund present at a meeting if more than 50% of the outstanding shares of
the Fund are represented at the meeting in person or by proxy.
14
<PAGE>
GALAXY
INSTITUTIONAL GOVERNMENT
MONEY MARKET
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-171 15037 (3/98)
<PAGE>
TRUST
THE GALAXY FUND
SHORT-TERM BOND FUND
INTERMEDIATE GOVERNMENT INCOME FUND
HIGH QUALITY BOND FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR BY FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 4
INVESTMENT OBJECTIVES AND POLICIES.................................... 8
Short-Term Bond Fund................................................ 8
Intermediate Government Income Fund................................. 9
High Quality Bond Fund.............................................. 10
Special Risk Considerations......................................... 11
Other Investment Policies and Risk Considerations................... 11
INVESTMENT LIMITATIONS................................................ 19
PRICING OF SHARES..................................................... 21
HOW TO PURCHASE AND REDEEM SHARES..................................... 21
Distributor......................................................... 21
Purchase of Shares.................................................. 21
Redemption of Shares................................................ 22
<CAPTION>
PAGE
----
<S> <C>
DIVIDENDS AND DISTRIBUTIONS........................................... 23
TAXES................................................................. 23
Federal............................................................. 23
State and Local..................................................... 24
MANAGEMENT OF THE FUNDS............................................... 24
Investment Adviser.................................................. 24
Authority to Act as Investment Adviser.............................. 25
Administrator....................................................... 26
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 26
Shareholder Services Plan........................................... 27
Agreements for Sub-Account Services................................. 28
CUSTODIAN AND TRANSFER AGENT.......................................... 28
EXPENSES.............................................................. 28
PERFORMANCE REPORTING................................................. 29
MISCELLANEOUS......................................................... 30
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance, call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes three series of Galaxy's shares (collectively, the
"Trust Shares"), which represent interests in three separate investment
portfolios (individually, a "Fund," collectively, the "Funds") offered to
investors by Galaxy, each having its own investment objective and policies:
The SHORT-TERM BOND FUND'S investment objective is to seek a high level of
current income consistent with preservation of capital. Under normal market and
economic conditions, the Fund will invest substantially all of its assets in
debt obligations of domestic and foreign issuers rated at the time of purchase
within the four highest rating categories assigned by Standard & Poor's Ratings
Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") (or which, if
unrated, are of comparable quality) and in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and "money market"
instruments.
The INTERMEDIATE GOVERNMENT INCOME FUND'S investment objective is to seek
the highest level of current income consistent with prudent risk of capital.
Subject to this objective, the Fund's investment adviser will consider the total
rate of return on portfolio securities in managing the Fund. Under normal market
and economic conditions, the Fund will invest substantially all of its assets in
debt obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, in debt obligations rated at the time of purchase within the
three highest rating categories assigned by S&P or Moody's (or which, if
unrated, are of comparable quality) and "money market" instruments.
The HIGH QUALITY BOND FUND'S investment objective is to seek a high level of
current income consistent with prudent risk of capital. Under normal market and
economic conditions, the Fund will invest substantially all of its assets in
high quality debt obligations of domestic and foreign issuers that are rated at
the time of purchase within the three highest rating categories assigned by S&P
or Moody's (or which, if unrated, are of comparable quality) and in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and "money market" instruments.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
This Prospectus describes Trust Shares in each Fund. Trust Shares are
offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue an additional series of shares, Retail A
Shares, in the Intermediate Government Income Fund, and two additional series of
shares, Retail A Shares and Retail B Shares, in each of the Short-Term Bond Fund
and High Quality Bond Fund (Retail A Shares and Retail B Shares are referred to
herein collectively as "Retail Shares"). Retail Shares are offered under a
separate prospectus primarily to individuals, corporations or other entities
purchasing either for their own accounts or for the accounts of others and to
FIS Securities, Inc., Fleet Brokerage Securities, Inc., Fleet Securities, Inc.,
Fleet Enterprises, Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks and other qualified banks, savings and loan associations and
broker/dealers on behalf of their customers. Trust Shares, Retail A Shares and
Retail B Shares in a Fund represent equal pro rata interests in the Fund, except
they bear different expenses which reflect the difference in the range of
services provided to them. See "Financial Highlights," "Management of the Funds"
and "Description of Galaxy and Its Shares" herein.
Each of the Funds is advised by Fleet Investment Advisors Inc. and sponsored
and distributed by First Data Distributors, Inc., which is not affiliated with
Fleet Investment Advisors Inc. or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Funds, contained in the Statement of Additional Information relating to the
Funds and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone numbers or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
------------------------
FEBRUARY 28, 1998
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by each Fund with respect to its Trust Shares, and (ii) the operating
expenses for Trust Shares of each Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
HIGH
INTERMEDIATE QUALITY
SHORT-TERM GOVERNMENT BOND
SHAREHOLDER TRANSACTION EXPENSES BOND FUND INCOME FUND FUND
- ---------------------------------------- ----------- ------------ --------
<S> <C> <C> <C>
Sales Load.............................. None None None
Sales Load on Reinvested Dividends...... None None None
Deferred Sales Load..................... None None None
Redemption Fees......................... None None None
Exchange Fees........................... None None None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------
<S> <C> <C> <C>
Advisory Fees (After Fee Waivers)....... .55% .55% .55%
12b-l Fees.............................. None None None
Other Expenses.......................... .33% .24% .36%
----------- ------ --------
Total Fund Operating Expenses (After Fee
Waivers)............................... .88% .79% .91%
----------- ------ --------
----------- ------ --------
</TABLE>
- ----------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- ---------
<S> <C> <C> <C> <C>
Short-Term Bond Fund.................... $9 $28 $48 $106
Intermediate Government Income Fund..... $8 $25 $43 $ 96
High Quality Bond Fund.................. $9 $28 $49 $110
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Funds will bear
directly or indirectly. The information contained in the Expense Summary and
Example is based on expenses incurred by each Fund during the last fiscal year,
restated to reflect the expenses which each Fund expects to incur during the
current fiscal year on its Trust Shares. Without voluntary fee waivers by Fleet,
"Advisory Fees" would be .75%, .75% and .75% and Total Fund Operating Expenses
would be 1.08%, .99% and 1.11% for Trust Shares of the Short-Term Bond,
Intermediate Government Income and High Quality Bond Funds, respectively. Fleet
is under no obligation to waive fees and/or reimburse expenses but has advised
Galaxy that it intends to waive fees and/or reimburse expenses during the
current year to the extent necessary to maintain the Funds' operating expenses
at the levels set forth in the above table. For more complete descriptions of
these costs and expenses, see "Management of the Funds" and "Description of
Galaxy and Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information. Any fees
that are charged by affiliates of Fleet Investment Advisors Inc. or other
institutions directly to their customer accounts for services related to an
investment in Trust Shares of the Funds are in addition to and not reflected in
the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in each Fund. Galaxy is also
authorized to issue an additional series of shares, Retail A Shares, in the
Intermediate Government Income Fund, and two additional series of shares, Retail
A Shares and Retail B Shares, in each of the Short-Term Bond Fund and High
Quality Bond Fund. As described below under "Description of Galaxy and Its
Shares," Trust Shares, Retail A Shares and Retail B Shares represent equal pro
rata interests in a Fund, except that (i) effective October 1, 1994 Retail A
Shares of a Fund bear the expenses incurred under Galaxy's Shareholder Services
Plan for Retail A Shares and Trust Shares at an annual rate of up to .15% of the
average daily net asset value of the Fund's outstanding Retail A Shares, (ii)
Retail B Shares of a Fund bear the expenses incurred under Galaxy's Distribution
and Services Plan for Retail B Shares at an annual rate of up to .80% of the
average daily net asset value of the Fund's outstanding Retail B Shares, and
(iii) Trust Shares, Retail A Shares and Retail B Shares bear differing transfer
agency expenses. Retail Shares are offered under a separate prospectus.
The financial highlights presented below for the Short-Term Bond,
Intermediate Government Income and High Quality Bond Funds have been audited by
Coopers & Lybrand L.L.P., Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Funds dated
October 31, 1997 (the "Annual Report"). Such financial highlights should be read
in conjunction with the financial statements contained in the Annual Report and
incorporated by reference into the Statement of Additional Information.
Information in the financial highlights for periods prior to the fiscal year
ended October 31, 1994 reflects the investment results of both Retail A Shares
and Trust Shares of the Funds (Retail A Shares of the Intermediate Government
Income Fund were first offered during the fiscal year ended October 31, 1992).
More information about the performance of each Fund is also contained in the
Annual Report, which may be obtained without charge by contacting Galaxy at its
telephone number or address provided above.
4
<PAGE>
SHORT-TERM BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
------------------------------------
1997 1996 1995 1994 YEAR ENDED PERIOD ENDED
------------------------------------ OCTOBER 31, OCTOBER 31,
TRUST SHARES 1993(2) 1992(1,2)
------------------------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 9.99 $ 10.06 $ 9.73 $ 10.30 $ 10.09 $ 10.00
-------- ------- ------- ------- ------------ ------------
Income from
Investment Operations:
Net investment income(3,4)...................... 0.54 0.55 0.57 0.44 0.47 0.42
Net realized and unrealized gain (loss) on
investments.................................... 0.02 (0.07) 0.33 (0.51) 0.22 0.09
-------- ------- ------- ------- ------------ ------------
Total from Investment Operations:............. 0.56 0.48 0.90 (0.07) 0.69 0.51
-------- ------- ------- ------- ------------ ------------
Less Dividends:
Dividends from net investment income............ (0.54) (0.55) (0.57) (0.44) (0.47) (0.42)
Dividends from net realized capital gains....... -- -- -- -- (0.01) --
Dividends in excess of net realized capital
gains.......................................... -- -- -- (0.06) -- --
-------- ------- ------- ------- ------------ ------------
Total Dividends:.............................. (0.54) (0.55) (0.57) (0.50) (0.48) (0.42)
-------- ------- ------- ------- ------------ ------------
Net increase (decrease) in net asset value........ 0.02 (0.07) 0.33 (0.57) 0.21 0.09
-------- ------- ------- ------- ------------ ------------
Net Asset Value, End of Period.................... $ 10.01 $ 9.99 $ 10.06 $ 9.73 $ 10.30 $ 10.09
-------- ------- ------- ------- ------------ ------------
-------- ------- ------- ------- ------------ ------------
Total Return...................................... 5.77% 4.91% 9.55% (0.66)% 6.98% 5.21%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............... $ 49,837 $58,227 $35,088 $39,843 $85,211 $57,403
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 5.43% 5.49% 5.79% 4.45% 4.51% 5.77%(6)
Operating expenses including reimbursement/
waiver......................................... 0.86% 0.84% 0.74% 0.91% 0.86% 0.90%(6)
Operating expenses excluding reimbursement/
waiver......................................... 1.07% 1.08% 1.02% 1.11% 1.06% 1.20%(6)
Portfolio Turnover Rate........................... 173% 214% 289% 233% 100% 114%(5)
</TABLE>
- ---------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996, 1995 and 1994 was $0.52, $0.53,
$0.54 and $0.42, respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the year ended October 31, 1993
and for the period ended October 31, 1992 was $0.45 and $0.40,
respectively.
(5) Not Annualized.
(6) Annualized.
5
<PAGE>
INTERMEDIATE GOVERNMENT INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------- PERIOD
ENDED
1997 1996 1995 1994 YEARS ENDED OCTOBER 31,(2) OCTOBER
----------------------------------------- -------------------------------------------------- 31,
TRUST SHARES 1993 1992 1991 1990 1989 1988(1,2)
----------------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period............. $ 10.06 $ 10.28 $ 9.68 $ 10.72 $ 10.83 $ 10.46 $ 9.73 $ 10.27 $ 10.40 $ 10.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
Investment
Operations:
Net investment
income(3,4)...... 0.62 0.60 0.64 0.57 0.65 0.71 0.73 0.76 0.82 0.11
Net realized and
unrealized gain
(loss) on
investments...... 0.12 (0.22) 0.60 (1.03) 0.10 0.40 0.71 (0.56) 0.16 0.29
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
Investment
Operations:.... 0.74 0.38 1.24 (0.46) 0.75 1.11 1.44 0.20 0.98 0.40
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net
investment
income........... (0.62) (0.60) (0.64) (0.56) (0.64) (0.74) (0.71) (0.74) (0.96) --
Dividends in
excess of net
investment
income........... -- -- -- (0.01) (0.03) -- -- -- -- --
Dividends from net
realized capital
gains............ -- -- -- -- (0.19) -- -- -- (0.15) --
Dividends in
excess of net
realized capital
gains............ -- -- -- (0.01) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
Dividends:..... (0.62) (0.60) (0.64) (0.58) (0.86) (0.74) (0.71) (0.74) (1.11) --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net increase
(decrease) in net
asset value........ 0.12 (0.22) 0.60 (1.04) (0.11) 0.37 0.73 (0.54) (0.13) 0.40
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End
of Period.......... $ 10.18 $ 10.06 $ 10.28 $ 9.68 $ 10.72 $ 10.83 $ 10.46 $ 9.73 $ 10.27 $ 10.40
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Return........ 7.63% 3.88% 13.18% (4.39)% 7.06% 10.95% 15.35% 2.06% 10.22% 3.90%(5)
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's)... $209,215 $213,750 $186,037 $212,144 $447,359 $199,135 $99,942 $80,645 $71,400 $58,318
Ratios to average
net assets:
Net investment
income including
reimbursement/
waiver........... 6.19% 5.98% 6.39% 5.61% 6.03% 6.52% 7.25% 7.69% 8.19% 6.41%(6)
Operating expenses
including
reimbursement/waiver... 0.74% 0.75% 0.73% 0.75% 0.80% 0.80% 0.96% 0.98% 0.99% 0.98%(6)
Operating expenses
excluding
reimbursement/waiver... 0.94% 0.95% 0.94% 0.95% 1.00% 0.94% 0.96% 0.99% 1.00% 0.98%(6)
Portfolio Turnover
Rate............... 128% 235% 145% 124% 153% 103% 150% 162% 112% 41%(5)
</TABLE>
- ---------
(1) The Fund (formerly known as the Intermediate Bond Fund) commenced
operations on September 1, 1988.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996, 1995 and 1994 was $0.60, $0.58,
$0.62 and $0.54, respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1993,
1992, 1991, 1990 and 1989 and for the period ended October 31, 1988 was
$0.63, $0.70, $0.73, $0.73, $0.82 and $0.11, respectively.
(5) Not Annualized.
(6) Annualized.
6
<PAGE>
HIGH QUALITY BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------- PERIOD
YEARS ENDED ENDED
1997 1996 1995 1994 OCTOBER 31,(2) OCTOBER
----------------------------------------- ------------------- 31,
TRUST SHARES 1993 1992 1991(1,2)
----------------------------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 10.47 $ 10.63 $ 9.54 $ 11.37 $ 10.60 $ 10.35 $ 10.00
-------- -------- -------- -------- -------- -------- --------
Income from Investment Operations: Net investment
income(3,4)...................................... 0.61 0.62 0.64 0.65 0.66 0.68 0.64
Net realized and unrealized gain (loss) on
investments.................................... 0.23 (0.16) 1.09 (1.56) 0.93 0.36 0.33
-------- -------- -------- -------- -------- -------- --------
Total from Investment Operations:............. 0.84 0.46 1.73 (0.91) 1.59 1.04 0.97
-------- -------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income............ (0.61) (0.62) (0.64) (0.65) (0.66) (0.71) (0.62)
Dividends from net realized capital gains....... -- -- -- -- (0.16) (0.08) --
Dividends in excess of net realized capital
gains.......................................... -- -- -- (0.27) -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Dividends:.............................. (0.61) (0.62) (0.64) (0.92) (0.82) (0.79) (0.62)
-------- -------- -------- -------- -------- -------- --------
Net increase (decrease) in net asset value........ 0.23 (0.16) 1.09 (1.83) 0.77 0.25 0.35
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period.................... $ 10.70 $ 10.47 $ 10.63 $ 9.54 $ 11.37 $ 10.60 $ 10.35
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Total Return...................................... 8.36% 4.46% 18.66% (8.39)% 15.63% 10.32% 10.04%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............... $182,398 $149,075 $134,631 $118,776 $162,594 $108,774 $57,580
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 5.88% 5.88% 6.33% 6.28% 5.98% 6.55% 7.25%(6)
Operating expenses including
reimbursement/waiver........................... 0.87% 0.85% 0.85% 0.78% 0.76% 0.87% 0.95%(6)
Operating expenses excluding
reimbursement/waiver........................... 1.09% 1.06% 1.07% 0.98% 0.96% 0.94% 0.95%(6)
Portfolio Turnover Rate........................... 182% 163% 110% 108% 128% 121% 145%(5)
</TABLE>
- ---------
(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996, 1995 and 1994 was $0.59, $0.60,
$0.62 and $0.63, respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1993
and 1992 and for the period ended October 31, 1991 was $0.63, $0.67 and
$0.64, respectively.
(5) Not Annualized.
(6) Annualized.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Fleet Investment Advisors Inc. ("Fleet") will use its best efforts to
achieve each Fund's investment objective, although such achievement cannot be
assured. The investment objective of a Fund may not be changed without the
approval of the holders of a majority of its outstanding shares (as defined
under "Miscellaneous"). Except as noted below under "Investment Limitations," a
Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Funds to be a complete
investment program.
SHORT-TERM BOND FUND
The Short-Term Bond Fund's investment objective is to seek a high level of
current income consistent with preservation of capital. The Fund will invest
substantially all of its assets in corporate debt obligations of domestic and
foreign corporations such as bonds and debentures, obligations convertible into
common stock, "money market" instruments such as bank obligations and commercial
paper, obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and asset-backed and mortgage-backed securities. The Fund may
also invest, from time to time, in obligations issued by state or local
governmental issuers ("municipal securities"). The purchase of municipal
securities may be advantageous when, as a result of prevailing economic,
regulatory or other circumstances, the performance of such securities, on a
pretax basis, is comparable to that of corporate or U.S. debt obligations. The
Fund may also enter into interest rate futures contracts to hedge against
changes in market values. See "Other Investment Policies and Risk
Considerations." Under normal market and economic conditions, at least 65% of
the Fund's total assets will be invested in bonds and debentures, subject to the
quality standards described below. The Fund will not invest in common stock, and
any common stock received through the conversion of convertible debt obligations
will be sold in an orderly manner as soon as possible.
Under normal market and economic conditions, the Fund will invest
substantially all of its assets in debt obligations rated at the time of
purchase within the four highest rating categories of S&P ("AAA," "AA," "A" and
"BBB") or Moody's ("Aaa," "Aa," "A" and "Baa") (or which, if unrated, are
determined by Fleet to be of comparable quality) and in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and "money
market" instruments such as those listed below under "Other Investment Policies
and Risk Considerations." Debt obligations rated within the four highest rating
categories assigned by S&P or Moody's are considered to be investment grade.
Debt obligations rated in the lowest of the four highest rating categories
assigned by S&P or Moody's are considered to have speculative characteristics,
even though they are of investment grade quality, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. Under normal market and economic conditions at least 65% of the
Fund's total assets will be invested in debt obligations rated in the three
highest rating categories assigned by S&P or Moody's. Unrated securities will be
determined to be of comparable quality to rated debt obligations if, among other
things, other outstanding obligations of the issuers of such securities are
rated BBB/Baa or better. When, in Fleet's opinion, a defensive investment
posture is warranted, the Fund may invest temporarily and without limitation in
high quality, short-term money market instruments. See Appendix A to the
Statement of Additional Information for a description of S&P's and Moody's
rating categories.
In addition, the Fund may invest in obligations of foreign banks and in
obligations issued or guaranteed by foreign governments or any of their
political subdivisions or instrumentalities. Such
8
<PAGE>
obligations include debt obligations issued by Canadian Provincial Governments,
which are similar to U.S. municipal securities except that the income derived
therefrom is fully subject to U.S. federal taxation. These instruments are
denominated in either Canadian or U.S. dollars and have an established over-the-
counter market in the United States. Also included are debt obligations of
supranational entities. Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking institutions
and related governmental agencies. Examples of these include the International
Bank for Reconstruction and Development ("World Bank"), the Asian Development
Bank and the InterAmerican Development Bank. Obligations of supranational
entities may be supported by appropriated but unpaid commitments of their member
countries, and there is no assurance that these commitments will be undertaken
or met in the future. The Fund may not invest more than 35% of its total assets
in the securities of foreign issuers. The Fund may also invest in
dollar-denominated high quality debt obligations of U.S. companies issued
outside the United States.
Under normal conditions the Fund's portfolio securities will have an average
weighted maturity of less than three years.
The value of the Fund's portfolio securities will generally vary inversely
with changes in prevailing interest rates. See "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Short-Term Bond Fund.
INTERMEDIATE GOVERNMENT INCOME FUND
The Intermediate Government Income Fund's investment objective is to seek
the highest level of current income consistent with prudent risk of capital.
Subject to this objective, Fleet will consider the total rate of return on
securities in managing the Fund. The Fund will invest in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, in
corporate debt obligations such as bonds and debentures, obligations convertible
into common stock and "money market" instruments, such as bank obligations and
commercial paper, and in asset-backed and mortgage-backed securities. The Fund
may also invest, from time to time, in municipal securities. See "Investment
Objectives and Policies--Short-Term Bond Fund." The Fund may also enter into
interest rate futures contracts to hedge against changes in market values. See
"Other Investment Policies and Risk Considerations." The Fund will not invest in
common stock, and any common stock received through the conversion of
convertible debt obligations will be sold in an orderly manner as soon as
possible.
Under normal market and economic conditions, the Fund will invest
substantially all of its assets in debt obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, debt obligations rated, at
the time of purchase, within the three highest rating categories assigned by S&P
("AAA," "AA" and "A") or Moody's ("Aaa," "Aa" and "A") (or which, if unrated,
are determined by Fleet to be of comparable quality) and "money market"
instruments such as those listed below under "Other Investment Policies and Risk
Considerations." Unrated securities will be determined to be of comparable
quality to rated debt obligations if, among other things, other outstanding
obligations of the issuers of such securities are rated A or better.
Notwithstanding the foregoing, under normal market and economic conditions, at
least 65% of the Fund's assets will be invested in debt obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. When, in
Fleet's opinion, a defensive investment posture is warranted, the Fund may
invest temporarily and without limitation in high quality, short-term
9
<PAGE>
"money market" instruments. See Appendix A to the Statement of Additional
Information for a description of S&P's and Moody's rating categories.
In addition, the Fund may invest in obligations issued by Canadian
Provincial Governments and in debt obligations of supranational entities. See
"Investment Objectives and Policies--Short-Term Bond Fund." The Fund may also
invest in dollar-denominated high quality debt obligations of U.S. corporations
issued outside the United States.
Fleet expects that under normal market conditions the Fund's portfolio
securities will have an average weighted maturity of three to ten years.
The value of the Fund's portfolio securities will generally vary inversely
with changes in prevailing interest rates. See "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Intermediate Government Income Fund.
HIGH QUALITY BOND FUND
The High Quality Bond Fund's investment objective is to seek a high level of
current income consistent with prudent risk of capital. The Fund will invest
substantially all of its assets in corporate debt obligations such as bonds and
debentures, obligations convertible into common stock, "money market"
instruments such as bank obligations and commercial paper, obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
asset-backed and mortgage-backed securities. The Fund may also invest, from time
to time, in municipal securities. See "Investment Objectives and Policies--
Short-Term Bond Fund." The High Quality Bond Fund may also enter into interest
rate futures contracts to hedge against changes in market values of fixed income
instruments that the Fund holds or intends to purchase. See "Other Investment
Policies and Risk Considerations." At least 65% of the Fund's total assets will
be invested in non-convertible bonds. Any common stock received through the
conversion of convertible debt obligations will be sold in an orderly manner as
soon as possible.
Under normal market and economic conditions, the Fund will invest
substantially all of its assets in high quality debt obligations that are rated,
at the time of purchase, within the three highest rating categories assigned by
S&P ("AAA," "AA" and "A") or Moody's ("Aaa," "Aa" and "A") (or, if unrated, are
determined by Fleet to be of comparable quality) and in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and "money
market" instruments such as those listed below under "Other Investment Policies
and Risk Considerations." Unrated securities will be determined to be of
comparable quality to high quality debt obligations if, among other things,
other outstanding obligations of the issuers of such securities are rated A or
better. When, in Fleet's opinion, a defensive investment posture is warranted,
the Fund may invest temporarily and without limitation in high quality,
short-term "money market" instruments. See Appendix A to the Statement of
Additional Information for a description of S&P's and Moody's rating categories.
In addition, the Fund may invest in obligations issued by Canadian
Provincial Governments and in debt obligations of supranational entities. See
"Investment Objectives and Policies--Short-Term Bond Fund." The Fund may also
invest in dollar-denominated high quality debt obligations of U.S. corporations
issued outside the United States.
The Fund seeks to provide a current yield greater than that generally
available from a portfolio of high quality short-term obligations. The Fund's
average weighted maturity will vary from time to time depending on, among other
things, current market and economic conditions and the comparative yields on
10
<PAGE>
instruments with different maturities. The Fund adjusts its average weighted
maturity and its holdings of corporate and U.S. Government debt securities in a
manner consistent with Fleet's assessment of prospective changes in interest
rates. The success of this strategy depends upon Fleet's ability to predict
changes in interest rates.
The value of the Fund's portfolio securities will generally vary inversely
with changes in prevailing interest rates. The high quality credit criteria
applied to the selection of portfolio securities are intended to reduce adverse
price changes due to credit considerations. See "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the High Quality Bond Fund.
SPECIAL RISK CONSIDERATIONS
Investments by the Short-Term Bond Fund in foreign securities may involve
higher costs than investments in U.S. securities, including higher transaction
costs, as well as the imposition of additional taxes by foreign governments. In
addition, foreign investments may include additional risks, including the
difficulty of predicting interest rate patterns and fluctuations in currency
exchange rates, less complete financial information about the issuers, less
market liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions might adversely affect the payment of principal and interest on
foreign obligations. In addition, foreign issuers in general may be subject to
different accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic companies, and securities of foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
Although the Short-Term Bond Fund may invest in securities denominated in
foreign currencies, the Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of the Fund's shares may fluctuate
with U.S. dollar exchange rates as well as with price changes of the Fund's
foreign securities in the various local markets and currencies. Thus, an
increase in the value of the U.S. dollar compared to the currencies in which the
Fund makes its foreign investments could reduce the effect of increases and
magnify the effect of decreases in the price of the Fund's foreign securities in
their local markets. Conversely, a decrease in the value of the U.S. dollar will
have the opposite effect of magnifying the effect of increases and reducing the
effect of decreases in the prices of the Fund's foreign securities in their
local markets. In addition to favorable and unfavorable currency exchange rate
developments, the Fund is subject to the possible imposition of exchange control
regulations or freezes on convertibility of currency.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which one or
more of the Funds have the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
11
<PAGE>
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
Each Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Funds will invest in the obligations of U.S. branches of foreign
banks or foreign branches of U.S. banks only when Fleet believes that the credit
risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest
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rate whenever some other specified interest rate changes. Some variable and
floating rate obligations are direct lending arrangements between the purchaser
and the issuer and there may be no active secondary market. However, in the case
of variable and floating rate obligations with a demand feature, a Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, a Fund might be unable to dispose of the note because of the absence
of a secondary market and could, for this or other reasons, suffer a loss to the
extent of the default. The Funds may also purchase Rule 144A securities. See
"Investment Limitations."
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of municipal securities which may be held
by the Funds are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Funds are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of such private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
Each Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor Fleet will review the proceedings relating to the issuance of
municipal securities or the bases for such opinions.
VARIABLE AND FLOATING RATE MUNICIPAL SECURITIES
Municipal securities purchased by the Funds may include rated and unrated
variable and floating rate tax-exempt instruments. There may be no active
secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to a Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days notice and do not have an active trading market) that
are acquired by the Funds are subject to the 10% limit described in Investment
Limitation No. 3 under "Investment Limitations" in this Prospectus.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
No Fund will enter into repurchase
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agreements with Fleet or any of its affiliates. Unless a repurchase agreement
has a remaining maturity of seven days or less or may be terminated on demand by
notice of seven days or less, the repurchase agreement will be considered an
illiquid security and will be subject to the 10% limit described in Investment
Limitation No. 3 under "Investment Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
Each Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. A Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions such
as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by Fleet to be of good standing and only when, in Fleet's
judgment, the income to be earned from the loan justifies the attendant risks.
The Funds currently intend to limit the lending of their portfolio securities so
that, at any given time, securities loaned by a Fund represent not more than
one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Funds may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method. Investments in other investment companies will cause a Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Funds within the limits prescribed
by the Investment Company Act of 1940, as amended, (the "1940 Act"). Each Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Funds, other investment portfolios of Galaxy, and any other investment companies
advised by Fleet.
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INTEREST RATE FUTURES CONTRACTS
The Funds may enter into contracts (both purchases and sales) which provide
for the future delivery of fixed income securities (commonly known as interest
rate futures contracts). The Funds will not engage in futures transactions for
speculation, but only to hedge against changes in the market values of
securities which the Funds hold or intend to purchase. The Funds will engage in
futures transactions only to the extent permitted by the Commodity Futures
Trading Commission ("CFTC") and the Securities and Exchange Commission ("SEC").
The purchase of futures instruments in connection with securities which a Fund
intends to purchase will require an amount of cash and/or liquid assets equal to
the market value of the outstanding futures contracts, to be deposited in a
segregated account to collateralize the position and thereby insure that the use
of such futures is unleveraged. Each Fund will limit its hedging transactions in
futures contracts so that, immediately after any such transaction, the aggregate
initial margin that is required to be posted by the Fund under the rules of the
exchange on which the futures contract is traded does not exceed 5% of the
Fund's total assets after taking into account any unrealized profits and
unrealized losses on the Fund's open contracts. In addition, no more than
one-third of each Fund's total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by the Funds is subject to the
ability of Fleet to predict correctly movements in the direction of the market.
In addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market will
exist for any particular futures contract at any particular time. Consequently,
a Fund may realize a loss on a futures transaction that is not offset by a
favorable movement in the price of securities which it holds or intends to
purchase or a Fund may be unable to close a futures position in the event of
adverse price movements. Additional information concerning futures transactions,
including special rules regarding the taxation of such transactions, is
contained in Appendix B to the Statement of Additional Information.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. Each of the Funds
may also purchase or sell eligible securities on a "delayed settlement" basis.
When-issued and forward commitment transactions, which involve a commitment by a
Fund to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later), permit the Fund to
lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued, forward commitment and delayed settlement
transactions involve the risk, however, that the yield or price obtained in a
transaction may be less favorable than the yield or price available in the
market when the securities delivery takes place. It is expected that forward
commitments, when-issued purchases and delayed settlements will not exceed 25%
of the value of a Fund's total assets absent unusual market conditions. In the
event a Fund's forward commitments, when-issued purchases and delayed
settlements ever exceeded 25% of the value of its total assets, the Fund's
liquidity and the ability of Fleet to manage the Fund may be adversely affected.
The Funds do not intend to engage in when-issued purchases, forward commitments
and delayed settlements for speculative purposes, but only in furtherance of
their investment objectives.
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STAND-BY COMMITMENTS
Each Fund may acquire "stand-by commitments" with respect to municipal
securities held by it. Under a "stand-by commitment," a dealer agrees to
purchase, at a Fund's option, specified municipal securities at a specified
price. The Funds will acquire "stand-by commitments" solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The Funds expect that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for municipal securities which
are acquired subject to the commitment (thus reducing the yield otherwise
available for the same securities). Stand-by commitments acquired by a Fund
would be valued at zero in determining the Fund's net asset value.
ASSET-BACKED SECURITIES
Each Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the Statement of Additional
Information.
MORTGAGE-BACKED SECURITIES
Each Fund may invest in mortgage-backed securities (including collateralized
mortgage obligations) that represent pools of mortgage loans assembled for sale
to investors by various governmental agencies and government-related
organizations, such as the Government National Mortgage Association, the Federal
National Mortgage Association, and the Federal Home Loan Mortgage Corporation.
Mortgage-backed securities provide a monthly payment consisting of interest and
principal payments. Additional payment may be made out of unscheduled repayments
of principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-backed securities may tend to increase due
to refinancing of mortgages as interest rates decline. To the extent that the
Fund purchases mortgage-backed securities at a premium, mortgage foreclosures
and prepayments of principal by mortgagors (which may be made at any time
without penalty) may result in some loss of the Fund's principal investment to
the extent of the premium paid. The yield of a Fund that invests in
mortgaged-backed securities may be affected by reinvestment of prepayments at
higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
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interest rates decline; as a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the values of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
MORTGAGE DOLLAR ROLLS
Each Fund may enter into mortgage "dollar rolls" in which a Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date not exceeding 120 days.
During the roll period, a Fund loses the right to receive principal and interest
paid on the securities sold. However, the Fund would benefit to the extent of
any difference between the price received for the securities sold and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of a Fund compared with what such performance would have been without the use of
mortgage dollar rolls. All cash proceeds will be invested in instruments that
are permissible investments for each Fund. The Funds will hold and maintain in a
segregated account until the settlement date cash or other liquid assets in an
amount equal to the forward purchase price.
For financial reporting and tax purposes, the Funds propose to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom a
Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet's ability to predict correctly interest rates and mortgage
prepayments. For these reasons, there is no assurance that mortgage dollar rolls
can be successfully employed.
STRIPPED OBLIGATIONS
To the extent consistent with its investment objective, each of the Funds
may purchase U.S. Treasury receipts and other "stripped" securities that
evidence ownership in either the future interest payments or the future
principal payments on U.S. Government and other obligations. These
participations, which may be issued by the U.S. Government or by private issuers
such as banks and other institutions are issued at their "face value," and may
include stripped mortgage-backed securities ("SMBS"), which are derivative
multi-class mortgage securities. Stripped securities, particularly SMBS, may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in
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some instances, one class will receive some of the interest and most of the
principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities. The market value of the class consisting
entirely of principal payments generally is extremely volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid by the Funds. Obligations
issued by the U.S. Government may be considered liquid under guidelines
established by Galaxy's Board of Trustees if they can be disposed of promptly in
the ordinary course of business at a value reasonably close to that used in the
calculation of net asset value per share.
GUARANTEED INVESTMENT CONTRACTS
Each Fund may invest in guaranteed investment contracts ("GICs") issued by
United States and Canadian insurance companies. Pursuant to GICs, a Fund makes
cash contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the Fund payments at negotiated, floating
or fixed interest rates. A GIC is a general obligation of the issuing insurance
company and not a separate account. The purchase price paid for a GIC becomes
part of the general assets of the insurance company, and the contract is paid
from the company's general assets. The Funds will only purchase GICs that are
issued or guaranteed by insurance companies that at the time of purchase are
rated at least AA by S&P or receive a similar high quality rating from a
nationally recognized service which provides ratings of insurance companies.
GICs are considered illiquid securities and will be subject to the Funds' 10%
limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
BANK INVESTMENT CONTRACTS
Each Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and will
be subject to the Funds' 10% limitation on such investments, unless there is an
active and substantial secondary market for the particular instrument and market
quotations are readily available.
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest rates or indices, and include, but are not limited
to, interest rate futures and certain asset-backed and mortgage-backed
securities.
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Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Funds will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Funds, and will determine, in connection with its day-to-day
management of the Funds, how they will be used in furtherance of each Fund's
investment objective. It is possible, however, that Fleet's evaluations will
prove to be inaccurate or incomplete and, even when accurate and complete, it is
possible that the Funds will, because of the risks discussed above, incur loss
as a result of their investments in derivative securities. See "Investment
Objectives and Policies--Derivative Securities" in the Statement of Additional
Information relating to the Funds for additional information.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover may result in the realization of substantial capital gains and involves
correspondingly greater transaction costs. To the extent that net capital gains
are realized, distributions derived from such gains are treated as ordinary
income for federal income tax purposes. See "Financial Highlights" and
"Taxes--Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to any Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
No Fund may:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) each Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
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2. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10% of the value of its total assets at the time of such borrowing
(provided that each Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in amounts not in
excess of 10% of the value of its total assets at the time of such
borrowing); or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a Fund's total
assets at the time of such borrowing. No Fund will purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other securities
which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total
assets would be invested in such issuer, except that up to 25% of the value
of its total assets may be invested without regard to this limitation.
In addition, the Funds may not purchase any securities which would cause 25%
or more of the value of a Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, (a) each Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing, and (b)
mortgage dollar rolls entered into by the Funds that are not accounted for as
financings shall not constitute borrowings.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. A Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered illiquid if
Fleet has determined, in accordance with guidelines established by the Board of
Trustees, that an adequate trading market exists for such securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of a Fund's
portfolio securities generally will not constitute a violation of the
limitation.
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PRICING OF SHARES
Net asset value per share of the Funds is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time), on each day on which the Exchange is open for trading.
Currently, the holidays which Galaxy observes are New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share for
purposes of pricing sales and redemptions is calculated separately for each
series of shares by dividing the value of all securities and other assets
attributable to a particular series of shares of a Fund, less the liabilities
attributable to shares of that series of the Fund, by the number of outstanding
shares of that series of the Fund.
The Funds' assets are valued for purposes of pricing sales and redemptions
by an independent pricing service ("Service") approved by Galaxy's Board of
Trustees. When, in the judgment of the Service, quoted bid prices for portfolio
securities are readily available and are representative of the bid side of the
market, these investments are valued at the mean between quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments are carried at fair value as determined by the
Service, based on methods which include consideration of yields or prices of
bonds of comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
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A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that Galaxy's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If an Institution accepts a purchase
order from its Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Funds and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Investors should contact their Institution (in the case of
employer-sponsored defined contribution plans, their employer) for further
information concerning the types of eligible Customer accounts and the related
purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirement with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by their Customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Funds may also be available for purchase through
different types of retirement plans offered by the Institutions to their
Customers. Information pertaining to such plans is available directly from the
Institution.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which purchase orders must be
received in order to be processed on that Business Day.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt and acceptance of the order by FD Distributors. On a
Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemptions orders must be
received in order to be processed on that Business Day. Payment for redemption
orders received by FD Distributors on a Business Day will normally be wired the
following Business Day to the Institution. Payment for redemption orders which
are received on a non-Business Day will normally be wired to the Institution on
the next Business Day. However, in both cases Galaxy reserves the right to wire
redemption proceeds
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within seven days after receiving the redemption order if, in its judgment, an
earlier payment could adversely affect a Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. Each Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon 60 days'
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Funds are declared daily and
paid monthly. Dividends on each share of the Funds are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of a Fund at the net
asset value of such Shares on the payment date. Such election, or any revocation
thereof, must be communicated in writing by an Institution on behalf of
Customers to Galaxy's transfer agent and will become effective with respect to
dividends paid after its receipt. The crediting and payment of dividends to
Customers will be in accordance with the procedures governing such Customers'
accounts at their respective Institutions.
TAXES
FEDERAL
Each Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves a Fund of
liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that a Fund distribute to its shareholders an
amount equal to at least 90% of its investment company taxable income and 90% of
its tax-exempt interest income, if any, net of certain deductions for such year.
In general, a Fund's investment company taxable income will be its taxable
income, including dividends, interest and short-term capital gains (the excess
of net short-term capital gain over net long-term capital loss), subject to
certain adjustments and excluding the excess of any net long-term capital gain
for the taxable year over the net short-term capital loss, if any, for such
year. The policy of each Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to each Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional shares. (Federal
income taxes for distributions to an IRA or a qualified retirement plan are
deferred under the Code.) It is anticipated that no part of any distribution
will qualify for the dividends received deduction for corporations.
Distribution by a Fund of "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss) if any, of a Fund, is taxable to
shareholders as long-term capital gain, regardless of how
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<PAGE>
long the shareholder has held shares and whether such gains are received in cash
or reinvested in additional shares. Such long-term capital gain will be 20% or
28% rate gain, depending upon the Fund's holding period for the assets the sale
of which generated the capital gain. Such distributions are not eligible for the
dividends received deduction.
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying shares of a Fund on or just before the record
date of a capital gain distribution, you should be aware that the amount of the
forthcoming distribution payment, although in effect a return of capital,
generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Funds depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Funds and their shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Funds should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences than
those of the federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Funds. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to other individual and institutional clients,
and manages the other investment portfolios of Galaxy: the Money Market,
Government, U.S. Treasury, Tax-Exempt, Connecticut Municipal Money Market,
Massachusetts Municipal Money Market, Institutional Government Money Market,
Equity Value, Equity Growth, Equity Income, International Equity, Small Company
Equity, MidCap Equity, Asset Allocation, Small Cap Value, Growth and Income,
Strategic Equity, Corporate Bond, Tax-Exempt Bond, New Jersey Municipal Bond,
New York Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal
Bond and Rhode Island Municipal Bond Funds.
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Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with each Fund's investment policies, Fleet manages each Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Funds,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
an annual rate of .75% of the average daily net assets of each Fund.
Fleet may from time to time, in its discretion, waive advisory fees payable
by the Funds in order to help maintain a competitive expense ratio and may from
time to time allocate a portion of its advisory fees to Fleet Bank or other
subsidiaries of Fleet Financial Group, Inc. in consideration for administrative
and/ or shareholder support services which they provide to beneficial
shareholders. Fleet is currently waiving a portion of the advisory fees payable
to it by the Funds such that it is entitled to receive an advisory fee at the
annual rate of .55% of each Fund's average daily net assets, but Fleet may, in
its discretion, revise or discontinue this waiver at any time. For the fiscal
year ended October 31, 1997, Fleet received advisory fees (after fee waivers) at
the effective annual rates of .55%, .55% and .55%, respectively, of the
Short-Term Bond, Intermediate Government Income and High Quality Bond Funds'
average daily net assets. In addition to fee waivers, during the fiscal year
ended October 31, 1997, Fleet also reimbursed the Short-Term and High Quality
Bond Funds for certain operating expenses, which reimbursement may be revised or
discontinued at any time.
The Short-Term Bond Fund's portfolio manager, Perry J. Vieth, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Vieth, a Vice President, has over eleven years of experience as an
investment manager and previously managed the Shawmut Limited Term Income Fund
for Shawmut Investment Advisors and was a manager of Fuji Securities, Inc.'s
derivative products group. He also was responsible for fixed income risk
management at NationsBank CRT. Mr. Vieth has managed the Short-Term Bond Fund
since March 1, 1996.
The Intermediate Government Income Fund's portfolio manager, Marie H.
Schofield, is primarily responsible for the day-to-day management of the Fund's
investment portfolio. Ms. Schofield, a Vice President, has been with Fleet since
1991 and has been engaged in providing investment management services for over
twenty years. She has managed the Intermediate Government Income Fund since
December 1, 1996.
Ms. Schofield also serves as portfolio manager of the High Quality Bond Fund
and is primarily responsible for the day-to-day management of the Fund's
investment portfolio. Ms. Schofield began serving as co-portfolio manager of the
Fund on March 1, 1996 and has been sole portfolio manager of the Fund since
April 1, 1996.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring,
25
<PAGE>
organizing, controlling, or distributing the shares of a registered, open-end
investment company continuously engaged in the issuance of its shares, and
prohibit banks generally from issuing, underwriting, selling, or distributing
securities such as Trust Shares of the Funds, but do not prohibit such a bank
holding company or its affiliates or banks generally from acting as investment
adviser, transfer agent, or custodian to such an investment company or from
purchasing shares of such a company as agent for and upon the order of
customers. Fleet, the custodian and Institutions which have agreed to provide
shareholder support services that are banks or bank affiliates are subject to
such banking laws and regulations. Should legislative, judicial, or
administrative action prohibit or restrict the activities of such companies in
connection with their services to the Funds, Galaxy might be required to alter
materially or discontinue its arrangements with such companies and change its
method of operation. It is anticipated, however, that any resulting change in
the Funds' method of operation would not affect a Fund's net asset value per
share or result in financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Funds' administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Funds in their administration
and operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Funds, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of combined
average daily net assets of the Funds and the other portfolios offered by Galaxy
(collectively, the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily all or a portion of the
administration fee payable to it by the Funds. For the fiscal year ended October
31, 1997, Investor Services Group received administration fees at the effective
annual rate of .082% of each Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each series of the Funds as follows: Class D
shares (Trust Shares) and Class D-Special Series 1 shares (Retail A Shares),
both series representing interests in the Intermediate Government Income Fund;
Class J-Series 1 shares (Trust Shares), Class J-Series 2 shares (Retail A
Shares) and Class J-Series 3 shares (Retail B shares), each series representing
interests in the High Quality Bond Fund; and Class L-Series 1 shares (Trust
Shares), Class L-Series 2 shares (Retail A Shares) and Class L-Series 3 shares
(Retail B shares), each series representing interests in the Short-Term Bond
Fund. Each Fund is classified as a diversified company under the 1940 Act. The
Board of Trustees has also authorized the issuance of additional classes and
series of shares representing interests in the other portfolios of Galaxy. For
information regarding the Funds' Retail Shares and these other portfolios, which
are offered through separate prospectuses, contact FD Distributors at
1-800-628-0414.
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Shares of each series in a Fund bear their pro rata portion of all operating
expenses paid by that Fund except as follows. Holders of a Fund's Retail A
Shares bear the fees that are paid to Institutions under Galaxy's Shareholder
Services Plan described below. Holders of Retail B Shares of the Short-Term Bond
Fund and High Quality Bond Fund bear the fees described in the prospectus for
such Shares that are paid under Galaxy's Distribution and Services Plan at an
annual rate not to exceed .80% of the average daily net asset value of a Fund's
outstanding Retail B Shares. Currently, these payments are not made with respect
to a Fund's Trust Shares. In addition, shares of each series in a Fund bear
differing transfer agency expenses. Standardized yield and total return
quotations are computed separately for each series of shares. The differences in
the expenses paid by the respective series will affect their performance.
Retail A Shares of the Funds are sold with a maximum front-end sales charge
of 3.75%. Retail B Shares of the Short-Term Bond Fund and High Quality Bond Fund
are sold with a maximum contingent deferred sales charge of 5.0% and
automatically convert to Retail B Shares of the same Fund six years after the
date of purchase. Retail A and Retail B Shares have certain exchange and other
privileges which are not available with respect to Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such investment portfolio as are declared in the discretion of Galaxy's Board of
Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.30% of the average daily net asset value of Retail A Shares of the Funds owned
beneficially by Customers of Institutions. Institutions may receive up to
one-half of this fee for providing one or more of the following services to such
Customers: aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with FD Distributors; processing
dividend payments from a Fund; providing sub-accounting with respect to Retail A
Shares or the information necessary for sub-accounting; and providing periodic
mailings to Customers. Institutions may also receive up to one-half of this fee
for providing one or more of these additional services to such Customers:
providing Customers with information as to their positions in Retail A Shares;
responding to Customer inquiries; and providing a service to invest the assets
of Customers in Retail A Shares. These services are described more fully in
Galaxy's Statement of Additional Information under "Shareholder Services Plan."
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Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of each Fund, and
to limit the payment under these servicing agreements for each Fund to no more
than .15% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
owners of Retail A Shares in connection with their accounts with such
Institutions. Any such fees would be in addition to any amounts which may be
received by an Institution under the Shareholder Services Plan. Under the terms
of each servicing agreement entered into with Galaxy, Institutions are required
to provide to their Customers a schedule of any fees that they may charge in
connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of each Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Funds to Investor Services Group have
been increased by an amount equal to these fees. In substance, therefore, the
holders of Trust Shares of these Funds indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Funds' assets. Chase
Manhattan may employ sub-custodians for the Short-Term Bond Fund for the purpose
of providing custodial services for the Fund's foreign assets held outside the
United States. First Data Investor Services Group, Inc. ("Investor Services
Group"), a wholly-owned subsidiary of First Data Corporation, serves as the
Funds' transfer and dividend disbursing agent. Services performed by both
entities for the Funds are described in the Statement of Additional Information.
Communications to Investor Services Group should be directed to Investor
Services Group at P.O. Box 5108, 4400 Computer Drive, Westboro, Massachusetts
01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Funds. Galaxy bears
the expenses incurred in the Funds' operations. Such expenses include taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration,
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shareholder servicing, Rule 12b-1 distribution (if applicable), fund accounting
and custody fees; charges of the transfer agent and dividend disbursing agent;
certain insurance premiums; outside auditing and legal expenses; costs of
independent pricing services; costs of shareholders' reports and shareholder
meetings; and any extraordinary expenses. The Funds also pay for brokerage fees
and commissions in connection with the purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant bond
indexes or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance of the Funds may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or publications of a local or regional nature, may also
be used in comparing the performance of the Funds. Performance data will be
calculated separately for Trust Shares, Retail A Shares and/or Retail B Shares
of the Funds.
The standard yield is computed by dividing a Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Funds may
also advertise their "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in a Fund is assumed to be
reinvested.
The Funds may also advertise their performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of a Fund's operations, or on a year-by-year
basis. Each Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in a
Fund for the specified period. Both methods of calculating total return assume
that dividend and capital gain distributions made by a Fund during the period
are reinvested in Fund shares.
The performance of the Funds will fluctuate and any quotation of performance
should not be considered as representative of future performance. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in a
Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance data are
generally functions of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
additional fees charged directly by Institutions with respect to accounts of
Customers that have invested in Trust Shares of a Fund will not be included in
performance calculations.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
29
<PAGE>
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how to such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of a particular Fund means, with respect to the approval of
an investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of such Fund, or (b) 67% or more
of the shares of such Fund present at a meeting if more than 50% of the
outstanding shares of such Fund are represented at the meeting in person or by
proxy.
30
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GALAXY
FUNDS
SHORT-TERM BOND FUND
INTERMEDIATE GOVERNMENT
INCOME FUND
HIGH QUALITY BOND FUND
[logo]
February 28, 1998
FN-042 15039 (3/98)
<PAGE>
TRUST
THE GALAXY FUND
SHORT-TERM BOND FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
BY FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 4
INVESTMENT OBJECTIVE AND POLICIES..................................... 6
In General.......................................................... 6
Special Risk Considerations......................................... 7
Other Investment Policies and Risk Considerations................... 8
INVESTMENT LIMITATIONS................................................ 15
PRICING OF SHARES..................................................... 17
HOW TO PURCHASE AND REDEEM SHARES..................................... 17
Distributor......................................................... 17
Purchase of Shares.................................................. 17
Redemption of Shares................................................ 18
DIVIDENDS AND DISTRIBUTIONS........................................... 19
<CAPTION>
PAGE
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<S> <C>
TAXES................................................................. 19
Federal............................................................. 19
State and Local..................................................... 20
MANAGEMENT OF THE FUNDS............................................... 20
Investment Adviser.................................................. 20
Authority to Act as Investment Adviser.............................. 21
Administrator....................................................... 22
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 22
Shareholder Services Plan........................................... 23
Agreements For Sub-Account Services................................. 23
CUSTODIAN AND TRANSFER AGENT.......................................... 24
EXPENSES.............................................................. 24
PERFORMANCE REPORTING................................................. 24
MISCELLANEOUS......................................................... 25
</TABLE>
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<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance, call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares"), which
represent interests in the SHORT-TERM BOND FUND (the "Fund") offered by Galaxy.
The Fund's investment objective is to seek a high level of current income
consistent with preservation of capital. Under normal market and economic
conditions, the Fund will invest substantially all of its assets in debt
obligations of domestic and foreign issuers rated at the time of purchase within
the four highest rating categories assigned by Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's") (or which, if unrated,
are of comparable quality) and in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and "money market" instruments.
This Prospectus describes Trust Shares in the Fund. Trust Shares are offered
to investors maintaining qualified accounts primarily at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue two additional series of shares in the Fund,
Retail A Shares and Retail B Shares (Retail A Shares and Retail B Shares are
referred to herein collectively as "Retail Shares"). Retail Shares are offered
under a separate prospectus primarily to individuals, corporations or other
entities purchasing either for their own accounts or for the accounts of others
and to FIS Securities, Inc., Fleet Brokerage Securities, Inc., Fleet Securities,
Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its affiliates,
their correspondent banks and other qualified banks, savings and loan
associations and broker/dealers on behalf of their customers. Trust Shares,
Retail A Shares and Retail B Shares represent equal pro rata interests in the
Fund, except they bear different expenses which reflect the difference in the
range of services provided to them. See "Financial Highlights," "Management of
the Fund" and "Description of Galaxy and Its Shares" herein.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
The Fund is advised by Fleet Investment Advisors Inc. and sponsored and
distributed by First Data Distributors, Inc., which is not affiliated with Fleet
Investment Advisors Inc. or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
------------------------
FEBRUARY 28, 1998
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Trust Shares, and (ii) the operating
expenses for Trust Shares of the Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
SHORT-TERM
SHAREHOLDER TRANSACTION EXPENSES BOND FUND
- ---------------------------------------- -----------
<S> <C>
Sales Load.............................. None
Sales Load on Reinvested Dividends...... None
Deferred Sales Load..................... None
Redemption Fees......................... None
Exchange Fees........................... None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------
<S> <C>
Advisory Fees (After Fee Waivers)....... .55%
12b-1 Fees.............................. None
Other Expenses.......................... .33%
-----
Total Fund Operating Expenses (After Fee
Waivers)................................ .88%
-----
-----
</TABLE>
- ---------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Short-Term Bond Fund.................... $9 $28 $48 $106
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly. They are based on expenses incurred by the Fund during
the last fiscal year, restated to reflect the expenses which the Fund expects to
incur during the current fiscal year on its Trust Shares. Without voluntary fee
waivers by Fleet, Advisory Fees would be .75%, and Total Fund Operating Expenses
would be 1.08% for Trust Shares of the Fund. Fleet is under no obligation to
waive fees and/or reimburse expenses but has advised Galaxy that it intends to
waive fees and/or reimburse expenses during the current year to the extent
necessary to maintain the Fund's operating expenses at the level set forth in
the above table. For more complete descriptions of these costs and expenses, see
"Management of the Fund" and "Description of Galaxy and Its Shares" in this
Prospectus and the financial statements and notes incorporated by reference into
the Statement of Additional Information. Any fees that are charged by affiliates
of Fleet Investment Advisors Inc. or other institutions directly to their
customer accounts for services related to an investment in Trust Shares of the
Fund are in addition to and not reflected in the fees and expenses described
above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy is also
authorized to issue two additional series of shares in the Fund, Retail A Shares
and Retail B Shares. As described below under "Description of Galaxy and Its
Shares," Trust Shares, Retail A Shares and Retail B Shares represent equal pro
rata interests in the Fund, except that (i) effective October 1, 1994, Retail A
Shares of the Fund bear the expenses incurred under Galaxy's Shareholder
Services Plan for Retail A Shares and Trust Shares at an annual rate of up to
.15% of the average daily net asset value of the Fund's outstanding Retail A
Shares, (ii) Retail B Shares of the Fund bear the expenses incurred under
Galaxy's Distribution and Services Plan for Retail B Shares at an annual rate of
up to .80% of the average daily net asset value of the Fund's outstanding Retail
B Shares, and (iii) Trust Shares, Retail A Shares and Retail B Shares bear
differing transfer agency expenses. Retail Shares are offered under a separate
prospectus.
The financial highlights presented below have been audited by Coopers &
Lybrand L.L.P., Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Fund dated October 31,
1997 (the "Annual Report"). Such financial highlights should be read in
conjunction with the financial statements contained in the Annual Report and
incorporated by reference into the Statement of Additional Information.
Information in the financial highlights for periods prior to the fiscal year
ended October 31, 1994 reflects the investment results of both Retail A Shares
and Trust Shares of the Fund. More information about the performance of the Fund
is also contained in the Annual Report, which may be obtained without charge by
contacting Galaxy at its telephone number or address provided above.
4
<PAGE>
SHORT-TERM BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------
1997 1996 1995 1994 YEAR ENDED PERIOD ENDED
---------------------------------- OCTOBER 31, OCTOBER 31,
TRUST SHARES 1993(2) 1992(1,2)
---------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 9.99 $ 10.06 $ 9.73 $ 10.30 $ 10.09 $ 10.00
------- ------- ------- ------- ------------ ------------
Income from Investment Operations:
Net investment income(3,4)............ 0.54 0.55 0.57 0.44 0.47 0.42
Net realized and unrealized gain
(loss) on investments................. 0.02 (0.07) 0.33 (0.51) 0.22 0.09
------- ------- ------- ------- ------------ ------------
Total from Investment Operations:.... 0.56 0.48 0.90 (0.07) 0.69 0.51
------- ------- ------- ------- ------------ ------------
Less Dividends:
Dividends from net investment
income................................ (0.54) (0.55) (0.57) (0.44) (0.47) (0.42)
Dividends from net realized capital
gains................................. -- -- -- -- (0.01) --
Dividends in excess of net realized
capital gains......................... -- -- -- (0.06) -- --
------- ------- ------- ------- ------------ ------------
Total Dividends:..................... (0.54) (0.55) (0.57) (0.50) (0.48) (0.42)
------- ------- ------- ------- ------------ ------------
Net increase (decrease) in net asset
value.................................. 0.02 (0.07) 0.33 (0.57) 0.21 0.09
------- ------- ------- ------- ------------ ------------
Net Asset Value, End of Period.......... $ 10.01 $ 9.99 $ 10.06 $ 9.73 $ 10.30 $ 10.09
------- ------- ------- ------- ------------ ------------
------- ------- ------- ------- ------------ ------------
Total Return............................ 5.77% 4.91% 9.55% (0.66)% 6.98% 5.21%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $49,837 $58,227 $35,088 $39,843 $85,211 $57,403
Ratios to average net assets:
Net investment income including
reimbursement/waiver.................. 5.43% 5.49% 5.79% 4.45% 4.51% 5.77%(6)
Operating expenses including
reimbursement/waiver.................. 0.86% 0.84% 0.74% 0.91% 0.86% 0.90%(6)
Operating expenses excluding
reimbursement/waiver.................. 1.07% 1.08% 1.02% 1.11% 1.06% 1.20%(6)
Portfolio Turnover Rate................. 173% 214% 289% 233% 100% 114%(5)
</TABLE>
- ---------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996, 1995 and 1994 were $0.52, $0.53,
$0.54 and $0.42, respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the year ended October 31, 1993
and for the period ended October 31, 1992 were $0.45 and $0.40,
respectively.
(5) Not Annualized.
(6) Annualized.
5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek a high level of current income
consistent with preservation of capital. The Fund will invest substantially all
of its assets in corporate debt obligations of domestic and foreign
corporations, such as bonds and debentures, obligations convertible into common
stock, "money market" instruments such as bank obligations and commercial paper,
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and asset-backed and mortgage-backed securities. The Fund may
also invest, from time to time, in obligations issued by state and local
governmental issuers ("municipal securities"). The purchase of municipal
securities may be advantageous when, as a result of prevailing economic,
regulatory or other circumstances, the performance of such securities, on a
pretax basis, is comparable to that of corporate or U.S. Government debt
obligations. The Fund may also enter into interest rate futures contracts to
hedge against changes in market values. See "Other Investment Policies and Risk
Considerations." Under normal market and economic conditions, at least 65% of
the Fund's total assets will be invested in bonds and debentures, subject to the
quality standards described below. The Fund will not invest in common stock, and
any common stock received through the conversion of convertible debt obligations
will be sold in an orderly manner as soon as possible.
Under normal market and economic conditions, the Fund will invest
substantially all of its assets in debt obligations rated at the time of
purchase within the four highest rating categories assigned by S&P ("AAA," "AA,"
"A" and "BBB") or Moody's ("Aaa," "Aa," "A" and "Baa") or which, if unrated, are
determined by Fleet Investment Advisors Inc. ("Fleet") the Fund's investment
adviser, to be of comparable quality and in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and "money market"
instruments such as those listed below under "Other Investment Policies and Risk
Considerations." Debt obligations rated within the four highest rating
categories assigned by S&P or Moody's are considered to be investment grade.
Debt obligations rated in the lowest of the four highest rating categories
assigned by S&P or Moody's are considered to have speculative characteristics,
even though they are of investment grade quality, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in debt obligations rated in the three
highest ratings assigned by S&P or Moody's. Unrated securities will be
determined to be of comparable quality to rated debt obligations if, among other
things, other outstanding obligations of the issuers of such securities are
rated BBB/Baa or better. When, in the opinion of Fleet, a defensive investment
posture is warranted, the Fund may invest temporarily and without limitation in
high quality, short-term money market instruments. See Appendix A to the
Statement of Additional Information for a description of S&P's and Moody's
rating categories.
In addition, the Fund may invest in obligations of foreign banks and in
obligations issued or guaranteed by foreign governments or any of their
political subdivisions or instrumentalities. Such obligations include debt
obligations issued by Canadian Provincial Governments, which are similar to U.S.
municipal securities except that the income derived therefrom is fully subject
to U.S. federal taxation. These instruments are denominated in either Canadian
or U.S. dollars and have an established over-the-counter market in the United
States. Also included are debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related governmental
agencies. Examples of these include the International Bank for Reconstruction
and
6
<PAGE>
Development ("World Bank"), the Asian Development Bank and the InterAmerican
Development Bank. Obligations of supranational entities may be supported by
appropriated but unpaid commitments of their member countries and there is no
assurance that those commitments will be undertaken or met in the future. The
Fund may not invest more than 35% of its total assets in the securities of
foreign issuers. The Fund may also invest in dollar-denominated debt obligations
of U.S. corporations issued outside the United States.
Under normal conditions the Fund's portfolio securities will have an average
weighted maturity of less than three years.
The value of the Fund's portfolio securities will generally vary inversely
with changes in prevailing interest rates. See "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Fund.
Fleet will use its best efforts to achieve the Fund's investment objective,
although its achievement cannot be assured. The investment objective of the Fund
may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program.
SPECIAL RISK CONSIDERATIONS
Investments by the Fund in foreign securities involve higher costs than
investments in U.S. securities, including higher transaction costs as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks, including the difficulty of predicting
interest rate patterns and fluctuations in currency exchange rates, less
complete financial information about the issuers, less market liquidity, and
political instability. Future political and economic developments, the possible
imposition of withholding taxes on interest income, the possible seizure or
nationalization of foreign holdings, the possible establishment of exchange
controls, or the adoption of other governmental restrictions might adversely
affect the payment of principal and interest on foreign obligations. In
addition, foreign issuers in general may be subject to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic companies, and securities of foreign issuers may be less liquid and
their prices more volatile than those of comparable domestic issuers.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's foreign
securities in the various local markets and currencies. Thus, an increase in the
value of the U.S. dollar compared to the currencies in which the Fund makes its
foreign investments could reduce the effect of increases and magnify the effect
of decreases in the price of the Fund's foreign securities in their local
markets. Conversely, a decrease in the value of the U.S. dollar will have the
opposite effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's foreign securities in their local markets.
In addition to favorable and unfavorable currency exchange rate developments,
the Fund is subject to the possible imposition of exchange control regulations
or freezes on convertibility of currency.
7
<PAGE>
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which the
Fund has the power to utilize. Some may be employed on a regular basis; others
may not be used at all. Accordingly, reference to any particular method or
technique carries no implication that it will be utilized or, if it is, that it
will be successful.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those
8
<PAGE>
applicable to domestic branches of U.S. banks. The Fund will invest in the
obligations of U.S. branches of foreign banks or foreign branches of U.S. banks
only when Fleet believes that the credit risk with respect to the instrument is
minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations."
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of municipal securities which may be held
by the Fund are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of such private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
The Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the Fund
nor Fleet will review the proceedings relating to the issuance of Municipal
Securities or the bases for such opinions.
VARIABLE AND FLOATING RATE MUNICIPAL SECURITIES
Municipal securities purchased by the Fund may include rated and unrated
variable and floating rate tax-exempt instruments. There may be no active
secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to the Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days' notice and do not have an active trading market) that
are acquired by the Fund are subject to the 10% limit described in Investment
Limitation No. 3 under "Investment Limitations" in this Prospectus.
9
<PAGE>
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
The Fund will not enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand by notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 10% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with the investment limitations described
below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by Fleet to be of good standing and only when, in Fleet's
judgment, the income to be earned from the loan justifies the attendant risks.
The Fund currently intends to limit the lending of its portfolio securities so
that, at any given time, securities loaned by the Fund represent not more than
one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Fund may invest in securities issued by other investment companies which
invest in high quality, short-term debt securities and which determine their net
asset value per share based on the amortized cost or penny-rounding method.
Investments in other investment companies will cause the Fund (and, indirectly,
the Fund's shareholders) to bear proportionately the costs incurred in
connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Fund within the limits prescribed
by the Investment Company Act of 1940, as amended, (the "1940 Act"). The Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
10
<PAGE>
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, and any other investment companies
advised by Fleet.
INTEREST RATE FUTURES CONTRACTS
The Fund may enter into contracts (both purchases and sales) which provide
for the future delivery of fixed-income securities (commonly known as interest
rate futures contracts). The Fund will not engage in futures transactions for
speculation, but only to hedge against changes in the market values of
securities which the Fund holds or intends to purchase. The Fund will engage in
futures transactions only to the extent permitted by the Commodity Futures
Trading Commission ("CFTC") and the Securities and Exchange Commission ("SEC").
The purchase of futures instruments in connection with securities which the Fund
intends to purchase will require an amount of cash and/or liquid assets, equal
to the market value of the outstanding futures contracts, to be deposited in a
segregated account to collateralize the position and thereby insure that the use
of such futures is unleveraged. The Fund will limit its hedging transactions in
futures contracts so that, immediately after any such transaction, the aggregate
initial margin that is required to be posted by the Fund under the rules of the
exchange on which the futures contract is traded does not exceed 5% of the
Fund's total assets after taking into account any unrealized profits and
unrealized losses on the Fund's open contracts. In addition, no more than
one-third of the Fund's total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Fund to a number
of risks. Successful use of futures by the Fund is subject to the ability of
Fleet to predict correctly movements in the direction of the market. In
addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market will
exist for any particular futures contract at any particular time. Consequently,
the Fund may realize a loss on a futures transaction that is not offset by a
favorable movement in the price of securities which the Fund holds or intends to
purchase or may be unable to close a futures position in the event of adverse
price movements. Additional information concerning futures transactions is
contained in Appendix B to the Statement of Additional Information.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. The Fund may also
purchase or sell eligible securities on a "delayed settlement" basis.
When-issued and forward commitment transactions, which involve a commitment by
the Fund to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), permit the Fund
to lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued, forward commitment and delayed settlement
transactions involve the risk, however, that the yield or price obtained in a
transaction may be less favorable than the yield or price available in the
market when the securities delivery takes place. It is expected that forward
commitments, when-issued purchases and delayed settlements will not exceed 25%
of the value of the Fund's total assets absent unusual market conditions. In the
event the Fund's forward commitments, when-issued purchases and delayed
settlements ever exceeded 25% of the value of its total assets, the Fund's
liquidity and the ability of Fleet to manage
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the Fund may be adversely affected. The Fund does not intend to engage in
when-issued purchases, forward commitments and delayed settlements for
speculative purposes, but only in furtherance of its investment objective.
STAND-BY COMMITMENTS
The Fund may acquire "stand-by commitments" with respect to municipal
securities held by it. Under a stand-by commitment, a dealer agrees to purchase,
at the Fund's option, specified municipal securities at a specified price. The
Fund will acquire stand-by commitments solely to facilitate portfolio liquidity
and does not intend to exercise its rights thereunder for trading purposes. The
Fund expects that stand-by commitments will generally be available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, the Fund may pay for a stand-by commitment either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the commitment (thus reducing the yield otherwise available for the same
securities). Stand-by commitments acquired by the Fund would be valued at zero
in determining the Fund's net asset value.
ASSET-BACKED SECURITIES
The Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the Statement of Additional
Information.
MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities (including collateralized
mortgage obligations) that represent pools of mortgage loans assembled for sale
to investors by various governmental agencies and government-related
organizations, such as the Government National Mortgage Association, the Federal
National Mortgage Association, and the Federal Home Loan Mortgage Corporation.
Mortgage-backed securities provide a monthly payment consisting of interest and
principal payments. Additional payment may be made out of unscheduled repayments
of principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-backed securities may tend to increase due
to refinancing of mortgages as interest rates decline. To the extent that the
Fund purchases mortgage-backed securities at a premium, mortgage foreclosures
and prepayments of principal by mortgagors (which may be made at any time
without penalty) may result in some loss of the Fund's principal investment to
the extent of the premium paid. The yield of the Fund from investing in
mortgaged-backed securities may be affected by reinvestment of prepayments at
higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment
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<PAGE>
bankers, and special purpose entities. These private mortgage-backed securities
may be supported by U.S. Government mortgage-backed securities or some form of
non-government credit enhancement. Mortgage-backed securities have either fixed
or adjustable interest rates. The rate of return on mortgage-backed securities
may be affected by prepayments of principal on the underlying loans, which
generally increase as interest rates decline; as a result, when interest rates
decline, holders of these securities normally do not benefit from appreciation
in market value to the same extent as holders of other non-callable debt
securities. In addition, like other debt securities, the values of
mortgage-related securities, including government and government-related
mortgage pools, generally will fluctuate in response to market interest rates.
MORTGAGE DOLLAR ROLLS
The Fund may enter into mortgage "dollar rolls" in which the Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date not exceeding 120 days.
During the roll period, the Fund loses the right to receive principal and
interest paid on the securities sold. However, the Fund would benefit to the
extent of any difference between the price received for the securities sold and
the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward purchase. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund compared with what such performance would
have been without the use of mortgage dollar rolls. All cash proceeds will be
invested in instruments that are permissible investments for the Fund. The Fund
will hold and maintain in a segregated account until the settlement date cash,
or other liquid assets, in an amount equal to the forward purchase price.
For financial reporting and tax purposes, the Fund proposes to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale. The Fund does not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom
the Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet's ability to predict correctly interest rates and mortgage
prepayments. For these reasons, there is no assurance that mortgage dollar rolls
can be successfully employed.
STRIPPED OBLIGATIONS
To the extent consistent with its investment objective, the Fund may
purchase U.S. Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or future principal payments on
U.S. Government and other obligations. These participations, which may be issued
by the U.S. Government or by private issuers, such as banks and other
institutions, are issued at their "face value," and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than
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ordinary debt securities because of the manner in which their principal and
interest are returned to investors.
SMBS are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities. The market value of the class consisting
entirely of principal payments generally is extremely volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid by the Fund. Obligations
issued by the U.S. Government may be considered liquid under guidelines
established by the Trust's Board of Trustees if they can be disposed of promptly
in the ordinary course of business at a value reasonably close to that used in
the calculation of net asset value per share.
GUARANTEED INVESTMENT CONTRACTS
The Fund may invest in guaranteed investment contracts ("GICs") issued by
United States and Canadian insurance companies. Pursuant to GICs, the Fund makes
cash contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the Fund payments at negotiated, floating
or fixed interest rates. A GIC is a general obligation of the issuing insurance
company and not a separate account. The purchase price paid for a GIC becomes
part of the general assets of the insurance company, and the contract is paid
from the company's general assets. The Fund will only purchase GICs that are
issued or guaranteed by insurance companies that at the time of purchase are
rated at least AA by S&P or receive a similar high quality rating from a
nationally recognized service which provides ratings of insurance companies.
GICs are considered illiquid securities and will be subject to the Fund's 10%
limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
BANK INVESTMENT CONTRACTS
The Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and will
be subject to the Fund's 10% limitation on such investments, unless there is an
active and substantial secondary market for the particular instrument and market
quotations are readily available.
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DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
purchase certain "derivative" securities. Derivative securities are instruments
that derive their value from the performance of underlying assets, interest
rates or indices, and include, but are not limited to, interest rate futures and
certain asset-backed and mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest rates
change adversely, the value of the derivative security will decline more than
the assets, rates or indices on which it is based; liquidity risk that the Fund
will be unable to sell a derivative security when it wants because of lack of
market depth or market disruption; pricing risk that the value of a derivative
security will not correlate exactly to the value of the underlying assets, rates
or indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
derivative securities are more complex than others, and for those instruments
that have been developed recently, data are lacking regarding their actual
performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Fund, and will determine in connection with its day-to-day
management of the Fund, how they will be used in furtherance of the Fund's
investment objective. It is possible, however, that Fleet's evaluations will
prove to be inaccurate or incomplete and, even when accurate and complete, it is
possible that the Fund will, because of the risks discussed above, incur loss as
a result of its investments in derivative securities. See "Investment Objectives
and Policies--Derivative Securities" in the Statement of Additional Information
relating to the Fund for additional information.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if Fleet
believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover may result in the realization of substantial capital gains and involves
correspondingly greater transaction costs. To the extent that net capital gains
are realized, distributions derived from such gains are treated as ordinary
income for federal income tax purposes. See "Financial Highlights" and
"Taxes--Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
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The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) the Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that the Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase agreements
in accordance with its investment policies and in amounts not in excess of
10% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the Fund's total assets at the time
of such borrowing. The Fund will not purchase securities while borrowing
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other securities
which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total
assets would be invested in such issuer, except that up to 25% of the value
of its total assets may be invested without regard to this limitation.
In addition, the Fund may not purchase any securities which would cause 25%
or more of the value of the Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, (a) the Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing, and (b)
mortgage dollar rolls entered into by the Fund that are not accounted for as
financings shall not constitute borrowings.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. The Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
10% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above,
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Rule 144A securities will not be considered illiquid if Fleet has determined, in
accordance with guidelines established by the Board of Trustees, that an
adequate trading market exists for such securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time), on each day on which the Exchange is open for trading.
Currently, the holidays which Galaxy observes are New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day. Net asset value per share of the
Fund for purposes of pricing sales and redemptions is calculated separately for
each series of shares by dividing the value of all securities and other assets
attributable to a particular series of shares of the Fund, less the liabilities
attributable to the shares of that series of the Fund, by the number of
outstanding shares of that series of the Fund.
The Fund's assets are valued for purposes of pricing sales and redemptions
by an independent pricing service ("Service") approved by Galaxy's Board of
Trustees. When, in the judgment of the Service, quoted bid prices for portfolio
securities are readily available and are representative of the bid side of the
market, these investments are valued at the mean between quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments are carried at fair value as determined by the
Service, based on methods which include consideration of yields or prices of
bonds of comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts primarily at bank and trust institutions,
including subsidiaries of Fleet Financial Group, Inc. and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of
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<PAGE>
record by Institutions. The Institution is responsible for transmitting to FD
Distributors orders for purchases of Trust Shares and for wiring required funds
in payment to Galaxy's custodian on a timely basis. FD Distributors is
responsible for transmitting such orders to Galaxy's transfer agent for
execution. Beneficial ownership of Trust Shares will be recorded by the
Institution and reflected in the account statements it provides to its
Customers. Confirmations of purchases and redemptions of Trust Shares will be
sent to the appropriate Institution. Purchases of Trust Shares will be effected
only on days on which FD Distributors, Galaxy's custodian and the purchasing
Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that Galaxy's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If an Institution accepts a purchase
order from its Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Fund and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts (including defined contribution plans). Investors should contact their
Institution (in the case of employer-sponsored defined contribution plans, their
employer) for further information concerning the types of eligible Customer
accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirement with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by their Customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by the Institutions to their
Customers. Information pertaining to such plans is available directly from the
Institution.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which purchase orders must be
received in order to be processed on that Business Day.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
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<PAGE>
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day will normally be wired the following Business Day
to the Institution. Payment for redemption orders which are received on a
non-Business Day will normally be wired to the Institution on the next Business
Day. However, in both cases Galaxy reserves the right to wire redemption
proceeds within seven days after receiving the redemption order if, in its
judgment, an earlier payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. The Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon 60 days'
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared daily and paid
monthly. Dividends on each share of the Fund are determined in the same manner,
irrespective of series, but may differ in amount because of the difference in
the expenses paid by the respective series. Net realized capital gains are
distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such Shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of Customers to Galaxy's transfer agent and will become effective with respect
to dividends paid after its receipt. The crediting and payment of dividends to
Customers will be in accordance with the procedures governing such Customers'
accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves the Fund
of liability for Federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that the Fund distribute to its shareholders
an amount equal to at least 90% of its investment company taxable income and 90%
of its tax-exempt interest income, if any, net of certain deductions for such
year. In general, the Fund's investment company taxable income will be its
taxable income, including dividends, interest and short-term capital gain (the
excess of net short-term capital gain over net long-term capital loss), subject
to certain adjustments and excluding the excess of any net long-term capital
gain for the taxable year over the net short-term capital loss, if any, for such
year. The policy of the Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from Federal income taxes, whether
such dividends are received in cash or
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<PAGE>
reinvested in additional shares. (Federal income taxes for distributions to an
IRA or a qualified retirement plan are deferred under the Code.) It is
anticipated that no part of any distribution will qualify for the dividends
received deduction for corporations.
Distribution by the Fund of "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of the Fund, if any, is
taxable to shareholders as long-term capital gain regardless of how long the
shareholder has held shares and whether such gains are received in cash or
reinvested in additional shares. Such long-term capital gain will be 20% or 28%
rate gain, depending upon the Fund's holding period for the assets the sale of
which generated the capital gain. Such distributions are not eligible for the
dividends received deduction.
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying shares of the Fund on or just before the
record date of a dividend, you should be aware that the amount of the
forthcoming dividend payment, although in effect a return of capital, generally
will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences than
those of the federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients, and
manages the other investment portfolios of Galaxy: the Money Market, Government,
U.S. Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
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Municipal Money Market, Institutional Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Small Company Equity, MidCap
Equity, Asset Allocation, Small Cap Value, Growth and Income, Strategic Equity,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut Municipal
Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Fund,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of .75% of the average daily net assets of the Fund.
Fleet may from time to time, in its discretion, waive advisory fees payable
by the Fund in order to help maintain a competitive expense ratio and may from
time to time allocate a portion of its advisory fees to Fleet Bank or other
subsidiaries of Fleet Financial Group, Inc. in consideration for administrative
and/or shareholder support services which they provide to beneficial
shareholders. Fleet is currently waiving a portion of the advisory fees payable
to it by the Fund so that it is entitled to receive advisory fees at the annual
rate of .55% of the Fund's average daily net assets, but Fleet may in its
discretion revise or discontinue this waiver at any time. For the fiscal year
ended October 31, 1997, Fleet received advisory fees (after fee waivers) at the
effective annual rate of .55% of the Fund's average daily net assets. In
addition to fee waivers, during the fiscal year ended October 31, 1997, Fleet
also reimbursed the Fund for certain operating expenses, which reimbursement may
be revised or discontinued at any time.
The Fund's portfolio manager, Perry J. Vieth, is primarily responsible for
the day-to-day management of the Fund's investment portfolio. Mr. Vieth, a Vice
President, has over eleven years of experience as an investment manager and
previously managed the Shawmut Limited Term Income Fund for Shawmut Investment
Advisors and was a manager of Fuji Securities, Inc.'s derivative products group.
He also was responsible for fixed income risk management at NationsBank CRT. Mr.
Vieth has managed the Fund since March 1, 1996.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which have agreed to provide shareholder support services that are
banks or bank affiliates are subject to such banking laws and regulations.
Should
21
<PAGE>
legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Fund,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Fund's method of operation would not
affect the Fund's net asset value per share or result in financial loss to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Funds, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of combined
average daily net assets of the Fund and the other portfolios offered by Galaxy
(collectively the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily all or a portion of the
administration fee payable to it by the Fund. For the fiscal year ended October
31, 1997, Investor Services Group received administration fees at the effective
annual rate of .082% of the Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each of three series in the Fund as follows:
Class L--Series 1 shares (Trust Shares), Class L--Series 2 shares (Retail A
Shares) and Class L--Series 3 shares (Retail B Shares), each series representing
interests in the Fund. The Fund is classified as a diversified company under the
1940 Act. The Board of Trustees has also authorized the issuance of additional
classes and series of shares representing interests in the other portfolios of
Galaxy. For information regarding the Fund's Retail Shares and these other
portfolios, which are offered through separate prospectuses, contact FD
Distributors at 1-800-628-0414.
Shares of each series in the Fund bear their pro rata portion of all
operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A and Retail B Shares bear the fees that are paid under Galaxy's
Shareholder Services Plan described below. Holders of the Fund's Retail B Shares
bear the fees described in the prospectus for such shares that are paid under
Galaxy's Distribution and Services Plan at an annual rate not to exceed .80% of
the average daily net asset value of the Fund's outstanding Retail B Shares.
Currently, these payments are not made with respect to the Fund's Trust Shares.
In addition, shares of each series in the Fund bear differing transfer agency
expenses. Standardized yield and total return quotations are computed separately
for each series of shares. The differences in the expenses paid by the
respective series will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end sales charge
of 3.75%. Retail B Shares of the Fund are sold with a maximum contingent
deferred sales charge of 5.0% and automatically
22
<PAGE>
convert to Retail A Shares of the Fund six years after the date of purchase.
Retail A and Retail B Shares have certain exchange and other privileges which
are not available with respect to Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class, and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to such investment portfolio as are declared in the discretion of
Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.30% of the average daily net asset value of Retail A Shares of the Fund owned
beneficially by Customers of Institutions. Institutions may receive up to
one-half of this fee for providing one or more of the following services to such
Customers: aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with FD Distributors; processing
dividend payments from the Fund; and providing periodic mailings to Customers.
Institutions may also receive up to one-half of this fee for providing one or
more of these additional services to such Customers: providing Customers with
information as to their positions in Retail A Shares; responding to Customers
inquiries; and providing a service to invest the assets of Customers in Retail A
Shares. These services are described more fully in Galaxy's Statement of
Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these service agreements for the Fund to no more than
.15% (on an annualized basis) of the average daily net asset value of the Retail
A Shares of the Fund beneficially owned by Customers of Institutions. Galaxy
understands that Institutions may charge fees to their customers who are owners
of Retail A Shares in connection with their accounts with such Institutions. Any
such fees would be in addition to any amounts which may be received by an
Institution under the Shareholder Services Plan. Under the terms of each
servicing agreement entered into with Galaxy, Institutions are required to
provide to their Customers a schedule of any fees that they may charge in
connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities perform certain
sub-account and administrative functions ("Sub-
23
<PAGE>
Account Services") on a per account basis with respect to Trust Shares of the
Fund held by defined contribution plans, including maintaining records
reflecting separately with respect to each plan participant's sub-account all
purchases and redemption of Trust Shares and the dollar value of Trust Shares in
each sub-account; crediting to each participant's sub-account all dividends and
distributions with respect to that sub-account; and transmitting to each
participant a periodic statement regarding the sub-account as well as any proxy
materials, reports and other material Fund communications. Such entities are
compensated by Investor Services Group for the Sub-Account Services and in
connection therewith the transfer agency fees payable by Trust Shares of the
Fund to Investor Services Group have been increased by an amount equal to these
fees. In substance therefore, the holders of Trust Shares of the Fund indirectly
bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Fund's assets. Chase
Manhattan may employ sub-custodians for the Fund for the purpose of providing
custodial services for the Fund's foreign assets held outside the United States.
First Data Investor Services Group, Inc. ("Investor Services Group"), a
wholly-owned subsidiary of First Data Corporation, serves as the Fund's transfer
and dividend disbursing agent. Services performed by both entities for the Fund
are described in the Statement of Additional Information. Communications to
Investor Services Group should be directed to Investor Services Group at P.O.
Box 5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Fund. Galaxy bears
the expenses incurred in the Fund's operations. Such expenses include taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, Rule 12b-1 distribution, fund accounting and custody fees; charges of
the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholder reports and meetings; and any extraordinary expenses. The
Fund also pays for brokerage fees and commissions in connection with the
purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant bond indexes
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or publications of a local or
24
<PAGE>
regional nature, may also be used in comparing the performance of the Fund.
Performance data will be calculated separately for Trust Shares, Retail A Shares
and/or Retail B Shares of the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividend and capital gain distributions made by the Fund during the period
are reinvested in Fund shares.
The performance of the Fund will fluctuate and any quotation of performance
should not be considered as representative of future performance. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in the
Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance data are
generally functions of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
additional fees charged directly by Institutions with respect to accounts of
Customers that have invested in Trust Shares of the Fund will not be included in
performance calculations.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
25
<PAGE>
GALAXY
SHORT-TERM BOND
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-259 15022 (3/98)
<PAGE>
TRUST
THE GALAXY FUND
INTERMEDIATE GOVERNMENT INCOME FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
BY FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY........................................................... 2
FINANCIAL HIGHLIGHTS...................................................... 3
INVESTMENT OBJECTIVE AND POLICIES......................................... 5
In General.............................................................. 5
Other Investment Policies and Risk Considerations....................... 6
INVESTMENT LIMITATIONS.................................................... 14
PRICING OF SHARES......................................................... 15
HOW TO PURCHASE AND REDEEM SHARES......................................... 16
Distributor............................................................. 16
Purchase of Shares...................................................... 16
Redemption of Shares.................................................... 17
DIVIDENDS AND DISTRIBUTIONS............................................... 17
TAXES..................................................................... 18
Federal................................................................. 18
State and Local......................................................... 19
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT OF THE FUND.................................................... 19
Investment Adviser...................................................... 19
Authority to Act as Investment Adviser.................................. 20
Administrator........................................................... 20
DESCRIPTION OF GALAXY AND ITS SHARES...................................... 20
Shareholder Services Plan............................................... 21
Agreements for Sub-Account Services..................................... 22
CUSTODIAN AND TRANSFER AGENT.............................................. 22
EXPENSES.................................................................. 22
PERFORMANCE REPORTING..................................................... 23
MISCELLANEOUS............................................................. 24
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance, call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares"), which
represent interests in the INTERMEDIATE GOVERNMENT INCOME FUND (the "Fund")
offered by Galaxy.
The Fund's investment objective is to seek the highest level of current
income consistent with prudent risk of capital. Subject to this objective, the
Fund's investment adviser will consider the total rate of return on portfolio
securities in managing the Fund. Under normal market and economic conditions,
the Fund will invest substantially all of its assets in debt obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, in debt
obligations rated at the time of purchase within the three highest rating
categories assigned by Standard & Poor's Ratings Group ("S&P") or Moody's
Investor's Service, Inc. ("Moody's") (or which, if unrated, are of comparable
quality) and "money market" instruments.
This Prospectus describes Trust Shares in the Fund. Trust Shares are offered
to investors maintaining qualified accounts primarily at bank and trust
institutions, including institutions affiliated with Fleet Financial Group, Inc.
and to participants in employer-sponsored defined contribution plans. Galaxy is
also authorized to issue an additional series of shares in the Fund ("Retail A
Shares"), which are offered under a separate prospectus primarily to
individuals, corporations or other entities purchasing either for their own
accounts or for the accounts of others and to FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers on behalf of
their customers. Trust Shares and Retail A Shares represent equal pro rata
interests in the Fund, except they bear different expenses which reflect the
difference in the range of services provided to them. See "Financial
Highlights," "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet Investment Advisors, Inc. or its parent, Fleet Financial
Group, Inc., and affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC., OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
FEBRUARY 28, 1998
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Trust Shares, and (ii) the operating
expenses for Trust Shares of the Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
INTERMEDIATE
GOVERNMENT
SHAREHOLDER TRANSACTION EXPENSES INCOME FUND
- ---------------------------------------------------------------------- -------------
<S> <C>
Sales Load............................................................ None
Sales Load on Reinvested Dividends.................................... None
Deferred Sales Load................................................... None
Redemption Fees....................................................... None
Exchange Fees......................................................... None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------
<S> <C>
Advisory Fees (After Fee Waivers)..................................... .55%
12b-1 Fees............................................................ None
Other Expenses........................................................ .24%
-----
Total Fund Operating Expenses (After Fee Waivers)..................... .79%
-----
-----
</TABLE>
- ---------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Intermediate Government Income Fund................................... $8 $25 $43 $96
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in Trust Shares of the
Fund will bear directly or indirectly. They are based on expenses incurred by
the Fund during the last fiscal year, restated to reflect the expenses which the
Fund expects to incur during the current fiscal year on its Trust Shares.
Without voluntary fee waivers by Fleet, Advisory Fees would be .75% and Total
Fund Operating Expenses would be .99% for Trust Shares of the Fund. Fleet is
under no obligation to waive fees and/or reimburse expenses but has advised
Galaxy that it intends to waive fees and/or reimburse expenses during the
current year to the extent necessary to maintain the Fund's operating expenses
at the level set forth in the above table. For more complete descriptions of
these costs and expenses, see "Management of the Fund" and "Description of
Galaxy and Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information. Any fees
that are charged by affiliates of Fleet Investment Advisors Inc. or other
institutions directly to their customer accounts for services related to an
investment in Trust Shares of the Funds are in addition to and not reflected in
the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy is also
authorized to issue an additional series of shares in the Fund, Retail A Shares.
As described below under "Description of Galaxy and Its Shares," Trust Shares
and Retail A Shares represent equal pro rata interests in the Fund except that
(i) Retail A Shares of the Fund bear the expenses incurred under Galaxy's
Shareholder Services Plan at an annual rate of up to .15% of the average daily
net asset value of the Fund's outstanding Retail A Shares and (ii) Trust Shares
and Retail A Shares bear differing transfer agency expenses. Retail A Shares are
offered under a separate prospectus.
The financial highlights presented below have been audited by Coopers &
Lybrand L.L.P., Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Fund dated October 31,
1997 (the "Annual Report"). Such financial highlights should be read in
conjunction with the financial statements contained in the Annual Report and
incorporated by reference into the Statement of Additional Information.
Information in the financial highlights for periods prior to the fiscal year
ended October 31, 1994 reflects the investment results of both Trust Shares and
Retail A Shares of the Fund (Retail A Shares of the Fund were first offered
during the fiscal year ended October 31, 1992). More information about the
performance of the Fund is also contained in the Annual Report, which may be
obtained without charge by contacting Galaxy at its telephone number or address
provided above.
3
<PAGE>
INTERMEDIATE GOVERNMENT INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------
1997 1996 1995 1994
-----------------------------------------
TRUST SHARES
-----------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.06 $ 10.28 $ 9.68 $ 10.72
-------- -------- -------- --------
Income From Investment Operations:
Net investment income(3,4)............ 0.62 0.60 0.64 0.57
Net realized and unrealized gain
(loss) on investments................ 0.12 (0.22) 0.60 (1.03)
-------- -------- -------- --------
Total from Investment
Operations:....................... 0.74 0.38 1.24 (0.46)
-------- -------- -------- --------
Less Dividends:
Dividends from net investment
income............................... (0.62) (0.60) (0.64) (0.56)
Dividends in excess of net investment
income............................... -- -- -- (0.01)
Dividends from net realized capital
gains................................ -- -- -- --
Dividends in excess of net realized
capital gains........................ -- -- -- (0.01)
-------- -------- -------- --------
Total Dividends:................... (0.62) (0.60) (0.64) (0.58)
-------- -------- -------- --------
Net increase (decrease) in net asset
value.................................. 0.12 (0.22) 0.60 (1.04)
-------- -------- -------- --------
Net Asset Value, End of Period.......... $ 10.18 $ 10.06 $ 10.28 $ 9.68
-------- -------- -------- --------
-------- -------- -------- --------
Total Return............................ 7.63% 3.88% 13.18% (4.39)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $209,215 $213,750 $186,037 $212,144
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 6.19% 5.98% 6.39% 5.61%
Operating expenses including
reimbursement/waiver................. 0.74% 0.75% 0.73% 0.75%
Operating expenses excluding
reimbursement/waiver................. 0.94% 0.95% 0.94% 0.95%
Portfolio Turnover Rate................. 128% 235% 145% 124%
<CAPTION>
YEAR ENDED OCTOBER 31,(2) PERIOD ENDED
---------------------------------------------------- OCTOBER 31,
1993 1992 1991 1990 1989 1988(1,2)
-------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.83 $ 10.46 $ 9.73 $ 10.27 $ 10.40 $ 10.00
-------- -------- -------- -------- -------- -------
Income From Investment Operations:
Net investment income(3,4)............ 0.65 0.71 0.73 0.76 0.82 0.11
Net realized and unrealized gain
(loss) on investments................ 0.10 0.40 0.71 (0.56) 0.16 0.29
-------- -------- -------- -------- -------- -------
Total from Investment
Operations:....................... 0.75 1.11 1.44 0.20 0.98 0.40
-------- -------- -------- -------- -------- -------
Less Dividends:
Dividends from net investment
income............................... (0.64) (0.74) (0.71) (0.74) (0.96) --
Dividends in excess of net investment
income............................... (0.03) -- -- -- -- --
Dividends from net realized capital
gains................................ (0.19) -- -- -- (0.15) --
Dividends in excess of net realized
capital gains........................ -- -- -- -- -- --
-------- -------- -------- -------- -------- -------
Total Dividends:................... (0.86) (0.74) (0.71) (0.74) (1.11) --
-------- -------- -------- -------- -------- -------
Net increase (decrease) in net asset
value.................................. (0.11) 0.37 0.73 (0.54) (0.13) 0.40
-------- -------- -------- -------- -------- -------
Net Asset Value, End of Period.......... $ 10.72 $ 10.83 $ 10.46 $ 9.73 $ 10.27 $ 10.40
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
Total Return............................ 7.06% 10.95% 15.35% 2.06% 10.22% 3.90%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $447,359 $199,135 $ 99,942 $ 80,645 $ 71,400 $ 58,318
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 6.03% 6.52% 7.25% 7.69% 8.19% 6.41%(6)
Operating expenses including
reimbursement/waiver................. 0.80% 0.80% 0.96% 0.98% 0.99% 0.98%(6)
Operating expenses excluding
reimbursement/waiver................. 1.00% 0.94% 0.96% 0.99% 1.00% 0.98%(6)
Portfolio Turnover Rate................. 153% 103% 150% 162% 112% 41%(5)
</TABLE>
- ---------
(1) The Fund (formerly known as the Intermediate Bond Fund) commenced
operations on September 1, 1988.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Trust Shares before reimbursement/
waiver of fees by Fleet and/or the Fund's administrator for the years ended
October 31, 1997, 1996, 1995 and 1994 was $0.60, $0.58, $0.62 and $0.54,
respectively.
(4) Net investment income per share before reimbursement/ waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1993,
1992, 1991, 1990 and 1989 and for the period ended October 31, 1988 was
$0.63, $0.70, $0.73, $0.73, $0.82, and $0.11, respectively.
(5) Not Annualized.
(6) Annualized.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek the highest level of current
income consistent with prudent risk of capital. Subject to this objective, Fleet
Investment Advisors Inc. ("Fleet"), the Fund's investment adviser, will consider
the total rate of return on securities in managing the Fund. The Fund will
invest in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, corporate debt obligations such as bonds and debentures,
obligations convertible into common stock and "money market" instruments, such
as bank obligations and commercial paper, and asset-backed and mortgage-backed
securities. The Fund may also invest, from time to time, in obligations issued
by state or local governmental issuers ("municipal securities"). The purchase of
municipal securities may be advantageous when, as a result of prevailing
economic, regulatory or other circumstances, the performance of such securities,
on a pretax basis, is comparable to that of corporate or U.S. debt obligations.
The Fund may also enter into interest rate futures contracts to hedge against
changes in market values. See "Other Investment Policies." The Fund will not
invest in common stock, and any common stock received through the conversion of
convertible debt obligations will be sold in an orderly manner as soon as
possible.
Under normal market and economic conditions, the Fund will invest
substantially all of its assets in debt obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, debt obligations rated, at
the time of purchase, within the three highest rating categories assigned by S&P
("AAA," "AA" and "A") or Moody's ("Aaa," "Aa" and "A") (or which, if unrated,
are determined by Fleet to be of comparable quality) and "money market"
instruments such as those listed below under "Other Investment Policies."
Unrated securities will be determined to be of comparable quality to rated debt
obligations if, among other things, other outstanding obligations of the issuers
of such securities are rated A or better. Notwithstanding the foregoing, under
normal market and economic conditions, at least 65% of the Fund's assets will be
invested in debt obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. When, in Fleet's opinion, a defensive investment
posture is warranted, the Fund may invest temporarily and without limitation in
high quality, short-term "money market" instruments. See Appendix A to the
Statement of Additional Information for a description of S&P's and Moody's
rating categories.
In addition, the Fund may invest in obligations issued by Canadian
Provincial Governments, which are similar to U.S. municipal securities except
that the income derived therefrom is fully subject to U.S. federal taxation.
These instruments are denominated in either Canadian or U.S. dollars and have an
established over-the-counter market in the United States. The Fund may also
invest in debt obligations of supranational entities. Supranational entities
include international organizations designated or supported by governmental
entities to promote economic reconstruction or development and international
banking institutions and related governmental agencies. Examples of these
include the International Bank for Reconstruction and Development ("World
Bank"), the Asian Development Bank and the InterAmerican Development Bank.
Obligations of supranational entities may be supported by appropriated but
unpaid commitments of their member countries, and there is no assurance that
these commitments will be undertaken or met in the future. In addition, the Fund
may also invest in dollar-denominated high quality debt obligations of U.S.
corporations issued outside the United States.
Fleet expects that under normal market conditions the Fund's portfolio
securities will have an average weighted maturity of three to ten years.
5
<PAGE>
The value of the Fund's portfolio securities will generally vary inversely
with changes in prevailing interest rates. See "Other Investment Policies" below
for information regarding additional investment policies of the Fund.
Fleet will use its best efforts to achieve the Fund's investment objective,
although such achievement cannot be assured. The investment objective of the
Fund may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which one or
more of the Funds have the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than 10
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase.
6
<PAGE>
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject the Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Fund will invest in the obligations of U.S. branches of foreign banks
or foreign branches of U.S. banks only when Fleet believes that the credit risk
with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to the third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations."
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of municipal securities which may be held
by the Fund are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of such private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
The Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance.
7
<PAGE>
Neither the Fund nor Fleet will review the proceedings relating to the issuance
of municipal securities or the bases for such opinions.
VARIABLE AND FLOATING RATE MUNICIPAL SECURITIES
Municipal securities purchased by the Fund may include rated and unrated
variable and floating rate tax-exempt instruments. There may be no active
secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to the Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days' notice and do not have an active trading market) that
are acquired by the Fund are subject to the 10% limit described in Investment
Limitation No. 3 under "Investment Limitations" in this Prospectus.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
The Fund will not enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand by notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 10% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with the investment limitations described
below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by Fleet to be of good standing and only when, in Fleet's
judgment, the income to be earned from the loan justifies the attendant risks.
The Fund currently intends to limit the lending of its
8
<PAGE>
portfolio securities so that, at any given time, securities loaned by the Fund
represent not more than one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Fund may invest in securities issued by other investment companies which
invest in high quality, short-term debt securities and which determine their net
asset value per share based on the amortized cost or penny-rounding method.
Investments in other investment companies will cause the Fund (and, indirectly,
the Fund's shareholders) to bear proportionately the costs incurred in
connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Fund within the limits prescribed
by the Investment Company Act of 1940, as amended, (the "1940 Act"). The Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, and any other investment companies
advised by Fleet.
INTEREST RATE FUTURES CONTRACTS
The Fund may enter into contracts (both purchases and sales) which provide
for the future delivery of fixed income securities (commonly known as interest
rate futures contracts). The Fund will not engage in futures transactions for
speculation, but only to hedge against changes in the market values of
securities which the Fund holds or intends to purchase. The Fund will engage in
futures transactions only to the extent permitted by the Commodity Futures
Trading Commission ("CFTC") and the Securities and Exchange Commission (the
"SEC"). The purchase of futures instruments in connection with securities which
the Funds intend to purchase will require an amount of cash and/or liquid
assets, equal to the market value of the outstanding futures contracts, to be
deposited in a segregated account to collateralize the position and thereby
insure that the use of such futures is unleveraged. The Fund will limit its
hedging transactions in futures contracts so that, immediately after any such
transaction, the aggregate initial margin that is required to be posted by the
Fund under the rules of the exchange on which the futures contract is traded
does not exceed 5% of the Fund's total assets after taking into account any
unrealized profits and unrealized losses on the Fund's open contracts. In
addition, no more than one-third of the Fund's total assets may be covered by
such contracts.
Transactions in futures as a hedging device may subject the Fund to a number
of risks. Successful use of futures by the Fund is subject to the ability of
Fleet to predict correctly movements in the direction of the market. In
addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market will
exist for any particular futures contract at any particular time. Consequently,
the Fund may realize a loss on a futures transaction that is not offset by a
favorable movement in the price of securities which the Fund holds or intends to
purchase or may be unable to close a futures position in the event of adverse
price movements. Additional information concerning futures transactions is
contained in Appendix B to the Statement of Additional Information.
9
<PAGE>
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. The Fund may also
purchase or sell eligible securities on a "delayed settlement" basis.
When-issued and forward commitment transactions, which involve a commitment by
the Fund to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), permit the Fund
to lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued, forward commitment and delayed settlement
transactions involve the risk, however, that the yield or price obtained in a
transaction may be less favorable than the yield or price available in the
market when the securities delivery takes place. It is expected that forward
commitments, when-issued purchases and delayed settlements will not exceed 25%
of the value of the Fund's total assets absent unusual market conditions. In the
event the Fund's forward commitments, when-issued purchases and delayed
settlements ever exceeded 25% of the value of its total assets, the Fund's
liquidity and the ability of Fleet to manage the Fund may be adversely affected.
The Fund does not intend to engage in when-issued purchases, forward commitments
and delayed settlements for speculative purposes, but only in furtherance of its
investment objective.
STAND-BY COMMITMENTS
The Fund may acquire "stand-by commitments" with respect to municipal
securities held by it. Under a stand-by commitment, a dealer agrees to purchase,
at the Fund's option, specified municipal securities at a specified price. The
Fund will acquire stand-by commitments solely to facilitate portfolio liquidity
and does not intend to exercise its rights thereunder for trading purposes. The
Fund expects that stand-by commitments will generally be available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, the Fund may pay for a stand-by commitment either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the commitment (thus reducing the yield otherwise available for the same
securities). Stand-by commitments acquired by the Fund would be valued at zero
in determining the Fund's net asset value.
ASSET-BACKED SECURITIES
The Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the Statement of Additional
Information.
10
<PAGE>
MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities that represent pools of
mortgage loans assembled for sale to investors by various governmental agencies
and government-related organizations such as the Government National Mortgage
Association, the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. Mortgage-backed securities provide a monthly payment
consisting of interest and principal payments. Additional payment may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of the
Fund from investing in mortgaged-backed securities may be affected by
reinvestment of prepayments at higher or lower rates than the original
investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
interest rates decline; as a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
MORTGAGE DOLLAR ROLLS
The Fund may enter into mortgage "dollar rolls" in which the Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date not exceeding 120 days.
During the roll period, the Fund loses the right to receive principal and
interest paid on the securities sold. However, the Fund would benefit to the
extent of any difference between the price received for the securities sold and
the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward purchase. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund compared with what such performance would
have been without the use of mortgage dollar rolls. All cash proceeds will be
invested in instruments that are permissible investments for the Fund. The Fund
will hold and maintain in a segregated account until the settlement date, cash
or other liquid assets in an amount equal to the forward purchase price.
For financial reporting and tax purposes, the Fund proposes to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale.
11
<PAGE>
The Fund does not currently intend to enter into mortgage dollar rolls that are
accounted for as a financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom
the Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet's ability to predict correctly interest rates and mortgage
prepayments. For these reasons, there is no assurance that mortgage dollar rolls
can be successfully employed.
STRIPPED OBLIGATIONS
To the extent consistent with its investment objective, the Fund may
purchase U.S. Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government or by private issuers such as banks and
other institutions are issued at their "face value," and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities. The market value of the class consisting
entirely of principal payments generally is extremely volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid by the Fund. Obligations
issued by the U.S. Government may be considered liquid under guidelines
established by Galaxy's Board of Trustees if they can be disposed of promptly in
the ordinary course of business at a value reasonably close to that used in the
calculation of net asset value per share.
GUARANTEED INVESTMENT CONTRACTS
The Fund may invest in guaranteed investment contracts ("GICs") issued by
United States and Canadian insurance companies. Pursuant to GICs, the Fund makes
cash contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the Fund payments at negotiated, floating
or fixed interest rates. A GIC is a general obligation of the issuing insurance
company and not a separate account. The purchase price paid for a GIC becomes
part of the general assets of the insurance company, and the contract is paid
from the company's general assets. The Fund will only purchase GICs that are
issued or guaranteed by insurance companies that at the time of purchase are
rated at least AA by S&P or receive a similar high quality rating from a
nationally recognized service which
12
<PAGE>
provides ratings of insurance companies. GICs are considered illiquid securities
and will be subject to the Fund's 10% limitation on such investments, unless
there is an active and substantial secondary market for the particular
instrument and market quotations are readily available.
BANK INVESTMENT CONTRACTS
The Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and will
be subject to the Fund's 10% limitation on such investments, unless there is an
active and substantial secondary market for the particular instrument and market
quotations are readily available.
DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
purchase certain "derivative" securities. Derivative securities are instruments
that derive their value from the performance of underlying assets, interest
rates, or indices, and include, but are not limited to, interest rate futures
and certain asset-backed and mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest rates
change adversely, the value of the derivative security will decline more than
the assets, rates or indices on which it is based; liquidity risk that the Fund
will be unable to sell a derivative security when it wants because of lack of
market depth or market disruption; pricing risk that the value of a derivative
security will not correlate exactly to the value of the underlying assets, rates
or indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
derivative securities are more complex than others, and for those instruments
that have been developed recently, data are lacking regarding their actual
performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Fund, and will determine in connection with its day-to-day
management of the Fund, how they will be used in furtherance of the Fund's
investment objective. It is possible, however, that Fleet's evaluations will
prove to be inaccurate or incomplete and, even when accurate and complete, it is
possible that the Fund will, because of the risks discussed above, incur loss as
a result of its investments in derivative securities. See "Investment Objectives
and Policies--Derivative Securities" in the Statement of Additional Information
relating to the Fund for additional information.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if Fleet
believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover may result in the realization of substantial capital gains and
13
<PAGE>
involves correspondingly greater transaction costs. To the extent that net
capital gains are realized, distributions derived from such gains are treated as
ordinary income for federal income tax purposes. See "Financial Highlights" and
"Taxes--Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) the Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that the Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase agreements
in accordance with its investment policies and in amounts not in excess of
10% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the Fund's total assets at the time
of such borrowing. The Fund will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other securities
which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total
assets would be invested in such issuer, except that up to 25% of the value
of its total assets may be invested without regard to this limitation.
In addition, the Fund may not purchase any securities which would cause 25%
or more of the value of the Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
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With respect to Investment Limitation No. 2 above, (a) the Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing, and (b)
mortgage dollar rolls entered into by the Fund that are not accounted for as
financings shall not constitute borrowings.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. The Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
10% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered illiquid if
Fleet has determined, in accordance with guidelines established by the Board of
Trustees, that an adequate trading market exists for such securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time), on each day on which the Exchange is open for trading.
Currently, the holidays which Galaxy observes are New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day. Net asset value per share for
purposes of pricing sales and redemptions is calculated separately for each
series of shares by dividing the value of all securities and other assets
attributable to a particular series of shares of the Fund, less the liabilities
attributable to the shares of that series of the Fund, by the number of
outstanding shares of that series of the Fund.
The Fund's assets are valued for purposes of pricing sales and redemptions
by an independent pricing service ("Service") approved by Galaxy's Board of
Trustees. When, in the judgment of the Service, quoted bid prices for portfolio
securities are readily available and are representative of the bid side of the
market, these investments are valued at the mean between quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments are carried at fair value as determined by the
Service, based on methods which include consideration of yields or prices of
bonds of comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
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HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts primarily at bank and trust institutions,
including subsidiaries of Fleet Financial Group, Inc. and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that Galaxy's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If an Institution accepts a purchase
order from its Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Fund and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts (including defined contribution plans). Investors should contact their
Institution (in the case of employer-sponsored defined contribution plans, their
employer) for further information concerning the types of eligible Customer
accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirement with respect to Trust Shares, Institutions or employers may impose
such requirements on the accounts maintained by their Customers, and may also
require that Customers maintain minimum account balances with respect to Trust
Shares.
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<PAGE>
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by the Institutions to their
Customers. Information pertaining to such plans is available directly from the
Institution.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which purchase orders must be
received in order to be processed on that Business Day.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day will normally be wired the following Business Day
to the Institution. Payment for redemption orders which are received on a
non-Business Day will normally be wired to the Institution on the next Business
Day. However, in both cases Galaxy reserves the right to wire redemption
proceeds within seven days after receiving the redemption order if, in its
judgment, an earlier payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. The Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon 60 days'
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared daily and paid
monthly. Dividends on each share of the Funds are determined in the same manner,
irrespective of series, but may differ in amount because of the difference in
the expenses paid by the respective series. Net realized capital gains are
distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the payment date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of Customers to Galaxy's transfer agent and will become effective with respect
to dividends paid after its receipt. The crediting and payment of dividends to
Customers will be in accordance with the procedures governing such Customers'
accounts at their respective Institutions.
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<PAGE>
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that the Fund distribute to its shareholders
an amount equal to at least 90% of its investment company taxable income and 90%
of its tax-exempt interest income, if any, net of certain deductions for such
year. In general, the Fund's investment company taxable income will be its
taxable income, including dividends, interest and short-term capital gains (the
excess of net short-term capital gain over net long-term capital loss), subject
to certain adjustments and excluding the excess of any net long-term capital
gain for the taxable year over the net short-term capital loss, if any, for such
year. The policy of the Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional shares. (Federal
income taxes for distributions to an IRA or a qualified retirement plan are
deferred under the Code.) It is anticipated that no part of any distribution
will qualify for the dividends received deduction for corporations.
Distribution by the Fund of "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of the Fund is taxable
to shareholders as long-term capital gain regardless of how long the shareholder
has held shares and whether such gains are received in cash or reinvested in
additional shares. Such long-term capital gain will be 20% or 28% rate gain,
depending upon the Fund's holding period for the assets the sale of which
generated the capital gain. Such distributions are not eligible for the
dividends received deduction.
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying shares of the Fund on or just before the
record date of a dividend, you should be aware that the amount of the
forthcoming dividend payment, although in effect a return of capital, generally
will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
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<PAGE>
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences than
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Funds. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients, and
manages the other investment portfolios of Galaxy: the Money Market, Government,
U.S. Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Institutional Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Small Company Equity, MidCap
Equity, Asset Allocation, Small Cap Value, Growth and Income, Strategic Equity,
Short-Term Bond, High Quality Bond, Corporate Bond, Tax-Exempt Bond, New Jersey
Municipal Bond, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Fund,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of .75% of the average daily net assets of the Fund.
Fleet may from time to time, in its discretion, waive advisory fees payable
by the Fund in order to help maintain a competitive expense ratio and may from
time to time allocate a portion of its advisory fees to Fleet Bank or other
subsidiaries of Fleet Financial Group, Inc. in consideration for administrative
and/or shareholder support services which they provide to beneficial
shareholders. Fleet is currently waiving a portion of the advisory fees payable
to it by the Fund so that it is entitled to receive advisory fees at the annual
rate of .55% of the Fund's average daily net assets, but Fleet may in its
discretion revise or discontinue this waiver at any time. For the fiscal year
ended October 31, 1997, Fleet received advisory fees (after fee waivers) at the
effective annual rate of .55% of the Fund's average daily net assets.
The Fund's portfolio manager, Marie H. Schofield, is primarily responsible
for the day-to-day management of the Fund's investment portfolio. Ms. Schofield,
a Vice President, has been with Fleet since 1991 and has been engaged in
providing investment management services for over twenty years. She has managed
the Intermediate Government Income Fund since December 1, 1996.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission
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<PAGE>
("SEC"), financial institutions that are affiliated with Fleet or that have sold
shares of the Funds, if Fleet believes that the quality of the transaction and
the commission are comparable to what they would be with other qualified
brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which have agreed to provide shareholder support services that are
banks or bank affiliates are subject to such banking laws and regulations.
Should legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Fund,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Fund's method of operation would not
affect the Fund's net asset value per share or result in financial loss to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Fund, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of combined
average daily net assets of the Fund and the other portfolios offered by Galaxy
(collectively the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily all or a portion of the
administration fee payable to it by the Fund. For the fiscal year ended October
31, 1997, Investor Services Group received administration fees at the effective
annual rate of .082% of the Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each of two series in the Fund as follows:
Class D shares (Trust Shares) and Class D - Series 1 shares (Retail A Shares),
both series representing interests in the Fund. The Fund is classified as a
diversified company under the 1940 Act. The Board of Trustees has also
authorized the
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<PAGE>
issuance of additional classes and series of shares representing interests in
the other portfolios of Galaxy. For information regarding the Fund's Retail A
Shares and these other portfolios, which are offered through separate
prospectuses, contact FD Distributors at 1-800-628-0414.
Shares of each series in the Fund bear their pro rata portion of all
operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below. Currently, these payments are not
made with respect to the Fund's Trust Shares. In addition, shares of each series
in the Fund bear differing transfer agency expenses. Standardized yield and
total return quotations are computed separately for each series of shares. The
differences in the expenses paid by the respective series will affect their
performance.
Retail A Shares of the Fund are sold with a maximum front-end sales charge
of 3.75% and have certain exchange and other privileges which are not available
with respect to Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class (irrespective of series
designation), and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such investment portfolio as are
declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.30% of the average daily net asset value of Retail A Shares of the Fund owned
beneficially by Customers of Institutions. Institutions may receive up to
one-half of this fee for providing one or more of the following services to such
Customers: aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with FD Distributors; processing
dividend payments from the Fund; providing sub-accounting with respect to Retail
A Shares or the information necessary for sub-accounting; and providing periodic
mailings to Customers. Institutions may also receive up to one-half of this fee
for providing one or more of these additional services to such Customers:
providing Customers with information as to their positions in Retail A Shares;
responding to Customer inquiries; and providing a service to invest the assets
of Customers in Retail A Shares. These services are described more fully in the
Statement of Additional Information under "Shareholder Services Plan."
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<PAGE>
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .15% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
owners of Retail A Shares in connection with their accounts with such
institutions. Any such fees would be in addition to any amounts which may be
received by an Institution under the Shareholder Services Plan. Under the terms
of each servicing agreement entered into with Galaxy, Institutions are required
to provide to their Customers a schedule of any fees that they may charge in
connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Fund to Investor Services Group have
been increased by an amount equal to these fees. In substance, therefore, the
holders of Trust Shares of the Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at One Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as the custodian of the Fund's assets, and First Data Investor Services
Group, Inc. ("Investor Services Group"), a wholly-owned subsidiary of First Data
Corporation, serves as the Fund's transfer and dividend disbursing agent.
Services performed by both entities for the Fund are described in the Statement
of Additional Information. Communications to Investor Services Group should be
directed to Investor Services Group at P.O. Box 5108, 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Fund. Galaxy bears
the expenses incurred in the Fund's operations. Such expenses include taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, fund accounting and custody fees; charges of the transfer agent and
dividend disbursing agent; certain insurance premiums; outside auditing and
legal expenses; costs of independent
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<PAGE>
pricing services; costs of shareholder reports and meetings; and any
extraordinary expenses. The Fund also pays for brokerage fees and commissions in
connection with the purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant bond indexes
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or publications of a local or regional nature, may also
be used in comparing the performance of the Fund. Performance data will be
calculated separately for Trust Shares and Retail A Shares of the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividend and capital gain distributions made by the Fund during the period
are reinvested in Fund shares.
The performance of the Fund will fluctuate and any quotation of performance
should not be considered as representative of future performance. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in the
Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance data are
generally functions of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
additional fees charged directly by Institutions with respect to accounts of
Customers that have invested in Trust Shares of the Fund will not be included in
performance calculations.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor
23
<PAGE>
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products; and tax, retirement and investment
planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
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GALAXY
INTERMEDIATE
GOVERNMENT INCOME
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-260 15025 (3/98)
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TRUST
THE GALAXY FUND
HIGH QUALITY BOND FUND
PROSPECTUS
FEBRUARY 28, 1998
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
BY FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
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PAGE
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EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 4
INVESTMENT OBJECTIVE AND POLICIES..................................... 6
In General.......................................................... 6
Other Investment Policies and Risk Considerations................... 7
INVESTMENT LIMITATIONS................................................ 15
PRICING OF SHARES..................................................... 16
HOW TO PURCHASE AND REDEEM SHARES..................................... 17
Distributor......................................................... 17
Purchase of Shares.................................................. 17
Redemption of Shares................................................ 18
DIVIDENDS AND DISTRIBUTIONS........................................... 18
TAXES................................................................. 19
Federal............................................................. 19
State and Local..................................................... 20
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MANAGEMENT OF THE FUND................................................ 20
Investment Adviser.................................................. 20
Authority to Act as Investment Adviser.............................. 21
Administrator....................................................... 21
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 21
Shareholder Services Plan........................................... 22
Agreements for Sub-Account Services................................. 23
CUSTODIAN AND TRANSFER AGENT.......................................... 23
EXPENSES.............................................................. 24
PERFORMANCE REPORTING................................................. 24
MISCELLANEOUS......................................................... 25
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THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance, call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares"), which
represent interests in the HIGH QUALITY BOND FUND (the "Fund") offered by
Galaxy.
The Fund's investment objective is to seek a high level of current income
consistent with prudent risk of capital. Under normal market and economic
conditions, the Fund will invest substantially all of its assets in high quality
debt obligations that are rated at the time of purchase within the three highest
rating categories assigned by Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service Inc. ("Moody's") (or which, if unrated, are of comparable
quality) and in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and "money market" instruments.
This Prospectus describes Trust Shares in the Fund. Trust Shares are offered
to investors maintaining qualified accounts primarily at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue two additional series of shares in the Fund,
Retail A Shares and Retail B Shares (referred to herein collectively as "Retail
Shares"). Retail Shares are offered under a separate prospectus primarily to
individuals, corporations or other entities purchasing either for their own
accounts or for the accounts of others and to FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loans associations and broker/dealers on behalf of
their customers. Trust Shares, Retail A Shares and Retail B Shares represent
equal pro rata interests in the Fund, except they bear different expenses which
reflect the difference in the range of service provided to them. See "Financial
Highlights," "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone numbers or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
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FEBRUARY 28, 1998
2
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EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Trust Shares, and (ii) the operating
expenses for Trust Shares of the Fund. Examples based on the summary are also
shown.
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HIGH
QUALITY
SHAREHOLDER TRANSACTION EXPENSES BOND FUND
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Sales Load.............................. None
Sales Load on Reinvested Dividends...... None
Deferred Sales Load..................... None
Redemption Fees......................... None
Exchange Fees........................... None
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ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
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Advisory Fees (After Fee Waivers)....... .55%
12b-1 Fees.............................. None
Other Expenses.......................... .36%
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Total Fund Operating Expenses (After Fee
Waivers)............................... .91%
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Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
High Quality Bond Fund.................. $9 $28 $49 $110
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The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in Trust Shares of the
Fund will bear directly or indirectly. They are based on expenses incurred by
the Fund during the last fiscal year, restated to reflect the expenses which the
Fund expects to incur during the current fiscal year on its Trust Shares.
Without voluntary fee waivers by Fleet, Advisory Fees would be .75% and Total
Fund Operating Expenses would be 1.11% for Trust Shares of the Fund. Fleet is
under no obligation to waive fees and/or reimburse expenses but has advised
Galaxy that it intends to waive fees and/or reimburse expenses during the
current year to the extent necessary to maintain the Fund's operating expenses
at the level set forth in the above table. For more complete descriptions of
these costs and expenses, see "Management of the Fund" and "Description of
Galaxy and Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information. Any fees
that are charged by affiliates of Fleet Investment Advisors Inc. or other
institutions directly to their customer accounts for services related to an
investment in Trust shares of the Fund are in addition to and not reflected in
the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
3
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FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy is also
authorized to issue two additional series of shares in the Fund, Retail A Shares
and Retail B Shares. As described below under "Description of Galaxy and Its
Shares," Trust Shares, Retail A Shares and Retail B Shares represent equal pro
rata interests in the Fund, except that (i) effective October 1, 1994, Retail A
Shares of the Fund bear the expense incurred under Galaxy's Shareholder Services
Plan for Retail A Shares and Trust Shares at an annual rate of up to .15% of the
average daily net asset value of the Fund's outstanding Retail A Shares, (ii)
Retail B shares of the Fund bear the expenses incurred under Galaxy's
Distribution and Services Plan for Retail B Shares at an annual rate of up to
.80% of the average daily net asset value of the Fund's outstanding Retail B
Shares, and (iii) Trust Shares, Retail A Shares and Retail B Shares bear
differing transfer agency expenses. Retail Shares are offered under a separate
prospectus.
The financial highlights presented below have been audited by Coopers &
Lybrand L.L.P., Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Fund dated October 31,
1997 (the "Annual Report"). Such financial highlights should be read in
conjunction with the financial statements contained in the Annual Report and
incorporated by reference into the Statement of Additional Information.
Information in the financial highlights for periods prior to the fiscal year
ended October 31, 1994 reflects the investment results of both Trust Shares and
Retail A Shares of the Fund. More information about the performance of the Fund
is also contained in the Annual Report, which may be obtained without charge by
contacting Galaxy at its telephone number or address provided above.
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HIGH QUALITY BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
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YEAR ENDED OCTOBER 31,
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YEAR ENDED
1997 1996 1995 1994 OCTOBER 31,(2) PERIOD ENDED
----------------------------------------- ------------------- OCTOBER 31,
TRUST SHARES 1993 1992 1991(1,2)
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<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.47 $ 10.63 $ 9.54 $ 11.37 $ 10.60 $ 10.35 $ 10.00
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Income from Investment Operations
Net investment income(3,4)............ 0.61 0.62 0.64 0.65 0.66 0.68 0.64
Net realized and unrealized gain
(loss) on investments................ 0.23 (0.16) 1.09 (1.56) 0.93 0.36 0.33
-------- -------- -------- -------- -------- -------- ------------
Total from Investment Operations:... 0.84 0.46 1.73 (0.91) 1.59 1.04 0.97
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Less Dividends:
Dividends from net investment
income............................... (0.61) (0.62) (0.64) (0.65) (0.66) (0.71) (0.62)
Dividends from net realized capital
gains................................ -- -- -- -- (0.16) (0.08) --
Dividends in excess of net realized
capital gains........................ -- -- -- (0.27) -- -- --
-------- -------- -------- -------- -------- -------- ------------
Total Dividends:.................... (0.61) (0.62) (0.64) (0.92) (0.82) (0.79) (0.62)
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Net increase (decrease) in net asset
value.................................. 0.23 (0.16) 1.09 (1.83) 0.77 0.25 0.35
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Net Asset Value, End of Period.......... $ 10.70 $ 10.47 $ 10.63 $ 9.54 $ 11.37 $ 10.60 $ 10.35
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Total Return............................ 8.36% 4.46% 18.66% (8.39)% 15.63% 10.32% 10.04%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $182,398 $149,075 $134,631 $118,776 $162,594 $108,774 $57,580
Ratios to average net assets:
Net investment income including
reimbursement/ waiver................ 5.88% 5.88% 6.33% 6.28% 5.98% 6.55% 7.25%(6)
Operating expenses including
reimbursement/ waiver................ 0.87% 0.85% 0.85% 0.78% 0.76% 0.87% 0.95%(6)
Operating expenses excluding
reimbursement/ waiver................ 1.09% 1.06% 1.07% 0.98% 0.96% 0.94% 0.95%(6)
Portfolio Turnover Rate................. 182% 163% 110% 108% 128% 121% 145%(5)
</TABLE>
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(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Trust Shares before waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1997,
1996, 1995 and 1994 was $0.59, $0.60, $0.62 and $0.63, respectively.
(4) Net investment income per share before waiver of fees by Fleet and/or the
Fund's administrator for the years ended October 31, 1993, 1992 and for the
period ended October 31, 1991 was $0.63, $0.67 and $0.64, respectively.
(5) Not Annualized.
(6) Annualized.
5
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INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek a high level of current income
consistent with prudent risk of capital. The Fund will invest substantially all
of its assets in corporate debt obligations such as bonds and debentures,
obligations convertible into common stock, "money market" instruments such as
bank obligations and commercial paper, obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities and in asset-backed and
mortgage-backed securities. The Fund may also invest, from time to time, in
obligations issued by state or local governmental issuers ("municipal
securities"). The purchase of municipal securities may be advantageous when, as
a result of prevailing economic, regulatory or other circumstances, the
performance of such securities, on a pretax basis, is comparable to that of
corporate or U.S. Government debt obligations. The Fund may enter into interest
rate futures contracts to hedge against changes in market values. See "Other
Investment Policies and Risk Considerations." At least 65% of the Fund's total
assets will be invested in non-convertible bonds. Any common stock received
through the conversion of convertible debt obligations will be sold in an
orderly manner as soon as possible.
Under normal market and economic conditions, the Fund will invest
substantially all of its assets in high quality debt obligations that are rated,
at the time of purchase, within the three highest rating categories assigned by
S&P ("AAA," "AA," and "A") or Moody's ("Aaa," "Aa," and "A") (or, if unrated,
are determined by Fleet Investment Advisors Inc. ("Fleet"), the Fund's
investment adviser, to be of comparable quality) and in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and "money
market" instruments such as those listed below under "Other Investment Policies
and Risk Considerations." Unrated securities will be determined to be of
comparable quality to high quality debt obligations if, among other things,
other outstanding obligations of the issuers of such securities are rated A or
better. When, in Fleet's opinion, a defensive investment posture is warranted,
the Fund may invest temporarily and without limitation in high quality,
short-term "money market" instruments. See Appendix A to the Statement of
Additional Information for a description of S&P's and Moody's rating categories.
In addition, the Fund may invest in obligations issued by Canadian
Provincial Governments, which are similar to U.S. municipal securities except
that the income derived therefrom is fully subject to U.S. federal taxation.
These instruments are denominated in U.S. dollars and have an established
over-the-counter market in the United States. The Fund may also invest in debt
obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities to
promote economic reconstruction or development and international banking
institutions and related governmental agencies. Examples of these include the
International Bank for Reconstruction and Development ("World Bank"), the Asian
Development Bank and the InterAmerican Development Bank. Obligations of
supranational entities may be supported by appropriated but unpaid commitments
of their member countries and there is no assurance that those commitments will
be undertaken or met in the future. In addition, the Fund may invest in
dollar-denominated high quality debt obligations of U.S. corporations issued
outside the United States.
The Fund seeks to provide a current yield greater than that generally
available from a portfolio of high quality short-term obligations. The Fund's
average weighted maturity will vary from time to time depending on, among other
things, current market and economic conditions and the comparative yields on
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instruments with different maturities. The Fund adjusts its average weighted
maturity and its holdings of corporate and U.S. Government debt securities in a
manner consistent with Fleet's assessment of prospective changes in interest
rates. The success of this strategy depends upon Fleet's ability to predict
changes in interest rates.
The value of the Fund's portfolio securities will generally vary inversely
with changes in prevailing interest rates. The high quality credit criteria
applied to the selection of portfolio securities are intended to reduce adverse
price changes due to credit considerations. See "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Fund.
Fleet will use its best efforts to achieve the Fund's investment objective,
although such achievement cannot be assured. The investment objective of the
Fund may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which the
Fund has the power to utilize. Some may be employed on a regular basis; others
may not be used at all. Accordingly, reference to any particular method or
technique carries no implication that it will be utilized or, if it is, that it
will be successful.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank
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obligations also include U.S. dollar-denominated obligations of foreign branches
of U.S. banks or of U.S. branches of foreign banks, all of the same type as
domestic bank obligations. Investments in bank obligations are limited to the
obligations of financial institutions having more than $1 billion in total
assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject the Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Fund will invest in the obligations of U.S. branches of foreign banks
or foreign branches of U.S. banks only when Fleet believes that the credit risk
with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations."
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of municipal securities which may be held
by the Fund are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of such private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
The Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt
8
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service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the Fund
nor Fleet will review the proceedings relating to the issuance of municipal
securities or the bases for such opinions.
VARIABLE AND FLOATING RATE MUNICIPAL SECURITIES
Municipal securities purchased by the Fund may include rated and unrated
variable and floating rate tax-exempt instruments. There may be no active
secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to the Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days' notice and do not have an active trading market) that
are acquired by the Fund are subject to the 10% limit described in Investment
Limitation No. 3 under "Investment Limitations" in this Prospectus.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
The Fund will not enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand by notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 10% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with the investment limitations described
below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral,
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should the borrower of the securities fail financially. Any portfolio securities
purchased with cash collateral would also be subject to possible depreciation.
Loans will generally be short-term, will be made only to borrowers deemed by
Fleet to be of good standing and only when, in Fleet's judgment, the income to
be earned from the loan justifies the attendant risks. The Fund currently
intends to limit the lending of its portfolio securities so that, at any given
time, securities loaned by the Fund represent not more than one-third of the
value of its total assets.
INVESTMENT COMPANY SECURITIES
The Fund may invest in securities issued by other investment companies which
invest in high quality, short-term debt securities and which determine their net
asset value per share based on the amortized cost or penny-rounding method.
Investments in other investment companies will cause the Fund (and, indirectly,
the Fund's shareholders) to bear proportionately the costs incurred in
connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Fund within the limits prescribed
by the Investment Company Act of 1940, as amended, (the "1940 Act"). The Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, and any other investment companies
advised by Fleet.
INTEREST RATE FUTURES CONTRACTS
The Fund may enter into contracts (both purchases and sales) which provide
for the future delivery of fixed income securities (commonly known as interest
rate futures contracts). The Fund will not engage in futures transactions for
speculation, but only to hedge against changes in the market values of
securities which the Fund holds or intends to purchase. The Fund will engage in
futures transactions only to the extent permitted by the Commodity Futures
Trading Commission ("CFTC") and the Securities and Exchange Commission ("SEC").
The purchase of futures instruments in connection with securities which the Fund
intends to purchase will require an amount of cash and/or liquid assets, equal
to the market value of the outstanding futures contracts, to be deposited in a
segregated account to collateralize the position and thereby insure that the use
of such futures is unleveraged. The Fund will limit its hedging transactions in
futures contracts so that, immediately after any such transaction, the aggregate
initial margin that is required to be posted by the Fund under the rules of the
exchange on which the futures contract is traded does not exceed 5% of the
Fund's total assets after taking into account any unrealized profits and
unrealized losses on the Fund's open contracts. In addition, no more than
one-third of the Fund's total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Fund to a number
of risks. Successful use of futures by the Fund is subject to the ability of
Fleet to predict correctly movements in the direction of the market. In
addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market will
exist for any particular futures contract at any particular time. Consequently,
the Fund may realize a loss on a futures transaction that is not offset by a
favorable movement in the price of securities which the Fund holds or intends to
purchase or may be unable to close
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a futures position in the event of adverse price movements. Additional
information concerning futures transactions is contained in Appendix B to the
Statement of Additional Information.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. The Fund may also
purchase or sell eligible securities on a "delayed settlement" basis.
When-issued and forward commitment transactions, which involve a commitment by
the Fund to purchase or sell particular securities with payment and delivery
taking place at a future date (perhaps one or two months later), permit the Fund
to lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued, forward commitment and delayed settlement
transactions involve the risk, however, that the yield or price obtained in a
transaction may be less favorable than the yield or price available in the
market when the securities delivery takes place. It is expected that forward
commitments, when-issued purchases and delayed settlements will not exceed 25%
of the value of the Fund's total assets absent unusual market conditions. In the
event the Fund's forward commitments, when-issued purchases and delayed
settlements ever exceeded 25% of the value of its total assets, the Fund's
liquidity and the ability of Fleet to manage the Fund may be adversely affected.
The Fund does not intend to engage in when-issued purchases, forward commitments
and delayed settlements for speculative purposes, but only in furtherance of its
investment objective.
STAND-BY COMMITMENTS
The Fund may acquire "stand-by commitments" with respect to municipal
securities held by it. Under a stand-by commitment, a dealer agrees to purchase,
at the Fund's option, specified municipal securities at a specified price. The
Fund will acquire stand-by commitments solely to facilitate portfolio liquidity
and does not intend to exercise its rights thereunder for trading purposes. The
Fund expects that stand-by commitments will generally be available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, the Fund may pay for a stand-by commitment either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the commitment (thus reducing the yield otherwise available for the same
securities). Stand-by commitments acquired by the Fund would be valued at zero
in determining the Fund's net asset value.
ASSET-BACKED SECURITIES
The Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the Statement of Additional
Information.
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MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities (including collateralized
mortgage obligations) that represent pools of mortgage loans assembled for sale
to investors by various governmental agencies and government-related
organizations such as the Government National Mortgage Association, the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation.
Mortgage-backed securities provide a monthly payment consisting of interest and
principal payments. Additional payment may be made out of unscheduled repayments
of principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-backed securities may tend to increase due
to refinancing of mortgages as interest rates decline. To the extent that the
Fund purchases mortgage-backed securities at a premium, mortgage foreclosures
and prepayments of principal by mortgagors (which may be made at any time
without penalty) may result in some loss of the Fund's principal investment to
the extent of the premium paid. The yield of the Fund from investing in
mortgaged-backed securities may be affected by reinvestment of prepayments at
higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercials banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
interest rates decline; as a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the values of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
MORTGAGE DOLLAR ROLLS
The Fund may enter into mortgage "dollar rolls" in which the Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date not exceeding 120 days.
During the roll period, the Fund loses the right to receive principal and
interest paid on the securities sold. However, the Fund would benefit to the
extent of any difference between the price received for the securities sold and
the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward purchase. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund compared with what such performance would
have been without the use of mortgage dollar rolls. All cash proceeds will be
invested in instruments that are permissible investments for the Fund. The Fund
will hold and maintain in a segregated account until the settlement date, cash
or other liquid assets in an amount equal to the forward purchase price.
For financial reporting and tax purposes, the Fund proposes to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale.
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The Fund does not currently intend to enter into mortgage dollar rolls that are
accounted for as a financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom
the Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet's ability to predict correctly interest rates and mortgage
prepayments. For these reasons, there is no assurance that mortgage dollar rolls
can be successfully employed.
STRIPPED OBLIGATIONS
To the extent consistent with its investment objective, the Fund may
purchase U.S. Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government or by private issuers, such as banks and
other institutions, are issued at their "face value", and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities. The market value of the class consisting
entirely of principal payments generally is extremely volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid by the Fund. Obligations
issued by the U.S. Government may be considered liquid under guidelines
established by the Trust's Board of Trustees if they can be disposed of promptly
in the ordinary course of business at a value reasonably close to that used in
the calculation of net asset value per share.
GUARANTEED INVESTMENT CONTRACTS
The Fund may invest in guaranteed investment contracts ("GICs") issued by
United States and Canadian insurance companies. Pursuant to GICs, the Fund makes
cash contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the Fund payments at negotiated, floating
or fixed interest rates. A GIC is a general obligation of the issuing insurance
company and not a separate account. The purchase price paid for a GIC becomes
part of the general assets of the insurance company, and the contract is paid
from the company's general assets. The Fund will only purchase GICs that are
issued or guaranteed by insurance companies that at the time of purchase are
rated at least AA by S&P or receive a similar high quality rating from a
nationally recognized service which
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provides ratings of insurance companies. GICs are considered illiquid securities
and will be subject to the Fund's 10% limitation on such investments, unless
there is an active and substantial secondary market for the particular
instrument and market quotations are readily available.
BANK INVESTMENT CONTRACTS
The Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and will
be subject to the Fund's 10% limitation on such investments, unless there is an
active and substantial secondary market for the particular instrument and market
quotations are readily available.
DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
purchase certain "derivative" securities. Derivative securities are instruments
that derive their value from the performance of underlying assets, interest
rates or indices, and include, but are not limited to, interest rate futures and
certain asset-backed and mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest rates
change adversely, the value of the derivative security will decline more than
the assets, rates or indices on which it is based; liquidity risk that the Fund
will be unable to sell a derivative security when it wants because of lack of
market depth or market disruption; pricing risk that the value of a derivative
security will not correlate exactly to the value of the underlying assets, rates
or indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
derivative securities are more complex than others, and for those instruments
that have been developed recently, data are lacking regarding their actual
performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Fund, and will determine in connection with its day-to-day
management of the Fund, how they will be used in furtherance of the Fund's
investment objective. It is possible, however, that Fleet's evaluations will
prove to be inaccurate or incomplete and, even when accurate and complete, it is
possible that the Fund will, because of the risks discussed above, incur loss as
a result of its investments in derivative securities. See "Investment Objectives
and Policies--Derivative Securities" in the Statement of Additional Information
relating to the Fund for additional information.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if Fleet
believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover may result in the realization of substantial capital gains and
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involves correspondingly greater transaction costs. To the extent that net
capital gains are realized, distributions derived from such gains are treated as
ordinary income for federal income tax purposes. See "Financial Highlights" and
"Taxes--Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) the Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that the Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase agreements
in accordance with its investment policies and in amounts not in excess of
10% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the Fund's total assets at the time
of such borrowing. The Fund will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other securities
which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total
assets would be invested in such issuer, except that up to 25% of the value
of its total assets may be invested without regard to this limitation.
In addition, the Fund may not purchase any securities which would cause 25%
or more of the value of the Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
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With respect to Investment Limitation No. 2 above, (a) the Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing, and (b)
mortgage dollar rolls entered into by the Fund that are not accounted for as
financings shall not constitute borrowings.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. The Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
10% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered illiquid if
Fleet has determined, in accordance with guidelines established by the Board of
Trustees, that an adequate trading market exists for such securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time), on each day on which the Exchange is open for trading.
Currently, the holidays which Galaxy observes are New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share for
purposes of pricing sales and redemptions is calculated separately for each
series of shares by dividing the value of all securities and other assets
attributable to a particular series of shares of the Fund, less the liabilities
attributable to shares of that series of the Fund, by the number of outstanding
shares of that series of the Fund.
The Fund's assets are valued for purposes of pricing sales and redemptions
by an independent pricing service ("Service") approved by Galaxy's Board of
Trustees. When, in the judgment of the Service, quoted bid prices for portfolio
securities are readily available and are representative of the bid side of the
market, these investments are valued at the mean between quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments are carried at fair value as determined by the
Service, based on methods which include consideration of yields or prices of
bonds of comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
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HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that Galaxy's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If an Institution accepts a purchase
order from its Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Fund and Trust
Share certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts, (including defined contribution plans). Investors should contact their
Institution (in the case of employer-sponsored defined contribution plans, their
employer) for further information concerning the types of eligible Customer
accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirement with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by their Customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
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Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by the Institutions to their
Customers. Information pertaining to such plans is available directly from the
Institution.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which purchase orders must be
received in order to be processed on that Business Day.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt and acceptance of the order by FD Distributors. On a
Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day. Payment for redemption
orders received by FD Distributors on a Business Day will normally be wired the
following Business Day to the Institution. Payment for redemption orders which
are received on a non-Business Day will normally be wired to the Institution on
the next Business Day. However, in both cases Galaxy reserves the right to wire
redemption proceeds within seven days after receiving the redemption order if,
in its judgment, an earlier payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. The Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon 60 days'
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared daily and paid
monthly. Dividends on each share of the Fund are determined in the same manner,
irrespective of series, but may differ in amount because of the difference in
the expenses paid by the respective series. Net realized capital gains are
distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such Shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of Customers to Galaxy's transfer agent and will become effective with respect
to dividends paid after its receipt. The crediting and payment of dividends to
Customers will be in accordance with the procedures governing such Customers'
accounts at their respective Institutions.
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TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that the Fund distribute to its shareholders
an amount equal to at least 90% of its investment company taxable income and 90%
of its tax-exempt interest income, if any, net of certain deductions for such
year. In general, the Fund's investment company taxable income will be its
taxable income, including dividends, interest and short-term capital gains (the
excess of net short-term capital gain over net long-term capital loss), subject
to certain adjustments and excluding the excess of any net long-term capital
gain for the taxable year over the net short-term capital loss, if any, for such
year. The policy of the Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional shares. (Federal
income taxes for distributions to an IRA or a qualified retirement plan are
deferred under the Code). It is anticipated that no part of any distribution
will qualify for the dividends received deduction for corporations.
Distribution by the Fund of "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss) if any, of the Fund, is taxable
to shareholders as long-term capital gain, regardless of how long the
shareholder has held shares and whether such gains are received in cash or
reinvested in additional shares. Such long-term gain will be 20% or 28% rate
gain, depending upon the Fund's holding period for the assets the sale of which
generated capital gain. Such distributions are not eligible for the dividends
received deduction.
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying shares of the Fund on or just before the
record date of a dividend, you should be aware that the amount of the
forthcoming dividend payment, although in effect a return of capital, generally
will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
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STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences than
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients; and
manages the other investment portfolios of Galaxy: the Money Market, Government,
U.S. Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Institutional Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Small Company Equity, MidCap
Equity, Asset Allocation, Small Cap Value, Growth and Income, Strategic Equity,
Short-Term Bond, Intermediate Government Income, Corporate Bond, Tax-Exempt
Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut Municipal
Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Fund,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of .75% of the average daily net assets of the Fund.
Fleet may from time to time, in its discretion, waive advisory fees payable
by the Fund in order to help maintain a competitive expense ratio and may from
time to time allocate a portion of its advisory fees to Fleet Bank or other
subsidiaries of Fleet Financial Group, Inc. in consideration for administrative
and/or shareholder support services which they provide to beneficial
shareholders. Fleet is currently waiving a portion of the advisory fees payable
to it by the Fund so that it is entitled to receive advisory fees at the annual
rate of .55% of the Fund's average daily net assets, but Fleet may in its
discretion revise or discontinue this waiver at any time. For the fiscal year
ended October 31, 1997, Fleet received advisory fees (after fee waivers) at the
effective annual rate of .55% of the Fund's average daily net assets. In
addition to fee waivers, during the fiscal year ended October 31, 1997, Fleet
also reimbursed the Fund for certain operating expenses, which reimbursement may
be revised or discontinued at any time.
Marie M. Schofield serves as portfolio manager of the Fund and is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Ms. Schofield, a Vice President, has been with Fleet since 1991 and has been
engaged in providing investment management services for over twenty years. Ms.
Schofield began serving as co-portfolio manager of the Fund on March 1, 1996 and
has been the Fund's sole portfolio manager since April 1, 1996.
20
<PAGE>
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which have agreed to provide shareholder support services that are
banks or bank affiliates are subject to such banking laws and regulations.
Should legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Fund,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Fund's method of operation would not
affect the Fund's net asset value per share or result in financial loss to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Fund, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of combined
average daily net assets of the Fund and the other portfolios offered by Galaxy
(collectively the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may voluntarily waive all or a portion of the
administration fee payable to it by the Fund. For the fiscal year ended October
31, 1997, Investor Services Group received administration fees at the effective
annual rate of .082% of the Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each of three series in the Fund as follows:
Class J-Series 1 shares (Trust
21
<PAGE>
Shares), Class J-Series 2 shares (Retail A Shares) and Class J-Series 3 shares
(Retail B Shares), each series representing interests in the Fund. The Fund is
classified as a diversified company under the 1940 Act. The Board of Trustees
has also authorized the issuance of additional classes and series of shares
representing interest in the other portfolios of Galaxy. For information
regarding the Fund's Retail Shares and these other portfolios, which are offered
through separate prospectuses, contact FD Distributors at 1-800-628-0414.
Shares of each series in the Fund bear their pro rata portion of all
operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below. Holders of the Fund's Retail B Shares
bear the fees described in the prospectus for such shares that are paid under
Galaxy's Distribution and Services Plan at an annual rate not to exceed .80% of
the average daily net asset value of the Fund's outstanding Retail B Shares.
Currently, these payments are not made with respect to the Fund's Trust Shares.
In addition, shares of each series in the Fund bear differing transfer agency
expenses. Standardized yield and total return quotations are computed separately
for each series of shares. The difference in the expenses paid by the respective
series will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end sales charge
of 3.75%. Retail B Shares of the Fund are sold with a maximum contingent
deferred sales charge of 5.0% and automatically convert to Retail A Shares of
the Fund six years after the date of purchase. Retail A and Retail B Shares have
certain exchange and other privileges which are not available with respect to
Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class, and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to such investment portfolio as are declared in the discretion of
Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.30% of the average daily net asset value of Retail A Shares of the Fund owned
beneficially by Customers of Institutions. Institutions may receive up to
one-half of this fee for providing one or more of the following services to such
Customers: aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with FD Distributors; processing
dividend payments from the Fund; providing sub-
22
<PAGE>
accounting with respect to Retail A Shares or the information necessary for
sub-accounting; and providing periodic mailings to Customers. Institutions may
also receive up to one-half of this fee for providing one or more of these
additional services to such Customers: providing Customers with information as
to their positions in Retail A Shares; responding to Customer inquiries; and
providing a service to invest the assets of Customers in Retail A Shares. These
services are described more fully in the Statement of Additional Information
under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .15% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
owners of Retail A Shares in connection with their accounts with such
Institutions. Any such fees would be in addition to any amounts which may be
received by an Institution under the Shareholder Services Plan. Under the terms
of each servicing agreement entered into with Galaxy, Institutions are required
to provide to their Customers a schedule of any fees that they may charge in
connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including maintaining records reflecting separately, with
respect to each plan participant's sub-account, all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each Participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Fund to Investor Services Group have
been increased by an amount equal to these fees. In substance, therefore, the
holders of Trust Shares of the Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at One Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as the custodian of the Fund's assets, and First Data Investor Services
Group, Inc. ("Investor Services Group"), a wholly-owned subsidiary of First Data
Corporation, serves as the Fund's transfer and dividend disbursing agent.
Services performed by both entities for the Fund are described in the Statement
of Additional Information. Communications to Investor Services Group should be
directed to Investor Services Group at P.O. Box 5108, 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
23
<PAGE>
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Fund. Galaxy bears
the expenses incurred in the Fund's operations. Such expenses include taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, fund accounting and custody fees; charges of the transfer agent and
dividend disbursing agent; certain insurance premiums; outside auditing and
legal expenses; costs of independent pricing services; costs of shareholders'
reports and meetings; and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions in connection with the purchase of portfolio
securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant bond indexes
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or publications of a local or regional nature, may also
be used in comparing the performance of the Fund. Performance data will be
calculated separately for Trust Shares, Retail A Shares and/or Retail B Shares
of the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividend and capital gain distributions made by the Fund during the period
are reinvested in Fund shares.
The performance of the Fund will fluctuate and any quotation of performance
should not be considered as representative of future performance. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in the
Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance data are
generally functions of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
24
<PAGE>
additional fees charged directly by Institutions with respect to accounts of
Customers that have invested in Trust Shares of the Fund will not be included in
performance calculations.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature and other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
25
<PAGE>
GALAXY
HIGH QUALITY BOND
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-261 15027 (3/98)
<PAGE>
TRUST
THE GALAXY FUND
CORPORATE BOND FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 4
INVESTMENT OBJECTIVE AND POLICIES..................................... 6
In General.......................................................... 6
Special Risk Considerations......................................... 7
Other Investment Policies and Risk Considerations................... 8
INVESTMENT LIMITATIONS................................................ 15
PRICING OF SHARES..................................................... 17
HOW TO PURCHASE AND REDEEM SHARES..................................... 17
Distributor......................................................... 17
Purchase of Shares.................................................. 17
Purchase Procedures--Customers of Institutions...................... 18
Purchase Procedures--Direct Investors............................... 18
Other Purchase Information.......................................... 19
Redemption Procedures--Customers of Institutions.................... 20
Redemption Procedures--Direct Investors............................. 20
Other Redemption Information........................................ 21
<CAPTION>
PAGE
----
<S> <C>
INFORMATION SERVICES.................................................. 22
Galaxy Information Center--24 Hour Information Service.............. 22
Voice Response System............................................... 22
Galaxy Shareholder Services......................................... 22
DIVIDENDS AND DISTRIBUTIONS........................................... 22
TAXES................................................................. 23
Federal............................................................. 23
State and Local..................................................... 24
MANAGEMENT OF THE FUND................................................ 24
Investment Adviser.................................................. 24
Authority to Act as Investment Adviser.............................. 25
Administrator....................................................... 25
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 25
Shareholder Services Plan........................................... 26
Agreements for Sub-Account Services................................. 27
CUSTODIAN AND TRANSFER AGENT.......................................... 27
EXPENSES.............................................................. 27
PERFORMANCE REPORTING................................................. 28
MISCELLANEOUS......................................................... 29
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance, call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares"), which
represent interests in the CORPORATE BOND FUND (the "Fund") offered by Galaxy.
The Fund's investment objective is to seek a high level of current income by
investing primarily in investment grade, fixed income obligations. Subject to
this objective, the Fund's investment adviser will consider the total rate of
return on portfolio securities in managing the Fund. Under normal market and
economic conditions, at least 65% of the Fund's total assets will be invested in
obligations of private and public corporations. Under normal market and economic
conditions, the Fund will invest substantially all of its assets in investment
grade debt obligations rated at the time of purchase within the four highest
rating categories assigned by Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("Moody's") (or which, if unrated, are of comparable
quality) and in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and "money market" instruments.
This Prospectus describes Trust Shares in the Fund. Trust Shares are offered
to investors maintaining qualified accounts primarily at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue an additional series of shares in the Fund
("Retail A Shares"). Retail A Shares will be offered under a separate Prospectus
primarily to individuals, corporations or other entities purchasing either for
their own accounts or for the accounts of others and to FIS Securities, Inc.,
Fleet Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises,
Inc., Fleet Financial Group, Inc., its affiliates, their correspondent banks and
other qualified banks, savings and loans associations and broker/dealers on
behalf of their customers. As of the date of this Prospectus, however, Retail A
Shares of the Fund are not being offered by Galaxy and, accordingly, those
investors eligible to purchase Retail A Shares may currently purchase Trust
Shares of the Fund. Trust Shares and Retail A Shares represent equal pro rata
interests in the Fund, except they bear different expenses which reflect the
difference in the range of services provided to them. See "Financial
Highlights," "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet"), and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
------------------------
FEBRUARY 28, 1998
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Trust Shares and (ii) the operating
expenses for Trust Shares of the Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
CORPORATE
BOND
SHAREHOLDER TRANSACTION EXPENSES FUND
- ---------------------------------------- ------
<S> <C>
Sales Load.............................. None
Sales Load on Reinvested Dividends...... None
Deferred Sales Load..................... None
Redemption Fees(1)...................... None
Exchange Fees........................... None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------
<S> <C>
Advisory Fees (After Fee Waivers)....... .55%
12b-1 Fees.............................. None
Other Expenses.......................... .33%
------
Total Fund Operating Expenses (After Fee
Waivers).............................. .88%
------
------
</TABLE>
- ---------
(1) Direct Investors (as defined below under "How to Purchase and Redeem
Shares") are charged a $5.00 fee if redemption proceeds are paid by wire.
Example: you would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- ---------
<S> <C> <C> <C> <C>
Corporate Bond Fund..................... $9 $28 $48 $106
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in Trust Shares of the
Fund will bear directly or indirectly. The information contained in the Expense
Summary and Example is based on expenses incurred by the Fund during the last
fiscal year, restated to reflect the expenses which the Fund expects to incur
during the current fiscal year on its Trust Shares. Without voluntary fee
waivers by Fleet, Advisory Fees would be .75% and Total Fund Operating Expenses
would be 1.08% for Trust Shares of the Fund. Fleet is under no obligation to
waive fees and/or reimburse expenses but has advised Galaxy that it intends to
waive fees and/or reimburse expenses during the current year to the extent
necessary to maintain the Fund's operating expenses at the level set forth in
the above table. For more complete descriptions of these costs and expenses, see
"Management of the Fund" and "Description of Galaxy and Its Shares" in this
Prospectus and the financial statements and notes incorporated by reference into
the Statement of Additional Information. Any fees charged by affiliates of Fleet
or any other institution directly to their customer accounts for services
related to an investment in Trust Shares of the Fund are in addition to and not
reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy is also
authorized to issue an additional series of shares in the Fund, Retail A Shares.
As described below under "Description of Galaxy and Its Shares," Trust Shares
and Retail A Shares represent equal pro rata interests in the Fund, except that
(i) Retail A Shares of the Fund bear the expenses incurred under Galaxy's
Shareholder Services Plan at an annual rate of .15% of the average daily net
asset value of the Fund's outstanding Retail A Shares, and (ii) Trust Shares and
Retail A Shares bear differing transfer agency expenses.
The financial highlights presented below have been audited by Coopers &
Lybrand L.L.P., Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Fund dated October 31,
1997 (the "Annual Report"). Such financial highlights should be read in
conjunction with the financial statements contained in the Annual Report and
incorporated by reference into the Statement of Additional Information. More
information about the performance of the Fund is also contained in the Annual
Report, which may be obtained without charge by contacting Galaxy at its
telephone number or address provided above.
4
<PAGE>
CORPORATE BOND FUND(1)
(FOR A TRUST SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995(1)
------------ ------------ ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of period.............. $ 10.53 $ 10.74 $ 10.00
------------ ------------ ------------
Income from Investment Operations:
Net investment income(2)........................ 0.66 0.64 0.61
Net realized and unrealized gain (loss) on
investments.................................... 0.11 (0.13) 0.74
------------ ------------ ------------
Total from Investment Operations:............. 0.77 0.51 1.35
------------ ------------ ------------
Less Dividends:
Dividends from net investment income............ (0.66) (0.64) (0.61)
Dividends from net realized capital gains....... (0.01) (0.08) --
------------ ------------ ------------
Total Dividends:.............................. (0.67) (0.72) (0.61)
------------ ------------ ------------
Net increase (decrease) in net asset value........ 0.10 (0.21) 0.74
------------ ------------ ------------
Net Asset Value, End of period.................... $ 10.63 $ 10.53 $ 10.74
------------ ------------ ------------
------------ ------------ ------------
Total Return...................................... 7.56% 5.00% 13.85%(3)
Ratios/Supplemental Data:
Net Assets, End of period (000's)................. $91,728 $107,728 $37,391
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 6.27% 6.13% 6.61%(4)
Operating expenses including
reimbursement/waiver........................... 0.80% 0.85% 1.06%(4)
Operating expenses excluding
reimbursement/waiver........................... 1.00% 1.05% 1.26%(4)
Portfolio Turnover Rate........................... 37% 84% 41%(3)
</TABLE>
- ---------
(1) The Fund commenced operations on December 12, 1994.
(2) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1997
and 1996 and for the period ended October 31, 1995 was $0.64, $0.62 and
$0.57, respectively.
(3) Not Annualized.
(4) Annualized.
5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek a high level of current income.
Subject to this objective, Fleet Investment Advisors Inc., the Fund's investment
adviser ("Fleet"), will consider the total rate of return on securities in
managing the Fund. Under normal market and economic conditions, the Fund invests
at least 65% of its total assets in corporate debt obligations, which means
obligations of (i) domestic or foreign business corporations, which may be
convertible into common stock or other securities, or (ii) agencies,
instrumentalities or authorities which are organized in corporate form by the
United States, by one or more states or political subdivisions in the United
States or by one or more foreign governments or political subdivisions. The
value of convertible securities fluctuates in relation to changes in interest
rates like bonds and, in addition, fluctuates in relation to the underlying
common stock. The Fund may also invest in obligations issued or guaranteed by
the U.S. or foreign governments, their agencies or instrumentalities, or by
supranational banks or other organizations. Examples of supranational banks
include the International Bank for Reconstruction and Development ("World
Bank"), the Asian Development Bank and the InterAmerican Development Bank.
Obligations of supranational banks may be supported by appropriated but unpaid
commitments of their member countries and there is no assurance that those
commitments will be undertaken or met in the future. The Fund may invest, from
time to time, in municipal securities. The purchase of municipal securities may
be advantageous when, as a result of their tax status or prevailing economic,
regulatory or other circumstances, the performance of such securities is
expected to be comparable to that of corporate or U.S. Government debt
obligations. The Fund may enter into interest rate futures contracts to hedge
against changes in market values. See "Other Investment Policies and Risk
Considerations." The Fund may also invest in "money market" instruments. The
Fund will not invest in common stock, and any common stock received through the
conversion of convertible debt obligations will be sold in an orderly manner as
soon as possible.
Under normal market and economic conditions, the Fund invests substantially
all (and not less than 95%) of its assets in debt obligations rated, at the time
of purchase, within the four highest rating categories assigned by S&P ("AAA,"
"AA," "A" and "BBB") or Moody's ("Aaa," "Aa," "A" and "Baa") (or which, if
unrated, are determined by Fleet to be of comparable quality), obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
and money market instruments. Debt obligations rated in the fourth highest
rating categories (BBB or Baa) possess speculative characteristics and are more
susceptible than those in the top three rating categories to changes in economic
or other conditions that could lead to a weakened capacity to make payments of
interest and principal. In the event that the rating of any debt obligation held
by the Fund falls below the four highest rating categories of S&P or Moody's,
the Fund will not be obligated to dispose of such investment obligation and may
continue to hold the obligation as long as (i) the value of all the debt
obligations of the Fund which are rated below such four highest rating
categories does not exceed 5% of the Fund's net assets, and (ii) in the opinion
of Fleet such investment is considered appropriate under the circumstances.
Unrated securities will be determined to be of comparable quality to rated debt
obligations if, among other things, other outstanding obligations of the issuers
of such securities are rated BBB/Baa or better. When, in Fleet's opinion, a
defensive investment posture is warranted, the Fund may invest temporarily and
without limitation in high quality, short-term "money market" instruments. See
Appendix A to the Statement of Additional Information for a description of S&P's
and Moody's rating categories.
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In addition, the Fund may invest in debt obligations of foreign issuers such
as foreign corporations and banks, as well as foreign governments and their
political subdivisions. Such investments may subject the Fund to special
investment risks. See "Special Risk Considerations." The Fund may also invest in
dollar-denominated debt obligations of U.S. corporations issued outside the
United States.
Fleet expects that under normal market conditions, the Fund's portfolio
securities will have an average weighted maturity of three to ten years. See
"Other Investment Policies" below for information regarding additional
investment policies of the Fund.
Fleet will use its best efforts to achieve the Fund's investment objective,
although its achievement cannot be assured. The investment objective of the Fund
may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program.
SPECIAL RISK CONSIDERATIONS
Generally, the market value of fixed income securities in the Fund can be
expected to vary inversely to changes in prevailing interest rates. During
periods of declining interest rates, the market value of investment portfolios
comprised primarily of fixed income securities, such as the Fund, will tend to
increase, and during periods of rising interest rates, the market value will
tend to decrease. In addition, during periods of declining interest rates, the
yields of investment portfolios comprised primarily of fixed income securities
will tend to be higher than prevailing market rates and, in periods of rising
interest rates, yields will tend to be somewhat lower. Fixed income securities
with longer maturities, which tend to produce higher yields, are subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities. Changes in the financial strength of an issuer or changes in
the ratings of any particular security may also affect the value of these
investments. Fluctuations in the market value of fixed income securities
subsequent to their acquisition will not affect cash income from such securities
but will be reflected in the Fund's net asset value.
Investments in foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs, as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of principal and interest on
foreign obligations. In addition, foreign issuers in general may be subject to
different accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic companies, and securities of foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the
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effect of decreases in the price of the Fund's foreign securities in their local
markets. Conversely, a decrease in the value of the U.S. dollar will have the
opposite effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's foreign securities in their local markets.
In addition to favorable and unfavorable currency exchange rate developments,
the Fund is subject to the possible imposition of exchange control regulations
or freezes on convertibility of currency.
The Fund's investments in obligations rated below the four highest ratings
assigned by S&P and Moody's have different risks than investments in securities
that are rated "investment grade." Risk of loss upon default by the issuer is
significantly greater because lower-rated securities are generally unsecured and
are often subordinated to other creditors of the issuer, and because the issuers
frequently have high levels of indebtedness and are more sensitive to adverse
economic conditions, such as recessions, individual corporate developments and
increasing interest rates than are investment grade issuers. As a result, the
market price of such securities may be particularly volatile.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which the
Fund has the power to utilize. Some may be employed on a regular basis; others
may not be used at all. Accordingly, reference to any particular method or
technique carries no implication that it will be utilized or, if it is, that it
will be successful.
FOREIGN INVESTMENTS
The Fund may invest in debt obligations of foreign issuers such as foreign
corporations and banks, as well as foreign governments and their political
subdivisions. Such investments may subject the Fund to special investment risks.
See "Special Risk Considerations" above. The Fund will not invest more than 20%
of its net assets in the securities of foreign issuers.
The Fund may enter into currency forward contracts (agreements to exchange
one currency for another at a future date) to manage currency risks and to
facilitate transactions in foreign securities. Although currency forward
contracts can be used to protect the Fund from adverse exchange rate changes,
they involve a risk of loss if Fleet fails to predict foreign currency values
correctly.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal
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Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject the Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Fund will invest in the obligations of U.S. branches of foreign banks
or foreign branches of U.S. banks only when Fleet believes that the credit risk
with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations."
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of municipal securities which may be held
by the Fund are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in
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some cases, from the proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. Private activity bonds
held by the Fund are in most cases revenue securities and are not payable from
the unrestricted revenues of the issuer. Consequently, the credit quality of
such private activity bonds is usually directly related to the credit standing
of the corporate user of the facility involved.
The Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
The Fund will not enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand by notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 15% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with the investment limitations described
below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by Fleet to be of good standing and only when, in Fleet's
judgment, the income to be earned from the loan justifies the attendant risks.
The Fund currently intends to limit the lending of its portfolio securities so
that, at any given time, securities loaned by the Fund represent not more than
one-third of the value of its total assets.
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INVESTMENT COMPANY SECURITIES
The Fund may invest in securities issued by other investment companies which
invest in high quality, short-term debt securities and which determine their net
asset value per share based on the amortized cost or penny-rounding method.
Investments in other investment companies will cause the Fund (and, indirectly,
the Fund's shareholders) to bear proportionately the costs incurred in
connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Fund within the limits prescribed
by the Investment Company Act of 1940, as amended, (the "1940 Act"). The Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, and any other investment companies
advised by Fleet.
INTEREST RATE FUTURES CONTRACTS
The Fund may enter into contracts (both purchases and sales) which provide
for the future delivery of fixed income securities (commonly known as interest
rate futures contracts). The Fund will not engage in futures transactions for
speculation, but only to hedge against changes in the market values of
securities which the Fund holds or intends to purchase. The Fund will engage in
futures transactions only to the extent permitted by the Commodity Futures
Trading Commission ("CFTC") and the Securities and Exchange Commission ("SEC").
The purchase of futures instruments in connection with securities which the Fund
intends to purchase will require an amount of cash or other liquid assets, equal
to the market value of the outstanding futures contracts, to be deposited in a
segregated account to collateralize the position and thereby insure that the use
of such futures is unleveraged. The Fund will limit its hedging transactions in
futures contracts so that, immediately after any such transaction, the aggregate
initial margin that is required to be posted by the Fund under the rules of the
exchange on which the futures contract is traded does not exceed 5% of the
Fund's total assets after taking into account any unrealized profits and
unrealized losses on the Fund's open contracts. In addition, no more than
one-third of the Fund's total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Fund to a number
of risks. Successful use of futures by the Fund is subject to the ability of
Fleet to predict correctly movements in the direction of the market. In
addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market will
exist for any particular futures contract at any particular time. Consequently,
the Fund may realize a loss on a futures transaction that is not offset by a
favorable movement in the price of securities which the Fund holds or intends to
purchase or the Fund may be unable to close a futures position in the event of
adverse price movements. Additional information concerning futures transactions
is contained in Appendix B to the Statement of Additional Information.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. The Fund may also
purchase or sell securities on a "delayed
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settlement" basis. When-issued and forward commitment transactions, which
involve a commitment by the Fund to purchase or sell particular securities with
payment and delivery taking place at a future date (perhaps one or two months
later), permit the Fund to lock in a price or yield on a security it owns or
intends to purchase, regardless of future changes in interest rates. Delayed
settlement describes settlement of a securities transaction in the secondary
market which will occur sometime in the future. When-issued, forward commitment
and delayed settlement transactions involve the risk, however, that the yield or
price obtained in a transaction may be less favorable than the yield or price
available in the market when the securities delivery takes place. It is expected
that forward commitments, when-issued purchases and delayed settlements will not
exceed 25% of the value of the Fund's total assets absent unusual market
conditions. In the event the Fund's forward commitments, when-issued purchases
and delayed settlements ever exceeded 25% of the value of its total assets, the
Fund's liquidity and the ability of Fleet to manage the Fund might be adversely
affected. The Fund does not intend to engage in when-issued purchases, forward
commitments and delayed settlements for speculative purposes, but only in
furtherance of its investment objective.
ASSET-BACKED SECURITIES
The Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the Statement of Additional
Information.
MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities (including collateralized
mortgage obligations) that represent pools of mortgage loans assembled for sale
to investors by various governmental agencies and government-related
organizations such as the Government National Mortgage Association, the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation.
Mortgage-backed securities provide a monthly payment consisting of interest and
principal payments. Additional payment may be made out of unscheduled repayments
of principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-backed securities may tend to increase due
to refinancing of mortgages as interest rates decline. To the extent that the
Fund purchases mortgage-backed securities at a premium, mortgage foreclosures
and prepayments of principal by mortgagors (which may be made at any time
without penalty) may result in some loss of the Fund's principal investment to
the extent of the premium paid. The yield of the Fund from investing in
mortgage-backed securities may be affected by reinvestment of prepayments at
higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
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Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
interest rates decline; as a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
MORTGAGE DOLLAR ROLLS
The Fund may enter into mortgage "dollar rolls" in which the Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date not exceeding 120 days.
During the roll period, the Fund loses the right to receive principal and
interest paid on the securities sold. However, the Fund would benefit to the
extent of any difference between the price received for the securities sold and
the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward purchase. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund compared with what such performance would
have been without the use of mortgage dollar rolls. All cash proceeds will be
invested in instruments that are permissible investments for the Fund. The Fund
will hold and maintain in a segregated account until the settlement date cash or
other liquid assets in an amount equal to the forward purchase price.
For financial reporting and tax purposes, the Fund proposes to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale. The Fund does not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom
the Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet's ability to predict correctly interest rates and mortgage
prepayments. For these reasons, there is no assurance that mortgage dollar rolls
can be successfully employed.
STRIPPED OBLIGATIONS
To the extent consistent with its investment objective, the Fund may
purchase U.S. Treasury receipts and other "stripped" securities that evidence
ownership in either future interest payments or future principal payments on
U.S. Government and other obligations. These participations, which may be issued
by the U.S. Government or by private issuers such as banks and other
institutions, are issued at their "face value," and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
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SMBS are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities. The market value of the class consisting
entirely of principal payments generally is extremely volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid by the Fund. Obligations
issued by the U.S. Government may be considered liquid under guidelines
established by Galaxy's Board of Trustees if they can be disposed of promptly in
the ordinary course of business at a value reasonably close to that used in the
calculation of net asset value per share.
BANK INVESTMENT CONTRACTS
The Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and will
be subject to the Fund's 15% limitation on such investments, unless there is an
active and substantial secondary market for the particular instrument and market
quotations are readily available.
ZERO COUPON BONDS
Zero coupon bonds do not make interest payments; instead, they are sold at a
deep discount from their face value and are redeemed at face value when they
mature. Because zero coupon bonds do not pay current income, their prices can be
very volatile when interest rates change. In calculating its daily dividend, the
Fund takes into account as income a portion of the difference between a zero
coupon bond's purchase price and its face value.
A broker/dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and the
Financing Corporation (FICO) can also be separated in this fashion. Original
issue zeros are zero coupon securities originally issued by the U.S. Government,
a U.S. Government agency or a corporation in zero coupon form.
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DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
purchase certain "derivative" securities. Derivative securities are instruments
that derive their value from the performance of underlying assets, interest or
currency exchange rates or indices, and include, but are not limited to,
interest rate futures, certain asset-backed and mortgage-backed securities,
certain zero coupon bonds and currency forward contracts.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Fund will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Fund, and will determine in connection with its day-to-day
management of the Fund, how they will be used in furtherance of the Fund's
investment objective. It is possible, however, that Fleet's evaluations will
prove to be inaccurate or incomplete and, even when accurate and complete, it is
possible that the Fund will, because of the risks discussed above, incur loss as
a result of its investments in derivative securities. See "Investment Objectives
and Policies--Derivative Securities" in the Statement of Additional Information
relating to the Fund for additional information.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if Fleet
believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover may result in the realization of substantial capital gains and involves
correspondingly greater transaction costs. To the extent that net capital gains
are realized, distributions derived from such gains are treated as ordinary
income for federal income tax purposes. See "Financial Highlights" and
"Taxes--Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
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The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) the Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that the Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase agreements
in accordance with its investment policies and in amounts not in excess of
10% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of its total assets at the time of such
borrowing.
3. Invest more than 15% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other securities
which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total
assets would be invested in such issuer, except that up to 25% of the value
of its total assets may be invested without regard to this limitation.
In addition, the Fund may not purchase any securities which would cause 25%
or more of the value of its total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, (i) the Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing, and (ii)
mortgage dollar rolls entered into by the Fund that are not accounted for as
financings shall not constitute borrowings.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. The Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
15% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered to be
illiquid if Fleet has determined, in accordance with guidelines established by
the Board of Trustees, that an adequate trading market exists for such
securities.
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If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time), on each day on which the Exchange is open for trading.
Currently, the holidays which Galaxy observes are New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share of the
Fund for purposes of pricing sales and redemptions is calculated separately for
each series of shares by dividing the value of all securities and other assets
attributable to a particular series of shares of the Fund, less the liabilities
attributable to shares of that series of the Fund, by the number of outstanding
shares of that series of the Fund.
The Fund's assets are valued for purposes of pricing sales and redemptions
by an independent pricing service ("Service") approved by Galaxy's Board of
Trustees. When, in the judgment of the Service, quoted bid prices for portfolio
securities are readily available and are representative of the bid side of the
market, these investments are valued at the mean between quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments are carried at fair value as determined by the
Service, based on methods which include consideration of yields or prices of
bonds of comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
FD Distributors has established several procedures to enable different types
of investors to purchase Trust Shares of the Fund. Trust Shares may be purchased
by investors ("Customers") (i) who maintain qualified accounts at bank and trust
institutions, including subsidiaries of Fleet Financial Group, Inc., (ii) who
are participants in employer-sponsored defined contribution plans, or (iii) who
are customers of FIS Securities, Inc., Fleet Brokerage Securities, Inc., Fleet
Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its
affiliates, their correspondent banks, and other qualified banks, savings and
loan
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<PAGE>
associations and broker/dealers (such institutions and plans are referred to
herein collectively as "Institutions"). Trust Shares of the Fund may also be
purchased by individuals, corporations or other entities, who submit a purchase
application to Galaxy, purchasing directly for their own accounts or for the
accounts of others ("Direct Investors"). Purchases of Trust Shares will be
effected only on days on which FD Distributors, Galaxy's custodian and Galaxy's
transfer agent are open for business ("Business Days"). If an Institution
accepts a purchase order from a Customer on a non-Business Day, the order will
not be executed until it is received and accepted by FD Distributors on a
Business Day in accordance with FD Distributors' procedures.
PURCHASE PROCEDURES--CUSTOMERS OF INSTITUTIONS
Purchase orders for Trust Shares are placed by Customers of Institutions
through their Institutions. The Institution is responsible for transmitting
Customer purchase orders to FD Distributors and for wiring required funds in
payment to Galaxy's custodian on a timely basis. FD Distributors is responsible
for transmitting such orders to Galaxy's transfer agent for execution. Trust
Shares purchased by Institutions on behalf of their Customers will normally be
held of record by the Institutions and beneficial ownership of Trust Shares will
be recorded by the Institutions and reflected in the account statements provided
to their Customers. Galaxy's transfer agent may establish an account of record
for each Customer of an Institution reflecting beneficial ownership of Trust
Shares. Depending on the terms of the arrangement between a particular
Institution and Galaxy's transfer agent, confirmations of Trust Share purchases
and redemptions and pertinent account statements will either be sent by Galaxy's
transfer agent directly to a Customer with a copy to the Institution, or will be
furnished directly to the Customer by the Institution. Other procedures for the
purchase of Trust Shares established by Institutions in connection with the
requirements of their Customer accounts may apply. Customers wishing to purchase
Trust Shares through their Institution should contact such entity (in the case
of employer-sponsored defined contribution plans, their employer) directly for
appropriate purchase instructions.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by the Institutions to their
Customers. Information pertaining to such plans is available directly from the
Institution.
PURCHASE PROCEDURES--DIRECT INVESTORS
PURCHASES BY MAIL. Trust Shares may be purchased by completing a purchase
application and mailing it, together with a check payable to the Fund to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
All purchase orders placed by mail must be accompanied by a purchase
application. Applications may be obtained by calling FD Distributors at
1-800-628-0414.
Subsequent investments in an existing account may be made at any time by
sending a check payable to the Fund to Galaxy at the address above along with
either (a) the detachable form that regularly accompanies confirmation of a
prior transaction, (b) a subsequent order form that may be obtained from FD
Distributors, or (c) a letter stating the amount of the investment, the name of
the Fund and the
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<PAGE>
account number in which the investment is to be made. If a Direct Investor's
check does not clear, the purchase will be cancelled.
PURCHASES BY WIRE. Direct Investors may also purchase Trust Shares of the
Fund by arranging to transmit federal funds by wire to Fleet Bank of
Massachusetts, N.A. as agent for First Data Investor Services Group, Inc.
("Investor Services Group"), Galaxy's transfer agent. Such purchases may only be
made on days on which FD Distributors, Galaxy's custodian and Galaxy's transfer
agent are open for business. Prior to making any purchase by wire, an investor
must telephone 1-800-628-0414 to place an order and for instructions. Federal
funds and registration instructions should be wired through the Federal Reserve
System to:
Fleet Bank of Massachusetts, N.A.
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
[Shareholder Name]
[Shareholder Account Number]
Direct Investors making initial investments by wire must promptly complete a
purchase application and forward it to The Galaxy Fund, P.O. Box 5108, 4400
Computer Drive, Westboro, Massachusetts 01581-5108. Applications may be obtained
by calling FD Distributors at 1-800-628-0414. Redemptions will not be processed
until the application in proper form has been received. Direct Investors making
subsequent investments by wire should follow the instructions above.
OTHER PURCHASE INFORMATION
Although Galaxy does not impose any minimum initial or subsequent investment
requirement with respect to Trust Shares of the Fund, Institutions may impose
such requirements on the accounts maintained by their Customers, and may also
require that Customers maintain minimum account balances with respect to Trust
Shares.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares to Direct Investors and Institutions is recorded on
the books of Galaxy and Share certificates will not be issued.
EFFECTIVE TIME OF PURCHASES. A purchase order for Trust Shares received and
accepted by FD Distributors from an Institution or a Direct Investor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be executed at the net asset value per
share determined on that date, provided that Galaxy's custodian receives the
purchase price in federal funds or other immediately available funds prior to
4:00 p.m. on the third Business Day following the receipt of such order. Such
order will be executed on the day on which the purchase price is received in
proper form. If funds are not received by such date and time, the order will not
be accepted and notice thereof will be given promptly to the Institution or
Direct Investor submitting the order. Payment for orders which are not received
or accepted will be returned. On a Business Day when the Exchange closes early
due to a partial
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<PAGE>
holiday or otherwise, Galaxy will advance the time at which purchase orders must
be received in order to be processed on that Business Day.
REDEMPTION PROCEDURES--CUSTOMERS OF INSTITUTIONS
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their Institutions. It is the
responsibility of the Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy, although Institutions may charge their Customers' accounts
for redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution. Payment for redemption
orders received by FD Distributors on a Business Day will normally be wired on
the third Business Day to the Institution.
REDEMPTION PROCEDURES--DIRECT INVESTORS
REDEMPTION BY MAIL. Trust Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
A written redemption request must (i) state the name of the Fund and the
number of Trust Shares to be redeemed, (ii) identify the shareholder account
number and tax identification number, and (iii) be signed by each registered
owner exactly as the Shares are registered. A redemption request for an amount
in excess of $50,000, or for any amount where (i) the proceeds are to be sent
elsewhere than the address of record (excluding the transfer of assets to a
successor custodian), (ii) the proceeds are to be sent to an address of record
which has changed in the preceding 30 days, or (iii) the check is to be made
payable to someone other than the registered owner(s), must be accompanied by
signature guarantees. The guarantor of a signature must be a bank which is a
member of the FDIC, a trust company, a member firm of a national securities
exchange or any other eligible guarantor institution. FD Distributors will not
accept guarantees from notaries public. FD Distributors may require additional
supporting documents for redemptions made by corporations, executors,
administrators, trustees and guardians. A redemption request will not be deemed
to be properly received until FD Distributors receives all required documents in
proper form. The Fund ordinarily will make payment for Trust Shares redeemed by
mail within three Business Days after proper receipt by FD Distributors of the
redemption request. Questions with respect to the proper form for redemption
requests should be directed to FD Distributors at 1-800-628-0414.
REDEMPTION BY TELEPHONE. Direct Investors may redeem Trust Shares by
calling 1-800-628-0414 and instructing FD Distributors to mail a check for
redemption proceeds of up to $50,000 to the address of record. A redemption
request for an amount in excess of $50,000, or for any amount where (i) the
proceeds are to be sent elsewhere than the address of record (excluding the
transfer of assets to a successor custodian), (ii) the proceeds are to be sent
to an address of record which has changed in the preceding 30 days, or (iii) the
check is to be made payable to someone other than the registered owner(s), must
be accompanied by signature guarantees. (See "Redemption by Mail" above for
details regarding signature guarantees.)
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<PAGE>
REDEMPTION BY WIRE. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem Trust
Shares by instructing FD Distributors by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to a Direct Investor's account at
any commercial bank in the United States. FD Distributors charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption proceeds.
The redemption proceeds must be paid to the same bank and account as designated
on the application or in written instructions subsequently received by FD
Distributors. To request redemption of Trust Shares by wire, Direct Investors
should call FD Distributors at 1-800-628-0414.
In order to arrange for redemption by wire after an account has been opened
or to change the bank or account designated to receive redemption proceeds, a
written request must be sent to Galaxy, at the address listed above under
"Redemption by Mail." Such requests must be signed by the investor and
accompanied by a signature guarantee (see "Redemption by Mail" above for details
regarding signature guarantees). Further documentation may be requested from
corporations, executors, administrators, trustees, or guardians. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures for transactions
by wire or mail which are described above.
Galaxy reserves the right to refuse a wire or telephone redemption if it
believes it is advisable to do so. Procedures for redeeming Trust Shares by wire
or telephone may be modified or terminated at any time by Galaxy or FD
Distributors. In attempting to confirm that telephone instructions are genuine,
Galaxy will use such procedures as are considered reasonable, including
recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security number, address and/ or bank). If Galaxy fails to follow established
procedures for the authentication of telephone transactions, it may be liable
for losses due to unauthorized or fraudulent telephone instructions.
NO REDEMPTION BY A DIRECT INVESTOR WILL BE PROCESSED UNTIL GALAXY HAS
RECEIVED A COMPLETED APPLICATION WITH RESPECT TO THE DIRECT INVESTOR'S ACCOUNT.
IF ANY PORTION OF THE TRUST SHARES TO BE REDEEMED REPRESENTS AN INVESTMENT
MADE BY PERSONAL CHECK, GALAXY RESERVES THE RIGHT TO DELAY PAYMENT OF PROCEEDS
UNTIL FD DISTRIBUTORS IS REASONABLY SATISFIED THAT THE CHECK HAS BEEN COLLECTED
WHICH COULD TAKE UP TO 15 DAYS FROM THE PURCHASE DATE. A DIRECT INVESTOR WHO
ANTICIPATES THE NEED FOR MORE IMMEDIATE ACCESS TO HIS OR HER INVESTMENT SHOULD
PURCHASE TRUST SHARES BY FEDERAL FUNDS OR BANK WIRE OR BY CERTIFIED OR CASHIER'S
CHECK. BANKS NORMALLY IMPOSE A CHARGE IN CONNECTION WITH THE USE OF BANK WIRES,
AS WELL AS CERTIFIED CHECKS, CASHIER'S CHECKS AND FEDERAL FUNDS.
OTHER REDEMPTION INFORMATION
If an investor has agreed with a particular Institution to maintain a
minimum balance in his or her account at the Institution with respect to Trust
Shares of the Fund, and the balance in such account falls below that minimum,
the Customer may be obliged by the Institution to redeem all of his or her
shares.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
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<PAGE>
processed on that Business Day. Galaxy reserves the right to wire redemption
proceeds within seven days after receiving the redemption order if, in its
judgment, an earlier payment could adversely affect the Fund.
INFORMATION SERVICES
GALAXY INFORMATION CENTER--24 HOUR INFORMATION SERVICE
The Galaxy Information Center provides Fund performance and investment
information 24 hours a day, 7 days a week. To access the Galaxy Information
Center Automated Telephone Service, just call 1-800-628-0414.
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to Fund
and account information as well as the ability to make telephone redemptions.
These transactions are subject to the terms and conditions described above under
"How To Purchase and Redeem Shares." To access the Voice Response System, just
call 1-800-628-0414 from any touch-tone telephone and follow the recorded
instructions.
GALAXY SHAREHOLDER SERVICES
For account information, Direct Investors can call Galaxy Shareholder
Services Monday through Friday, between the hours of 9:00 a.m. to 5:00 p.m.
(Eastern Time) at 1-800-628-0414.
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, 7 days a week.
Direct Investors residing outside the United States can contact Galaxy by
calling 1-508-855-5237.
Investment returns and principal values will vary with market conditions so
that an investor's Trust Shares, when redeemed, may be worth more or less than
their original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price, and
reinvestment of dividends and capital gains distributions, if any.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared daily and paid
monthly. Dividends on each share of the Fund are determined in the same manner,
irrespective of series, but may differ in amount because of the difference in
the expenses paid by the respective series. Net realized capital gains are
distributed at least annually.
Dividends and distributions will be paid in cash. Customers and Direct
Investors may elect to have their dividends reinvested in additional Trust
Shares of the Fund at the net asset value of such shares on the ex-dividend
date. Such election, or any revocation thereof, must be communicated in writing
to Galaxy's transfer agent and will become effective with respect to dividends
paid after its receipt. The crediting and payment of dividends to Customers of
Institutions will be in accordance with the procedures governing such Customers'
accounts at their Institutions.
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<PAGE>
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that the Fund distribute to its shareholders
an amount equal to at least 90% of its investment company taxable income and 90%
of its tax-exempt interest income (if any) net of certain deductions for such
year. In general, the Fund's investment company taxable income will be its
taxable income, including dividends, interest and short-term capital gains (the
excess of net short-term capital gain over net long-term capital loss), subject
to certain adjustments and excluding the excess of any net long-term capital
gain for the taxable year over the net short-term capital loss, if any, for such
year. The policy of the Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional Trust Shares.
(Federal income taxes for distributions to an IRA or a qualified retirement plan
are deferred under the Code.) It is anticipated that no part of any distribution
will qualify for the dividends received deduction for corporations.
Distribution by the Fund of "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of the Fund, is taxable
to shareholders as long-term capital gain, regardless of how long the
shareholder has held shares and whether such gains are received in cash or
reinvested in additional shares. Such long-term capital gain will be 20% or 28%
rate gain, depending upon the Fund's holding period for the assets the sale of
which generated the capital gain. Such distributions are not eligible for the
dividends received deduction.
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying shares of the Fund on or just before the
record date of a capital gain distribution, you should be aware that the amount
of the forthcoming distribution payment, although in effect a return of capital,
generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
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<PAGE>
STATE AND LOCAL
Investors are advised to contact their tax advisers concerning the
application of state and local taxes, which may have different consequences than
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients, and
manages the other investment portfolios of Galaxy: the Money Market, Government,
U.S. Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Institutional Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Small Company Equity, MidCap
Equity, Asset Allocation, Small Cap Value, Growth and Income, Strategic Equity,
Short-Term Bond, Intermediate Government Income, High Quality Bond, Tax-Exempt
Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut Municipal
Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Fund,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
an annual rate of .75% of the average daily net assets of the Fund.
Fleet may from time to time, in its discretion, waive advisory fees payable
by the Fund in order to help maintain a competitive expense ratio and may from
time to time allocate a portion of its advisory fees to Fleet Bank or other
subsidiaries of Fleet Financial Group, Inc., in consideration for administrative
and/or shareholder support services which they provide to beneficial
shareholders. Fleet is currently waiving a portion of the advisory fee payable
by the Fund such that it is entitled to receive advisory fees at the annual rate
of .55% of the Fund's average daily net assets. For the fiscal year ended
October 31, 1997, Fleet received advisory fees (after fee waivers) at the
effective annual rate of .55% of the Fund's average daily net assets.
The Fund's portfolio manager, David Lindsay, is primarily responsible for
the day-to-day management of the Fund's investment portfolio. Mr. Lindsay, a
Senior Vice President, has been with Fleet and its predecessors since 1986 and
has been the Fund's portfolio manager since its inception.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the
24
<PAGE>
transaction and the commission are comparable to what they would be with other
qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which have agreed to provide shareholder support services that are
banks or bank affiliates are subject to such banking laws and regulations.
Should legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Fund,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Fund's method of operation would not
affect the Fund's net asset value per share or result in financial loss to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5180, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Fund, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at an annual rate of .09% of the first $2.5 billion of combined average
daily net assets of the Fund and the other portfolios offered by Galaxy
(collectively the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily, all or a portion of the
administration fee payable to it by the Fund. For the fiscal year ended October
31, 1997, Investor Services Group received administration fees at the effective
annual rate of .082% of the Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes of shares. Pursuant to
such authority, the Board of Trustees has authorized the issuance of an
unlimited number of shares in each of two series in the Fund as follows: Class
T-Series 1 shares (Trust Shares) and Class T-Series 2 shares (Retail A Shares),
both series representing interests in the Fund. The Fund is classified as a
diversified company under the 1940 Act. The Board of Trustees has also
authorized the issuance of additional classes and series of shares representing
interests in other portfolios of Galaxy. For
25
<PAGE>
information regarding the Fund's Retail A Shares and these other portfolios,
which are offered through separate prospectuses, contact FD Distributors at
1-800-628-0414. As of the date of this Prospectus, Retail A Shares of the Fund
are not being offered to investors.
Shares of each series in the Fund bear their pro rata portion of all
operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid under Galaxy's Shareholder Services
Plan described below. Currently, these payments are not made with respect to the
Fund's Trust Shares. In addition, shares of each series in the Fund bear
differing transfer agency expenses. Standardized yield and total return
quotations are computed separately for each series of shares. The differences in
the expenses paid by the respective series will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end sales charge
of 3.75% and have certain exchange and other privileges which are not available
with respect to Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class, and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to such investment portfolio as are declared in the discretion of
Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to the servicing agreements, Institutions will render
certain administrative and support services to Customers who are the beneficial
owners of Retail A Shares. Such services will be provided to Customers who are
the beneficial owners of Retail A Shares and are intended to supplement the
services provided by Investor Services Group as administrator and transfer agent
to the shareholders of record of the Retail A Shares. The Plan provides that
Galaxy will pay fees for such services at an annual rate of up to .30% of the
average daily net asset value of Retail A Shares owned beneficially by
Customers. Institutions may receive up to one-half of this fee for providing one
or more of the following services to such Customers: aggregating and processing
purchase and redemption requests and placing net purchase and redemption orders
with FD Distributors; processing dividend payments from the Fund; providing
sub-accounting with respect to Retail A Shares or the information necessary for
sub-accounting; and providing periodic mailings to Customers. Institutions may
also receive up to one-half of this fee for providing one or more of these
additional services to such Customers: providing Customers with information as
to their positions in Retail A Shares; responding to Customer inquiries; and
providing a service to invest the assets of Customers in Retail A Shares. These
services are described more fully in the Statement of Additional Information
under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing
26
<PAGE>
agreements under the Shareholder Services Plan only with respect to Retail A
Shares of the Fund, and to limit the payment under these servicing agreements
for the Fund to not more than .15% (on an annualized basis) of the average daily
net asset value of the Retail A Shares of the Fund beneficially owned by
Customers of Institutions. Galaxy understands that Institutions may charge fees
to their Customers who are the beneficial owners of Retail A Shares in
connection with their accounts with such Institutions. Any such fees would be in
addition to any amounts which may be received by an Institution under the
Shareholder Services Plan. Under the terms of each servicing agreement entered
into with Galaxy, Institutions are required to provide to their Customers a
schedule of any fees that they may charge in connection with Customer
investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Fund to Investor Services Group have
been increased by an amount equal to these fees. In substance, therefore, the
holders of Trust Shares of the Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Fund's assets. Chase
Manhattan may employ sub-custodians for the Fund for the purpose of providing
custodial services for the Fund's foreign assets held outside the United States.
First Data Investor Services Group, Inc. ("Investor Services Group"), a
wholly-owned subsidiary of First Data Corporation, serves as the Fund's transfer
and dividend disbursing agent. Services performed by both entities for the Fund
are described in the Statement of Additional Information. Communications to
Investor Services Group should be directed to Investor Services Group at P.O.
Box 5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Fund. Galaxy bears
the expenses incurred in the Fund's operations. Such expenses include taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, fund accounting and custody fees; charges of the transfer agent and
dividend disbursing agent; certain insurance premiums; outside auditing and
legal expenses; costs of independent
27
<PAGE>
pricing services; costs of shareholder reports and shareholder meetings; and any
extraordinary expenses. The Fund also pays for brokerage fees and commissions in
connection with the purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant bond indices
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or publications of a local or regional nature, may also
be used in comparing the performance of the Fund. Performance data will be
calculated separately for Trust Shares and Retail A Shares of the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividend and capital gains distributions made by the Fund during the period
are reinvested in Fund shares.
The performance of the Fund will fluctuate and any quotation of performance
should not be considered as representative of future performance. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in the
Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance data are
generally functions of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions.
Any additional fees charged by Institutions to accounts of Customers that
have invested in Trust Shares of the Fund will not be included in performance
calculations.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include, but are not limited to, the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such
28
<PAGE>
performance may compare to various market indices; shareholder profiles and
hypothetical investor scenarios; the economy; the financial and capital markets;
investment strategies and techniques; investment products; and tax, retirement
and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
29
<PAGE>
GALAXY
CORPORATE BOND
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-426 15026 (3/98)
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information regarding
Westboro, Massachusetts purchases, redemptions, exchanges and other
01581-5108 shareholder services or for current performance,
call 1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus relates to three separate investment portfolios (individually, a
"Fund," collectively, the "Funds") offered to investors by Galaxy. Each Fund has
its own investment objective and policies:
The SHORT-TERM BOND FUND'S investment objective is to seek a high level of
current income consistent with preservation of capital. Under normal market and
economic conditions, the Fund will invest substantially all of its assets in
debt obligations of domestic and foreign issuers rated at the time of purchase
within the four highest rating categories assigned by Standard & Poor's Ratings
Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") (or which, if
unrated, are of comparable quality) and in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and "money market"
instruments.
The INTERMEDIATE GOVERNMENT INCOME FUND'S investment objective is to seek
the highest level of current income consistent with prudent risk of capital.
Subject to this objective, the Fund's investment adviser will consider the total
rate of return on portfolio securities in managing the Fund. Under normal market
and economic conditions, the Fund will invest substantially all of its assets in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, in debt obligations rated at the time of purchase within the
three highest rating categories assigned by S&P or Moody's (or which, if
unrated, are of comparable quality) and in "money market" instruments.
The HIGH QUALITY BOND FUND'S investment objective is to seek a high level of
current income consistent with prudent risk of capital. Under normal market and
economic conditions, the Fund will invest substantially all of its assets in
high quality debt obligations that are rated at the time of purchase within the
three highest rating categories assigned by S&P or Moody's (or which, if
unrated, are of comparable quality) and in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and "money market"
instruments.
This Prospectus describes the Retail A Shares representing interests in each
Fund and the Retail B Shares representing interests in the Short-Term Bond and
High Quality Bond Funds (Retail A Shares and Retail B Shares are referred to
herein collectively as "Retail Shares"). Retail A Shares are sold with a
front-end sales charge. Retail B Shares are sold with a contingent deferred
sales charge. Retail Shares are offered to customers ("Customers") of FIS
Securities, Inc., Fleet Brokerage Securities, Inc., Fleet Securities, Inc.,
Fleet Enterprises, Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks, and other qualified banks, savings and loan associations
and broker/dealers ("Institutions"). Retail Shares may also be purchased
directly by individuals, corporations or other entities, who submit a purchase
application to Galaxy, purchasing either for their own account or for the
accounts of others ("Direct Investors"). Galaxy is also authorized to issue
another series of shares in each Fund ("Trust Shares"), which are offered under
a separate prospectus primarily to investors maintaining qualified accounts at
bank and trust institutions, including institutions affiliated with Fleet
Financial Group, Inc., and to participants in employer-sponsored defined
contribution plans. Retail A Shares, Retail B Shares and Trust Shares in a Fund
represent equal pro rata interests in the Fund, except they bear different
expenses which reflect the difference in the range of services provided to them.
See "Financial Highlights," "Management of the Funds" and "Description of Galaxy
and Its Shares" herein.
Each of the Funds is advised by Fleet Investment Advisors Inc. and sponsored
and distributed by First Data Distributors, Inc., which is not affiliated with
Fleet Investment Advisors Inc. or its parent, Fleet Financial Group, Inc., and
affiliates.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Funds, contained in the Statement of Additional Information relating to the
Funds and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
FEBRUARY 28, 1998
<PAGE>
HIGHLIGHTS
Q: WHAT IS THE GALAXY FUND?
A: Galaxy is an open-end management investment company (commonly known as a
mutual fund) that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives and policies.
This Prospectus describes Galaxy's SHORT-TERM BOND, INTERMEDIATE GOVERNMENT
INCOME and HIGH QUALITY BOND FUNDS. Prospectuses for Galaxy's MONEY MARKET,
GOVERNMENT, U.S. TREASURY, TAX-EXEMPT, CONNECTICUT MUNICIPAL MONEY MARKET,
MASSACHUSETTS MUNICIPAL MONEY MARKET, INSTITUTIONAL GOVERNMENT MONEY MARKET,
EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME, INTERNATIONAL EQUITY, SMALL COMPANY
EQUITY, MIDCAP EQUITY, ASSET ALLOCATION, SMALL CAP VALUE, GROWTH AND INCOME,
STRATEGIC EQUITY, CORPORATE BOND, TAX-EXEMPT BOND, NEW JERSEY MUNICIPAL BOND,
NEW YORK MUNICIPAL BOND, CONNECTICUT MUNICIPAL BOND, MASSACHUSETTS MUNICIPAL
BOND and RHODE ISLAND MUNICIPAL BOND FUNDS may be obtained by calling
1-800-628-0414.
Q: WHO ADVISES THE FUNDS?
A: The Funds are managed by Fleet Investment Advisors Inc. ("Fleet"), an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc. Fleet Financial
Group, Inc. is a financial services company with total assets as of December 31,
1997 of approximately $85.5 billion. See "Management of the Funds--Investment
Adviser."
Q: WHAT ADVANTAGES DO THE FUNDS OFFER?
A: The Funds offer investors the opportunity to invest in a variety of
professionally managed investment portfolios without having to become involved
with the detailed accounting and safekeeping procedures normally associated with
direct investments in securities. The Funds also offer the economic advantages
of block trading in portfolio securities and the availability of a family of
twenty-seven mutual funds should your investment goals change.
Q: HOW CAN I BUY AND REDEEM SHARES?
A: The Funds are distributed by First Data Distributors, Inc. Retail Shares
of the Funds are sold to individuals, corporations or other entities, who submit
a purchase application to Galaxy, purchasing either for their own accounts or
for the accounts of others ("Direct Investors"). Shares may also be purchased on
behalf of Customers of FIS Securities, Inc., Fleet Brokerage Securities, Inc.,
Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc.,
its affiliates, their correspondent banks and other qualified banks, savings and
loan associations and broker/dealers ("Institutions"). Retail A Shares of the
Funds may be purchased at their net asset value plus a maximum initial sales
charge of 3.75%. Retail A Shares are currently subject to a shareholder
servicing fee of up to .15% of the average daily net asset value of such Shares.
Retail B Shares of the Short-Term Bond and High Quality Bond Funds may be
purchased at their net asset value subject to a contingent deferred sales charge
("CDSC"). The CDSC is paid on certain share redemptions made within six years of
the purchase date at the maximum rate of 5.00% of the lower of (i) the net asset
value of the redeemed shares or (ii) the original purchase price of the redeemed
shares. Retail B Shares are currently subject to shareholder servicing and
distribution fees of up to .80% of the average daily net asset value of such
Shares. Share purchase and redemption information for both Direct Investors and
Customers of Institutions is provided below under "How to Purchase Shares" and
"How to Redeem Shares." Except as provided below under "Investor Programs," the
minimum initial investment for Direct Investors and the minimum initial
aggregate investment for Institutions purchasing on behalf of their Customers is
$2,500. The minimum investment for subsequent purchases is $100. There are no
minimum investment requirements for investors participating in the Automatic
Investment Program described below. Institutions may require Customers to
maintain certain minimum investments in Retail Shares. See "How to Purchase
Shares" below.
Q: WHEN ARE DIVIDENDS PAID?
A: Dividends from net investment income of the Funds are declared daily and
paid monthly. Net realized capital gains of the Funds are distributed at least
annually. Dividends and distributions are paid in cash, although shareholders
may choose to have dividends and distributions automatically reinvested in
additional shares of the same series of shares with respect to which the
dividend or distribution was declared without sales or CDSC charges. See
"Dividends and Distributions."
Q: WHAT POTENTIAL RISKS ARE PRESENTED BY THE FUNDS' INVESTMENT PRACTICES?
A: The Short-Term Bond Fund invests primarily in corporate debt obligations
rated within the four highest rating categories assigned by S&P or Moody's.
Corporate debt obligations rated in the lowest of the four highest rating
categories assigned by Moody's or S&P are considered to have speculative
characteristics, even though they are of investment grade quality. The
Intermediate Government Income and High Quality Bond Funds invest in such
obligations rated within the three highest rating categories assigned by S&P or
Moody's. The Short-Term Bond Fund may invest in the debt obligations of foreign
corporations and banks and in obligations issued or guaranteed by foreign
governments or any of their political subdivisions or instrumentalities. Each
Fund may invest in dollar-denominated debt obligations of U.S. corporations
issued outside the United States. The Funds may lend their securities and enter
into repurchase agreements and reverse repurchase agreements with qualifying
banks and broker/dealers. In addition, each Fund may enter into interest rate
futures contracts. The Funds may purchase eligible securities on a "when-issued"
basis and may purchase or sell securities on a "forward commitment" or "delayed
settlement" basis. In addition, the Funds may acquire "stand-by commitments"
with respect to obligations issued by state or local governmental issuers
("municipal securities") held in
1
<PAGE>
their respective portfolios. The value of the Funds' portfolio securities will
generally vary inversely with changes in prevailing interest rates. See
"Investment Objectives and Policies."
Q: WHAT SHAREHOLDER PRIVILEGES ARE OFFERED BY THE FUNDS?
A: Retail A Shares of a Fund may be exchanged for Retail A Shares of any
other Galaxy portfolio which offers Retail A Shares and for shares of any other
investment portfolio otherwise advised by Fleet or its affiliates. Retail B
Shares of the Short-Term Bond and High Quality Bond Funds may be exchanged for
Retail B Shares of any other Galaxy portfolio which offers Retail B Shares. In
either case, exchanges are not subject to additional sales or CDSC charges.
Galaxy offers Individual Retirement Accounts ("IRAs"), Simplified Employee
Pension Plans ("SEP") accounts and Keogh Plan accounts, which can be established
by contacting Galaxy's distributor. Retail Shares are also available for
purchase through Multi-Employee Retirement Plans ("MERP") accounts which can be
established by Customers directly with Fleet Brokerage Securities, Inc. or its
affiliates. Galaxy also offers an Automatic Investment Program which allows
investors to automatically invest in Retail Shares on a monthly or quarterly
basis, as well as certain other shareholder privileges. See "Investor Programs."
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by each Fund with respect to its Retail A Shares and/or Retail B Shares,
and (ii) the operating expenses for Retail A Shares and/or Retail B Shares of
each Fund. SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or
selling shares of the Funds. ANNUAL FUND OPERATING EXPENSES are paid out of each
Fund's assets and include fees for portfolio management, maintenance of
shareholder accounts, general Fund administration, accounting and other
services. Examples based on the summary are also shown.
<TABLE>
<CAPTION>
INTERMEDIATE
SHORT-TERM GOVERNMENT HIGH QUALITY
BOND FUND INCOME FUND BOND FUND
--------------------- ----------- ---------------------
(RETAIL (RETAIL (RETAIL (RETAIL (RETAIL
A SHARES) B SHARES) A SHARES) A SHARES) B SHARES)
--------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
Maximum Front End Sales Charge
Imposed on Purchases (as a
percentage of offering
price)......................... 3.75%(1) None 3.75%(1) 3.75%(1) None
Maximum Deferred Sales Charge
(as a percentage of offering
price)......................... None 5.00%(2) None None 5.00%(2)
Sales Charge Imposed on
Reinvested Dividends........... None None None None None
Redemption Fees(3).............. None None None None None
Exchange Fees................... None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)
- --------------------------------
Advisory Fees (After Fee
Waivers)....................... .55% .55% .55% .55% .55%
12b-1 Fees(4)................... None .80% None None .80%
Other Expenses.................. .58% .43% .51% .51% .38%
--------- --------- ----------- --------- ---------
Total Fund Operating Expenses
(After Fee Waivers)............ 1.13% 1.78% 1.06% 1.06% 1.73%
--------- --------- ----------- --------- ---------
--------- --------- ----------- --------- ---------
</TABLE>
- --------------------------
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Retail A Shares that
are purchased with no sales charge as part of an investment of $500,000 or
more. See "How to Purchase and Redeem Shares--Applicable Sales
Charges--Retail A Shares."
(2) This amount applies to redemptions during the first year. The charge
decreases to 4.00%, 3.00%, 3.00%, 2.00% and 1.00% for redemptions made
during the second through sixth years, respectively. Retail B Shares
automatically convert to Retail A Shares after six years. See "How to
Purchase and Redeem Shares--Applicable Sales Charge--Retail B Shares."
(3) Direct Investors are charged a $5.00 fee if redemption proceeds are paid by
wire.
(4) Retail A Shares do not currently charge 12b-1 fees. Long-term investors in
Retail B Shares may pay more than the economic equivalent of the maximum
front-end sales charges permitted by the rules of the National Association
of Securities Dealers, Inc.
3
<PAGE>
- --------------------------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- --------
<S> <C> <C> <C> <C>
Short-Term Bond Fund (Retail A Shares)(1)......... $49 $72 $ 97 $168
Short-Term Bond Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $68 $85 $115 $174(3)
Assuming no redemption.......................... $18 $55 $ 95 $174(3)
Intermediate Government Income Fund (Retail A
Shares)(1)....................................... $48 $70 $ 93 $160
High Quality Bond Fund (Retail A Shares)(1)....... $48 $70 $ 93 $160
High Quality Bond Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $67 $84 $112 $167(3)
Assuming no redemption.......................... $17 $54 $ 92 $167(3)
</TABLE>
- --------------------------
(1) Assumes deduction at time of purchase of maximum applicable front-end sales
charge.
(2) Assumes deduction of maximum applicable contingent deferred sales charge.
(3) Based on conversion of Retail B Shares to Retail A Shares after six years.
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in Retail A and/or Retail
B Shares of the Funds will bear directly or indirectly. The information
contained in the Expense Summary and Example is based on expenses incurred by
each Fund during the last fiscal year, restated to reflect the expenses that
each Fund expects to incur during the current fiscal year on its Retail A and/or
Retail B Shares. Without voluntary fee waivers by Fleet, "Advisory Fees" would
be .75% and .75% for Retail A Shares and Retail B Shares, respectively, of the
Short-Term Bond Fund, .75% for Retail A Shares of the Intermediate Government
Income Fund and .75% and .75% for Retail A Shares and Retail B Shares,
respectively, of the High Quality Bond Fund, Other Expenses would be .58% and
.43% for Retail A Shares and Retail B Shares, respectively, of the Short-Term
Bond Fund, .51% for Retail A Shares of the Intermediate Government Income Fund
and .51% and .38% for Retail A Shares and Retail B Shares, respectively, of the
High Quality Bond Fund, and Total Fund Operating Expenses would be 1.33% and
1.98% for Retail A Shares and Retail B Shares, respectively, of the Short-Term
Bond Fund, 1.26% for Retail A Shares of the Intermediate Government Income Fund
and 1.26% and 1.93% for Retail A Shares and Retail B Shares, respectively, of
the High Quality Bond Fund. Fleet is under no obligation to waive fees and/or
reimburse expenses but has advised Galaxy that it intends to waive fees and/or
reimburse expenses during the current year to the extent necessary to maintain
the Funds' operating expenses at the levels set forth in the above table. For
more complete descriptions of these costs and expenses, see "How to Purchase
Shares," "How to Redeem Shares," "Management of the Funds" and "Description of
Galaxy and Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information. Any fees
charged by affiliates of Fleet or other Institutions directly to their Customer
accounts for services related to an investment in Retail Shares of the Funds are
in addition to and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
4
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes Retail A Shares in each Fund and Retail B Shares
in the Short-Term Bond and High Quality Bond Funds. Galaxy is also authorized to
issue an additional series of shares in each Fund ("Trust Shares"), which are
offered under a separate prospectus. Retail A Shares, Retail B Shares and Trust
Shares represent equal pro rata interests in each Fund, except that (i)
effective October 1, 1994, Retail A Shares of the Funds bear the expenses
incurred under Galaxy's Shareholder Services Plan at an annual rate of up to
.15% of the average daily net asset value of each Fund's outstanding Retail A
Shares, (ii) Retail B Shares of the Short-Term Bond and High Quality Bond Funds
bear the expenses incurred under Galaxy's Distribution and Services Plan at an
annual rate of up to .80% of the average daily net asset value of each Fund's
outstanding Retail B Shares, and (iii) Retail A Shares, Retail B Shares and
Trust Shares bear differing transfer agency expenses.
The financial highlights presented below have been audited by Coopers &
Lybrand L.L.P., Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Funds dated October 31,
1997 (the "Annual Report"). Such financial highlights should be read in
conjunction with the financial statements contained in the Annual Report and
incorporated by reference into the Statement of Additional Information.
Information in the financial highlights for periods prior to the fiscal year
ended October 31, 1994 reflect the investment results of both Retail A Shares
and Trust Shares of the Funds (Retail A Shares of the Intermediate Government
Income Fund were first offered during the fiscal year ended October 31, 1992).
More information about the performance of the Funds is also contained in the
Annual Report, which may be obtained without charge by contacting Galaxy at its
telephone number or address provided above.
5
<PAGE>
SHORT-TERM BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------
1997 1996
------------------------ -----------------------
RETAIL RETAIL RETAIL RETAIL
A SHARES B SHARES A SHARES B SHARES(3)
--------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 9.99 $ 9.99 $ 10.06 $10.09
--------- ------ -------- ------
Income from Investment Operations:
Net investment income(4,5)........ 0.53 0.46 0.52 0.31
Net realized and unrealized gain
(loss) on investments............ 0.02 0.03 (0.07) (0.10)
--------- ------ -------- ------
Total from Investment
Operations:.................. 0.55 0.49 0.45 0.21
--------- ------ -------- ------
Less Dividends:
Dividends from net investment
income........................... (0.53) (0.47) (0.52) (0.31)
Dividends from net realized
capital gains.................... -- -- -- --
Dividends in excess of net
realized capital gains........... -- -- -- --
--------- ------ -------- ------
Total Dividends............... (0.53) (0.47) (0.52) (0.31)
--------- ------ -------- ------
Net increase (decrease) in net asset
value.............................. 0.02 0.02 (0.07) (0.10)
--------- ------ -------- ------
Net Asset Value, End of Period...... $ 10.01 $ 10.01 $ 9.99 $ 9.99
--------- ------ -------- ------
--------- ------ -------- ------
Total Return(6)..................... 5.64% 4.99% 4.63% 2.12%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)... $ 27,961 $ 905 $33,388 $ 260
Ratios to average net assets:
Net investment income including
reimbursement/waiver............. 5.29% 4.56% 5.22% 4.73%(8)
Operating expenses including
reimbursement/waiver............. 1.00% 1.75% 1.11% 1.77%(8)
Operating expenses excluding
reimbursement/waiver............. 1.21% 2.01% 1.35% 1.98%(8)
Portfolio Turnover Rate............. 173% 173% 214% 214%
<CAPTION>
PERIOD ENDED
1995 1994 OCTOBER 31,
-------- --------
RETAIL SHARES 1993(2) 1992(1,2)
------------------- -------- --------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 9.73 $ 10.30 $ 10.09 $ 10.00
-------- -------- -------- -------
Income from Investment Operations:
Net investment income(4,5)........ 0.55 0.44 0.47 0.42
Net realized and unrealized gain
(loss) on investments............ 0.33 (0.51) 0.22 0.09
-------- -------- -------- -------
Total from Investment
Operations:.................. 0.88 (0.07) 0.69 0.51
-------- -------- -------- -------
Less Dividends:
Dividends from net investment
income........................... (0.55) (0.44) (0.47) (0.42)
Dividends from net realized
capital gains.................... -- -- (0.01) --
Dividends in excess of net
realized capital gains........... -- (0.06) -- --
-------- -------- -------- -------
Total Dividends............... (0.55) (0.50) (0.48) (0.42)
-------- -------- -------- -------
Net increase (decrease) in net asset
value.............................. 0.33 (0.57) 0.21 0.09
-------- -------- -------- -------
Net Asset Value, End of Period...... $ 10.06 $ 9.73 $ 10.30 $ 10.09
-------- -------- -------- -------
-------- -------- -------- -------
Total Return(6)..................... 9.28% (0.68)% 6.98% 5.21%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)... $ 31,542 $ 34,061 $ 85,211 $57,403
Ratios to average net assets:
Net investment income including
reimbursement/waiver............. 5.54% 4.43% 4.51% 5.77%(8)
Operating expenses including
reimbursement/waiver............. 0.99% 0.93% 0.86% 0.90%(8)
Operating expenses excluding
reimbursement/waiver............. 1.32% 1.14% 1.06% 1.20%(8)
Portfolio Turnover Rate............. 289% 233% 100% 114%(7)
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) The Fund began offering Retail B Shares on March 4, 1996.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for (i) Retail A Shares for the years
ended October 31, 1997, 1996, 1995 and 1994 was $0.51, $0.50, $0.52 and
$0.42, respectively, and for (ii) Retail B Shares for the year ended
October 31, 1997 and for the period ended October 31, 1996 was $0.44 and
$0.29, respectively.
(5) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the year ended October 31, 1993
and for the period ended October 31, 1992 was $0.45 and $0.40,
respectively.
(6) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(7) Not Annualized.
(8) Annualized.
6
<PAGE>
INTERMEDIATE GOVERNMENT INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------
1997 1996 1995 1994
-------- -------- -------- ---------
RETAIL RETAIL RETAIL RETAIL
A SHARES A SHARES SHARES SHARES
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 10.06 $ 10.28 $ 9.68 $ 10.72
-------- -------- -------- ---------
Income from Investment Operations:
Net investment income(3,4)........ 0.59 0.57 0.61 0.57
Net realized and unrealized gain
(loss) on investments............. 0.12 (0.22) 0.60 (1.03)
-------- -------- -------- ---------
Total from Investment
Operations:................... 0.71 0.35 1.21 (0.46)
-------- -------- -------- ---------
Less Dividends:
Dividends from net investment
income............................ (0.59) (0.57) (0.61) (0.56)
Dividends in excess of net
investment income................. -- -- -- (0.01)
Dividends from net realized
capital gains..................... -- -- -- --
Dividends in excess of net
realized capital gains............ -- -- -- (0.01)
-------- -------- -------- ---------
Total Dividends................ (0.59) (0.57) (0.61) (0.58)
-------- -------- -------- ---------
Net increase (decrease) in net asset
value.............................. 0.12 (0.22) 0.60 (1.04)
-------- -------- -------- ---------
Net Asset Value, End of Period...... $ 10.18 $ 10.06 $ 10.28 $ 9.68
-------- -------- -------- ---------
-------- -------- -------- ---------
Total Return(5)..................... 7.33% 3.58% 12.85% (4.42)%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)........................... $65,626 $79,741 $ 79,558 $ 94,669
Ratios to average net assets:
Net investment income including
reimbursement/ waiver............. 5.90% 5.69% 6.10% 5.58%
Operating expenses including
reimbursement/ waiver............. 1.02% 1.04% 1.02% 0.78%
Operating expenses excluding
reimbursement/ waiver............. 1.22% 1.24% 1.26% 0.99%
Portfolio Turnover Rate............. 128% 235% 145% 124%
<CAPTION>
YEAR ENDED OCTOBER 31,(2) PERIOD ENDED
------------------------------------------------------ OCTOBER 31,
1993 1992 1991 1990 1989 1988(1,2)
--------- --------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 10.83 $ 10.46 $ 9.73 $ 10.27 $ 10.40 $ 10.00
--------- --------- -------- -------- -------- ------------
Income from Investment Operations:
Net investment income(3,4)........ 0.65 0.71 0.73 0.76 0.82 0.11
Net realized and unrealized gain
(loss) on investments............. 0.10 0.40 0.71 (0.56) 0.16 0.29
--------- --------- -------- -------- -------- ------------
Total from Investment
Operations:................... 0.75 1.11 1.44 0.20 0.98 0.40
--------- --------- -------- -------- -------- ------------
Less Dividends:
Dividends from net investment
income............................ (0.64) (0.74) (0.71) (0.74) (0.96) --
Dividends in excess of net
investment income................. (0.03) -- -- -- -- --
Dividends from net realized
capital gains..................... (0.19) -- -- -- (0.15) --
Dividends in excess of net
realized capital gains............ -- -- -- -- -- --
--------- --------- -------- -------- -------- ------------
Total Dividends................ (0.86) (0.74) (0.71) (0.74) (1.11) --
--------- --------- -------- -------- -------- ------------
Net increase (decrease) in net asset
value.............................. (0.11) 0.37 0.73 (0.54) (0.13) 0.40
--------- --------- -------- -------- -------- ------------
Net Asset Value, End of Period...... $ 10.72 $ 10.83 $ 10.46 $ 9.73 $ 10.27 $ 10.40
--------- --------- -------- -------- -------- ------------
--------- --------- -------- -------- -------- ------------
Total Return(5)..................... 7.06% 10.95% 15.35% 2.06% 10.22% 3.90%(6)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)........................... $ 447,359 $ 199,135 $ 99,942 $ 80,645 $ 71,400 $58,318
Ratios to average net assets:
Net investment income including
reimbursement/ waiver............. 6.03% 6.52% 7.25% 7.69% 8.19% 6.41%(7)
Operating expenses including
reimbursement/ waiver............. 0.80% 0.80% 0.96% 0.98% 0.99% 0.98%(7)
Operating expenses excluding
reimbursement/ waiver............. 1.00% 0.94% 0.96% 0.99% 1.00% 0.98%(7)
Portfolio Turnover Rate............. 153% 103% 150% 162% 112% 41%(6)
</TABLE>
- --------------------------
(1) The Fund (formerly called the Intermediate Bond Fund) commenced operations
on September 1, 1988.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1997, 1996, 1995 and 1994 was $0.57, $0.55, $0.58 and
$0.54, respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1993, 1992, 1991, 1990 and 1989 and for the period ended
October 31, 1988 was $0.63, $0.70, $0.73, $0.73, $0.82 and $0.11
respectively.
(5) Calculation does not include the effect of any sales charge for Retail A
Shares.
(6) Not Annualized.
(7) Annualized.
7
<PAGE>
HIGH QUALITY BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
----------------------- ----------------------
RETAIL RETAIL RETAIL RETAIL
A SHARES B SHARES A SHARES B SHARES(3)
--------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 10.47 $ 10.47 $ 10.63 $10.72
--------- ----------- -------- -----------
Income from Investment Operations:
Net investment income(4,5)........ 0.60 0.53 0.59 0.36
Net realized and unrealized gain
(loss) on investments............ 0.23 0.24 (0.16) (0.25)
--------- ----------- -------- -----------
Total from Investment
Operations:.................. 0.83 0.77 0.43 0.11
--------- ----------- -------- -----------
Less Dividends:
Dividends from net investment
income........................... (0.60) (0.54) (0.59) (0.36)
Dividends from net realized
capital gains.................... -- -- -- --
Dividends in excess of net
realized capital gains........... -- -- -- --
--------- ----------- -------- -----------
Total Dividends:.............. (0.60) (0.54) (0.59) (0.36)
--------- ----------- -------- -----------
Net increase (decrease) in net asset
value.............................. 0.23 0.23 (0.16) (0.25)
--------- ----------- -------- -----------
Net Asset Value, End of Period...... $ 10.70 $ 10.70 $ 10.47 $10.47
--------- ----------- -------- -----------
--------- ----------- -------- -----------
Total Return(6)..................... 8.22% 7.59% 4.24% 1.14%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)... $ 27,950 $ 1,998 $30,984 $ 646
Ratios to average net assets:
Net investment income including
reimbursement/waiver............. 5.73% 5.07% 5.66% 5.34%(8)
Operating expenses including
reimbursement/waiver............. 1.01% 1.69% 1.07% 1.60%(8)
Operating expenses excluding
reimbursement/waiver............. 1.21% 1.95% 1.28% 1.81%(8)
Portfolio Turnover Rate............. 182% 182% 163% 163%
<CAPTION>
YEAR ENDED
------------------- YEAR ENDED
OCTOBER 31,(2)
1995 1994 --------------------- PERIOD ENDED
-------- -------- OCTOBER 31,
RETAIL SHARES 1993 1992 1991(1,2)
------------------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 9.54 $ 11.37 $ 10.60 $ 10.35 $ 10.00
-------- -------- --------- --------- ------------
Income from Investment Operations:
Net investment income(4,5)........ 0.62 0.64 0.66 0.68 0.64
Net realized and unrealized gain
(loss) on investments............ 1.09 (1.56) 0.93 0.36 0.33
-------- -------- --------- --------- ------------
Total from Investment
Operations:.................. 1.71 (0.92) 1.59 1.04 0.97
-------- -------- --------- --------- ------------
Less Dividends:
Dividends from net investment
income........................... (0.62) (0.64) (0.66) (0.71) (0.62)
Dividends from net realized
capital gains.................... -- -- (0.16) (0.08) --
Dividends in excess of net
realized capital gains........... -- (0.27) -- -- --
-------- -------- --------- --------- ------------
Total Dividends:.............. (0.62) (0.91) (0.82) (0.79) (0.62)
-------- -------- --------- --------- ------------
Net increase (decrease) in net asset
value.............................. 1.09 (1.83) 0.77 0.25 0.35
-------- -------- --------- --------- ------------
Net Asset Value, End of Period...... $ 10.63 $ 9.54 $ 11.37 $ 10.60 $ 10.35
-------- -------- --------- --------- ------------
-------- -------- --------- --------- ------------
Total Return(6)..................... 18.46% (8.41)% 15.63% 10.32% 10.04%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)... $ 30,093 $ 26,654 $ 162,594 $ 108,774 $57,580
Ratios to average net assets:
Net investment income including
reimbursement/waiver............. 6.16% 6.25% 5.98% 6.55% 7.25%(6)
Operating expenses including
reimbursement/waiver............. 1.02% 0.81% 0.76% 0.87% 0.95%(8)
Operating expenses excluding
reimbursement/waiver............. 1.26% 1.02% 0.96% 0.94% 0.95%(8)
Portfolio Turnover Rate............. 110% 108% 128% 121% 145%(7)
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) The Fund began offering Retail B Shares on March 4, 1996.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for (i) Retail A Shares for the years
ended October 31, 1997, 1996, 1995 and 1994 was $0.58, $0.57, $0.59 and
$0.62, respectively, for (ii) Retail B Shares for the year ended October
31, 1997 and for the period ended October 31, 1996 was $0.51 and $0.34,
respectively.
(5) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1993
and 1992 and for the period ended October 31, 1991 was $0.63, $0.67 and
$0.64, respectively.
(6) Calculation does not include the effect of any sales charge for Retail A
and Retail B Shares.
(7) Not Annualized.
(8) Annualized.
8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Fleet Investment Advisors Inc. ("Fleet") will use its best efforts to
achieve each Fund's investment objective, although such achievement cannot be
assured. The investment objective of a Fund may not be changed without the
approval of the holders of a majority of its outstanding shares (as defined
under "Miscellaneous"). Except as noted below under "Investment Limitations," a
Fund's investment policies may be changed without shareholder approval. An
investor should not consider an investment in the Funds to be a complete
investment program.
SHORT-TERM BOND FUND
The Short-Term Bond Fund's investment objective is to seek a high level of
current income consistent with preservation of capital. The Fund will invest
substantially all of its assets in debt obligations of domestic and foreign
corporations such as bonds and debentures, obligations convertible into common
stock, "money market" instruments such as bank obligations and commercial paper,
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and asset-backed and mortgage-backed securities. The Fund may
also invest, from time to time, in municipal securities. The purchase of
municipal securities may be advantageous when, as a result of prevailing
economic, regulatory or other circumstances, the performance of such securities,
on a pre-tax basis, is comparable to that of corporate or U.S. Government debt
obligations. The Fund may also enter into interest rate futures contracts to
hedge against changes in market values. See "Other Investment Policies and Risk
Considerations." Under normal market and economic conditions, at least 65% of
the Fund's total assets will be invested in bonds and debentures, subject to the
quality standards described below. The Fund will not invest in common stock, and
any common stock received through the conversion of convertible debt obligations
will be sold in an orderly manner as soon as possible.
Under normal market and economic conditions, the Fund will invest
substantially all of its assets in debt obligations rated at the time of
purchase within the four highest rating categories assigned by S&P ("AAA," "AA,"
"A" and "BBB") or Moody's ("Aaa," "Aa," "A" and "Baa") (or which, if unrated,
are determined by Fleet to be of comparable quality) and in obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities and
"money market" instruments such as those listed below under "Other Investment
Policies." Debt obligations rated within the four highest rating categories
assigned by S&P or Moody's are considered to be investment grade. Debt
obligations rated in the lowest of the four highest rating categories assigned
by S&P or Moody's are considered to have speculative characteristics, even
though they are of investment grade quality, and changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in debt obligations rated in the three
highest rating categories assigned by S&P or Moody's. Unrated securities will be
determined to be of comparable quality to rated debt obligations if, among other
things, other outstanding obligations of the issuers of such securities are
rated BBB/Baa or better. When, in the opinion of Fleet, a defensive investment
posture is warranted, the Fund may invest temporarily and without limitation in
high quality, short-term money market instruments. See Appendix A to the
Statement of Additional Information for a description of S&P's and Moody's
rating categories.
In addition, the Fund may invest in obligations of foreign banks and in
obligations issued or guaranteed by foreign governments or any of their
political subdivisions or instrumentalities. Such obligations include debt
obligations issued by Canadian Provincial Governments, which are similar to U.S.
municipal securities except that the income derived therefrom is fully subject
to U.S. federal taxation. These instruments are denominated in either Canadian
or U.S. dollars and have an established over-the-counter market in the United
States. Also included are debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples of these include the International Bank for Reconstruction
and Development ("World Bank"), the Asian Development Bank and the InterAmerican
Development Bank. Obligations of supranational entities may be supported by
appropriated but unpaid commitments of their member countries, and there is no
assurance that these commitments will be undertaken or met in the future. The
Fund may not invest more than 35% of its total assets in the securities of
foreign issuers. The Fund may also invest in dollar-denominated debt obligations
of U.S. corporations issued outside the United States.
Under normal conditions the Fund's portfolio securities will have an average
weighted maturity of less than three years.
The value of the Fund's portfolio securities will generally vary inversely
with changes in prevailing interest rates. See "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Short-Term Bond Fund.
9
<PAGE>
INTERMEDIATE GOVERNMENT INCOME FUND
The Intermediate Government Income Fund's investment objective is to seek
the highest level of current income consistent with prudent risk of capital.
Subject to this objective, Fleet will consider the total rate of return on
securities in managing the Fund. The Fund will invest in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, in
corporate debt obligations such as bonds and debentures, obligations convertible
into common stock and "money market" instruments, such as bank obligations and
commercial paper, and in asset-backed and mortgage-backed securities. The Fund
may also invest, from time to time, in municipal securities. See "Investment
Objectives and Policies--Short-Term Bond Fund." The Fund may also enter into
interest rate futures contracts to hedge against changes in market values. See
"Other Investment Policies and Risk Considerations." The Fund will not invest in
common stock, and any common stock received through the conversion of
convertible debt obligations will be sold in an orderly manner as soon as
possible.
Under normal market and economic conditions, the Fund will invest
substantially all of its assets in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, in debt obligations rated, at the
time of purchase, within the three highest rating categories assigned by S&P
("AAA," "AA" and "A") or Moody's ("Aaa," "Aa" and "A") (or which, if unrated,
are determined by Fleet to be of comparable quality) and "money market"
instruments such as those listed below under "Other Investment Policies and Risk
Considerations." Unrated securities will be determined to be of comparable
quality to rated debt obligations if, among other things, other outstanding
obligations of the issuers of such securities are rated A or better.
Notwithstanding the foregoing, under normal market and economic conditions, at
least 65% of the Fund's assets will be invested in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. When, in
the opinion of Fleet, a defensive investment posture is warranted, the Fund may
invest temporarily and without limitation in high quality, short-term "money
market" instruments. See Appendix A to the Statement of Additional Information
for a description of S&P's and Moody's rating categories.
In addition, the Fund may invest in obligations issued by Canadian
Provincial Governments and in debt obligations of supranational entities. See
"Investment Objectives and Policies--Short-Term Bond Fund." The Fund may also
invest in dollar-denominated high quality debt obligations of U.S. corporations
issued outside the United States.
Fleet expects that under normal market conditions the Fund's portfolio
securities will have an average weighted maturity of three to ten years.
The value of the Fund's portfolio securities will generally vary inversely
with changes in prevailing interest rates. See "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Intermediate Government Income Fund.
HIGH QUALITY BOND FUND
The High Quality Bond Fund's investment objective is to seek a high level of
current income consistent with prudent risk of capital. The Fund will invest
substantially all of its assets in debt obligations such as bonds and
debentures, obligations convertible into common stock, "money market"
instruments such as bank obligations and commercial paper, obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
asset-backed and mortgage-backed securities. The Fund may also invest, from time
to time, in municipal securities. See "Investment Objectives and
Policies--Short-Term Bond Fund." The Fund may also enter into interest rate
futures contracts to hedge against changes in the market values of fixed income
instruments that the Fund holds or intends to purchase. See "Other Investment
Policies and Risk Considerations." At least 65% of the Fund's total assets will
be invested in non-convertible bonds. Any common stock received through the
conversion of convertible debt obligations will be sold in an orderly manner as
soon as possible.
Under normal market and economic conditions, the Fund will invest
substantially all of its assets in high quality debt obligations that are rated,
at the time of purchase, within the three highest rating categories assigned by
S&P ("AAA," "AA" and "A") or Moody's ("Aaa," "Aa" and "A") (or which, if
unrated, are determined by Fleet to be of comparable quality) and in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and "money market" instruments such as those listed below under "Other
Investment Policies and Risk Considerations." Unrated securities will be
determined to be of comparable quality to high quality debt obligations if,
among other things, other outstanding obligations of the issuers of such
securities are rated A or better. When, in the opinion of Fleet, a defensive
investment posture is warranted, the Fund may invest temporarily and without
limitation in high quality, short-term "money market" instruments. See Appendix
A to the Statement of Additional Information for a description of S&P's and
Moody's rating categories.
In addition, the Fund may invest in obligations issued by Canadian
Provincial Governments and in debt obligations of supranational entities. See
"Investment Objectives and Policies--Short-Term Bond Fund." The Fund may also
invest in dollar-denominated high quality debt obligations of U.S. corporations
issued outside the United States.
The Fund seeks to provide a current yield greater than that generally
available from a portfolio of high quality short-term obligations. The Fund's
average weighted maturity will vary from time to time depending on, among other
things, current market and economic conditions and the comparative yields on
instruments with different maturities. The Fund adjusts its average weighted
maturity and its holdings of
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corporate and U.S. Government debt securities in a manner consistent with
Fleet's assessment of prospective changes in interest rates. The success of this
strategy depends upon Fleet's ability to predict changes in interest rates.
The value of the Fund's portfolio securities will generally vary inversely
with changes in prevailing interest rates. The high quality credit criteria
applied to the selection of portfolio securities are intended to reduce adverse
price changes due to credit considerations. See "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the High Quality Bond Fund.
SPECIAL RISK CONSIDERATIONS
Investments by the Short-Term Bond Fund in foreign securities may involve
higher costs than investments in U.S. securities, including higher transaction
costs, as well as the imposition of additional taxes by foreign governments. In
addition, foreign investments may include additional risks associated with
currency exchange rates, less complete financial information about the issuers,
less market liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of principal and interest on
foreign obligations.
Although the Short-Term Bond Fund may invest in securities denominated in
foreign currencies, the Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of the Fund's shares may fluctuate
with U.S. dollar exchange rates as well as with price changes of the Fund's
foreign securities in the various local markets and currencies. Thus, an
increase in the value of the U.S. dollar compared to the currencies in which the
Fund makes its foreign investments could reduce the effect of increases and
magnify the effect of decreases in the price of the Fund's foreign securities in
their local markets. Conversely, a decrease in the value of the U.S. dollar will
have the opposite effect of magnifying the effect of increases and reducing the
effect of decreases in the prices of the Fund's foreign securities in their
local markets. In addition to favorable and unfavorable currency exchange rate
developments, the Fund is subject to the possible imposition of exchange control
regulations or freezes on convertibility of currency.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which one or
more of the Funds have the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
Each Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a
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Fund to additional risks, including future political and economic developments,
the possible imposition of withholding taxes on interest income, possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange controls, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. In addition, foreign branches of U.S. banks and U.S. branches of
foreign banks may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and recordkeeping standards than
those applicable to domestic branches of U.S. banks. The Funds will invest in
the obligations of U.S. branches of foreign banks or foreign branches of U.S.
banks only when Fleet believes that the credit risk with respect to the
instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a Fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default. The Funds may also purchase Rule 144A securities. See "Investment
Limitations."
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of municipal securities
which may be held by the Funds are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Funds are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of such private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
Each Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Opinions relating to the validity of municipal securities and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor Fleet will review the proceedings relating to the issuance of
municipal securities or the bases for such opinions.
VARIABLE AND FLOATING RATE MUNICIPAL SECURITIES
Municipal securities purchased by the Funds may include rated and unrated
variable and floating rate tax-exempt instruments. There may be no active
secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to a Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days' notice and do not have an active trading market) that
are acquired by the Funds are subject to the 10% limit described in Investment
Limitation No. 3 under "Investment Limitations" in this Prospectus.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
No Fund will enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand by notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 10% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
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Each Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. A Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions such
as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by Fleet to be of good standing and only when, in Fleet's
judgment, the income to be earned from the loan justifies the attendant risks.
The Funds currently intend to limit the lending of their portfolio securities so
that, at any given time, securities loaned by a Fund represent not more than
one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Funds may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method. Investments in other investment companies will cause a Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Funds within the limits prescribed
by the Investment Company Act of 1940, as amended, (the "1940 Act"). Each Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Funds, other investment portfolios of Galaxy, or any other investment companies
advised by Fleet.
INTEREST RATE FUTURES CONTRACTS
The Funds may enter into contracts (both purchase and sales) which provide
for the future delivery of fixed income securities (commonly known as interest
rate futures contracts). The Funds will not engage in futures transactions for
speculation, but only to hedge against changes in the market values of
securities which the Funds hold or intend to purchase. The Funds will engage in
futures transactions only to the extent permitted by the Commodity Futures
Trading Commission ("CFTC") and the Securities and Exchange Commission ("SEC").
The purchase of futures instruments in connection with securities which a Fund
intends to purchase will require an amount of cash and/or liquid assets, equal
to the market value of the outstanding futures contracts, to be deposited in a
segregated account to collateralize the position and thereby insure that the use
of such futures is unleveraged. Each Fund will limit its hedging transactions in
futures contracts so that, immediately after any such transaction, the aggregate
initial margin that is required to be posted by the Fund under the rules of the
exchange on which the futures contract is traded does not exceed 5% of the
Fund's total assets after taking into account any unrealized profits and
unrealized losses on the Fund's open contracts. In addition, no more than
one-third of each Fund's total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by the Funds is subject to the
ability of Fleet to predict correctly movements in the direction of the market.
In addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market will
exist for any particular futures contract at any particular time. Consequently,
a Fund may realize a loss on a futures transaction that is not offset by a
favorable movement in the price of securities which it holds or intends to
purchase or a Fund may be unable to close a futures position in the event of
adverse price movements. Additional information concerning futures transactions
is contained in Appendix B to the Statement of Additional Information.
WHEN-ISSUED, FORWARD COMMITMENT AND
DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. Each Fund may also
purchase or sell securities on a "delayed settlement" basis. When-issued and
forward commitment transactions, which involve a commitment by a Fund to
purchase or sell particular securities
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with payment and delivery taking place at a future date (perhaps one or two
months later), permit the Fund to lock in a price or yield on a security it owns
or intends to purchase, regardless of future changes in interest rates. Delayed
settlement describes settlement of a securities transaction in the secondary
market which will occur sometime in the future. When-issued, forward commitment
and delayed settlement transactions involve the risk, however, that the yield or
price obtained in a transaction may be less favorable than the yield or price
available in the market when the security delivery takes place. It is expected
that forward commitments, when-issued purchases and delayed settlements will not
exceed 25% of the value of a Fund's total assets absent unusual market
conditions. In the event a Fund's forward commitments, when-issued purchases and
delayed settlements ever exceeded 25% of the value of its total assets, the
Fund's liquidity and the ability of Fleet to manage the Fund might be adversely
affected. The Funds do not intend to engage in when-issued purchases, forward
commitments and delayed settlements for speculative purposes, but only in
furtherance of their respective investment objectives.
STAND-BY COMMITMENTS
Each Fund may acquire "stand-by commitments" with respect to municipal
securities held by them. Under a stand-by commitment, a dealer agrees to
purchase, at a Fund's option, specified municipal securities at a specified
price. The Funds will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The Funds expect that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for municipal securities which
are acquired subject to the commitment (thus reducing the yield otherwise
available for the same securities). Stand-by commitments acquired by a Fund
would be valued at zero in determining the Fund's net asset value.
ASSET-BACKED SECURITIES
Each Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the Statement of Additional
Information.
MORTGAGE-BACKED SECURITIES
Each Fund may invest in mortgage-backed securities (including collateralized
mortgage obligations) that represent pools of mortgage loans assembled for sale
to investors by various governmental agencies and government-related
organizations, such as the Government National Mortgage Association, the Federal
National Mortgage Association, and the Federal Home Loan Mortgage Corporation.
Mortgage-backed securities provide a monthly payment consisting of interest and
principal payments. Additional payment may be made out of unscheduled repayments
of principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-backed securities may tend to increase due
to refinancing of mortgages as interest rates decline. To the extent that the
Fund purchases mortgage-backed securities at a premium, mortgage foreclosures
and prepayments of principal by mortgagors (which may be made at any time
without penalty) may result in some loss of the Fund's principal investment to
the extent of the premium paid. The yield of a Fund that invests in
mortgage-backed securities may be affected by reinvestment of prepayments at
higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
interest rates decline; as a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
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MORTGAGE DOLLAR ROLLS
Each Fund may enter into mortgage "dollar rolls" in which a Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date not exceeding 120 days.
During the roll period, a Fund loses the right to receive principal and interest
paid on the securities sold. However, the Fund would benefit to the extent of
any difference between the price received for the securities sold and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of a Fund compared with what such performance would have been without the use of
mortgage dollar rolls. All cash proceeds will be invested in instruments that
are permissible investments for each Fund. The Funds will hold and maintain in a
segregated account until the settlement date cash or other liquid assets in an
amount equal to the forward purchase price.
For financial reporting and tax purposes, the Funds propose to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom a
Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet's ability to predict correctly interest rates and mortgage
prepayments. For these reasons, there is no assurance that mortgage dollar rolls
can be successfully employed.
STRIPPED OBLIGATIONS
To the extent consistent with its investment objective, each Fund may
purchase U.S. Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government or by private issuers, such as banks and
other institutions, are issued at their "face value," and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities. The market value of the class consisting
entirely of principal payments generally is extremely volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid by the Funds. Obligations
issued by the U.S. Government may be considered liquid under guidelines
established by Galaxy's Board of Trustees if they can be disposed of promptly in
the ordinary course of business at a value reasonably close to that used in the
calculation of net asset value per share.
GUARANTEED INVESTMENT CONTRACTS
Each Fund may invest in guaranteed investment contracts ("GICs") issued by
United States and Canadian insurance companies. Pursuant to GICs, a Fund makes
cash contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the Fund payments at negotiated, floating
or fixed interest rates. A GIC is a general obligation of the issuing insurance
company and not a separate account. The purchase price paid for a GIC becomes
part of the general assets of the insurance company, and the contract is paid
from the company's general assets. The Funds will only purchase GICs that are
issued or guaranteed by insurance companies that at the time of purchase are
rated at least AA by S&P or receive a similar high quality rating from a
nationally recognized service which provides ratings of insurance companies.
GICs are considered illiquid securities and will be subject to the Funds' 10%
limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
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BANK INVESTMENT CONTRACTS
Each Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and will
be subject to the Funds' 10% limitation on such investments, unless there is an
active and substantial secondary market for the particular instrument and market
quotations are readily available.
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest rates or indices, and include, but are not limited
to, interest rate futures and certain asset-backed and mortgage-backed
securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest rates
change adversely, the value of the derivative security will decline more than
the assets, rates or indices on which it is based; liquidity risk that the Funds
will be unable to sell a derivative security when it wants because of lack of
market depth or market disruption; pricing risk that the value of a derivative
security will not correlate exactly to the value of the underlying assets, rates
or indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
derivative securities are more complex than others, and for those instruments
that have been developed recently, data are lacking regarding their actual
performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Funds, and will determine, in connection with its day-to-day
management of the Funds, how they will be used in furtherance of each Fund's
investment objective. It is possible, however, that Fleet's evaluations will
prove to be inaccurate or incomplete and, even when accurate and complete, it is
possible that the Funds will, because of the risks discussed above, incur loss
as a result of their investments in derivative securities. See "Investment
Objectives and Policies--Derivative Securities" in the Statement of Additional
Information relating to the Funds for additional information.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover may result in the realization of substantial capital gains and involves
correspondingly greater transaction costs. To the extent that net capital gains
are realized, distributions derived from such gains are treated as ordinary
income for federal income tax purposes. See "Financial Highlights" and
"Taxes--Federal."
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INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to any Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
No Fund may:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) each Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with the Fund's
permitted investments, where the value of the collateral is equal at all
times to at least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10% of the value of its total assets at the time of such borrowing
(provided that each Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in amounts not in
excess of 10% of the value of its total assets at the time of such
borrowing); or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of its total
assets at the time of such borrowing. No Fund will purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other securities
which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total
assets would be invested in such issuer, except that up to 25% of the value
of its total assets may be invested without regard to this limitation.
In addition, the Funds may not purchase any securities which would cause 25%
or more of the value of a Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however, that (a) there is
no limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, (a) each Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing, and (b)
mortgage dollar rolls entered into by a Fund that are not accounted for as
financings shall not constitute borrowings.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. A Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
10% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered to be
illiquid if Fleet has determined, in accordance with guidelines established by
the Board of Trustees, that an adequate trading market exists for such
securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of a Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Funds is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time), on each day on which the Exchange is open for trading.
Currently, the holidays which Galaxy observes are New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share of a
Fund for purposes of pricing sales and redemptions is calculated separately for
each series of shares by dividing the value of all securities and other assets
attributable to a particular series of shares of the Fund, less the
17
<PAGE>
liabilities attributable to shares of that series of the Fund, by the number of
outstanding shares of that series of the Fund.
The Funds' assets are valued for purposes of pricing sales and redemptions
by an independent pricing service ("Service") approved by Galaxy's Board of
Trustees. When, in the judgment of the Service, quoted bid prices for portfolio
securities are readily available and are representative of the bid side of the
market, these investments are valued at the mean between quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments are carried at fair value as determined by the
Service, based on methods which include consideration of yields or prices of
bonds of comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
HOW TO PURCHASE SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered broker/
dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
GENERAL
Investments in Retail A Shares of the Funds are subject to a front-end sales
charge. Investments in Retail B Shares of the Short-Term Bond and High Quality
Bond Funds are subject to a back-end sales charge. This back-end sales charge
declines over time and is known as a "contingent deferred sales charge."
Investors should read "Characteristics of Retail A Shares and Retail B
Shares" and "Factors to Consider When Selecting Retail A Shares or Retail B
Shares" before deciding between the two.
FD Distributors has established several procedures to enable different types
of investors to purchase Retail Shares of the Funds. The Retail Shares described
in this Prospectus may be purchased by individuals, corporations or other
entities, who submit a purchase application to Galaxy, purchasing directly
either for their own accounts or for the accounts of others ("Direct
Investors"). Retail Shares may also be purchased by FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers
("Institutions") on behalf of their customers ("Customers"). Purchases by Direct
Investors may take place only on days on which the FD Distributors, Galaxy's
custodian and Galaxy's transfer agent are open for business ("Business Days").
If an Institution accepts a purchase order from a Customer on a non-Business
Day, the order will not be executed until it is received and accepted by FD
Distributors on a Business Day in accordance with FD Distributors' procedures.
PURCHASE PROCEDURES--CUSTOMERS OF INSTITUTIONS
Purchase orders for Retail Shares are placed by Customers of Institutions
through their Institutions. The Institution is responsible for transmitting
Customer purchase orders to FD Distributors and for wiring required funds in
payment to Galaxy's custodian on a timely basis. FD Distributors is responsible
for transmitting such orders to Galaxy's transfer agent for execution. Retail
Shares purchased by Institutions on behalf of their Customers will normally be
held of record by the Institution and beneficial ownership of Retail Shares will
be recorded by the Institution and reflected in the account statements provided
to their Customers. Galaxy's transfer agent may establish an account of record
for each Customer of an Institution reflecting beneficial ownership of Retail
Shares. Depending on the terms of the arrangement between a particular
Institution and Galaxy's transfer agent, confirmations of Retail Share purchases
and redemptions and pertinent account statements will either be sent by Galaxy's
transfer agent directly to a Customer with a copy to the Institution, or will be
furnished directly to the Customer by the Institution. Other procedures for the
purchase of Retail Shares established by Institutions in connection with the
requirements of their Customer accounts may apply. Customers wishing to purchase
Retail Shares through their Institution should contact such entity directly for
appropriate purchase instructions.
18
<PAGE>
PURCHASE PROCEDURES--DIRECT INVESTORS
PURCHASES BY MAIL. Retail Shares may be purchased by completing a purchase
application and mailing it, together with a check payable to each Fund in which
a Direct Investor wishes to invest, to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01518-5108
ALL PURCHASE ORDERS PLACED BY MAIL MUST BE ACCOMPANIED BY A PURCHASE
APPLICATION. APPLICATIONS MAY BE OBTAINED BY CALLING FD DISTRIBUTORS AT
1-800-628-0414.
Subsequent investments in an existing account in any Fund may be made at any
time by sending a check for a minimum of $100 payable to the Fund in which the
additional investment is being made to Galaxy at the address above along with
either (a) the detachable form that regularly accompanies confirmation of a
prior transaction, (b) a subsequent order form that may be obtained from FD
Distributors, or (c) a letter stating the amount of the investment, the name of
the Fund and the account number in which the investment is to be made. If a
Direct Investor's check does not clear, the purchase will be cancelled.
PURCHASES BY WIRE. Direct Investors may also purchase Retail Shares by
arranging to transmit federal funds by wire to Fleet Bank of Massachusetts, N.A.
as agent for First Data Investor Services Group, Inc. ("Investor Services
Group"), Galaxy's transfer agent. Prior to making any purchase by wire, an
investor must telephone 1-800-628-0414 to place an order and for instructions.
Federal funds and registration instructions should be wired through the Federal
Reserve System to:
Fleet Bank of Massachusetts, N.A.
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
[Shareholder Name]
[Shareholder Account Number]
Direct Investors making initial investments by wire must promptly complete a
purchase application and forward it to The Galaxy Fund, P.O. Box 5108, 4400
Computer Drive, Westboro, Massachusetts 01581-5108. Applications may be obtained
by calling FD Distributors at 1-800-628-0414. Redemptions will not be processed
until the application in proper form has been received by Investor Services
Group. Direct Investors making subsequent investments by wire should follow the
instructions above.
EFFECTIVE TIME OF PURCHASES. A purchase order for Retail Shares received
and accepted by FD Distributors from an Institution or a Direct Investor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be executed at the net asset value per
share determined on that date, provided that Galaxy's custodian receives the
purchase price in federal funds or other immediately available funds prior to
4:00 p.m. on the third Business Day following the receipt of such order. Such
order will be executed on the day on which the purchase price is received in
proper form. If funds are not received by such date and time, the order will not
be accepted and notice thereof will be given promptly to the Institution or
Direct Investor submitting the order. Payment for orders which are not received
or accepted will be returned. If an Institution accepts a purchase order from a
Customer on a non-Business Day, the order will not be executed until it is
received and accepted by FD Distributors on a Business Day in accordance with
the above procedures. On a Business Day when the Exchange closes early due to a
partial holiday or otherwise, Galaxy will advance the time at which purchase
orders must be received in order to be processed on that Business Day.
OTHER PURCHASE INFORMATION
Except as provided under "Investor Programs" below, the minimum initial
investment by a Direct Investor, or initial aggregate investment by an
Institution investing on behalf of its Customers, is $2,500. The minimum
investment for subsequent purchases is $100. The minimum investment requirement
with respect to IRAs, SEPs, MERPs and Keogh Plans (see below under "Retirement
Plans") is $500 (including spousal IRA accounts). There are no minimum
investment requirements for investors participating in the Automatic Investment
Program described below. Customers may agree with a particular Institution to
varying minimum initial and minimum subsequent purchase requirements with
respect to their accounts.
Galaxy reserves the right to reject any purchase order, in whole or in part,
or to waive any minimum investment requirement. The issuance of Retail Shares to
Direct Investors and Institutions is recorded on the books of Galaxy and Retail
Share certificates will not be issued.
Investors may be charged a separate fee if they effect transactions in
Retail Shares through a broker or other agent.
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<PAGE>
APPLICABLE SALES CHARGES--RETAIL A SHARES
The public offering price for Retail A Shares of the Funds is the sum of the
net asset value of the Retail A Shares purchased plus any applicable front-end
sales charge. The sales charge is assessed as follows:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE REALLOWANCE TO DEALERS
-------------------------------- -----------------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
- ------------------------------ -------------- --------------- -----------------------
<S> <C> <C> <C>
Less than $50,000............. 3.75 3.90 3.25
$50,000 but less than
$100,000..................... 3.50 3.63 3.00
$100,000 but less than
$250,000..................... 3.00 3.09 2.50
$250,000 but less than
$500,000..................... 2.50 2.56 2.00
$500,000 and over............. 0.00* 0.00* 0.00
</TABLE>
- --------------------------
* There is no initial sales charge on purchases of $500,000 or more of Retail A
Shares; however, a contingent deferred sales charge of 1.00% will be imposed
on the lesser of the offering price or the net asset value of such Retail A
Shares on the redemption date for Shares redeemed within one year after
purchase. The contingent deferred sales charge will not be assessed on
redemptions within one year after purchase in connection with the death or
disability of a shareholder. To receive this exemption, a Direct Investor or
Customer must explain the status of his or her redemption at the time the
Retail A Shares are redeemed.
Further reductions in the sales charges shown above are also possible. See
"Quantity Discounts" below.
FD Distributors will pay the appropriate reallowance to dealers to
broker-dealer organizations which have entered into agreements with FD
Distributors. The reallowance to dealers may be changed from time to time.
At various times FD Distributors may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, FD Distributors in its discretion may from time to time, pursuant
to objective criteria established by FD Distributors, pay fees to qualifying
dealers for certain services or activities which are primarily intended to
result in sales of Retail A Shares of a Fund. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by FD
Distributors out of its own assets and not out of the assets of the Funds. These
programs will not change the price of Retail A Shares or the amount that the
Funds will receive from such sales.
Fleet's indirect parent, Fleet National Bank, or another affiliate of Fleet,
may at its expense, provide additional compensation to Fleet Enterprises, Inc.,
a broker-dealer affiliate of Fleet, whose customers purchase significant amounts
of Retail A Shares of a Fund. Such compensation will not represent an additional
expense to the Funds or their shareholders, since it will be paid from the
assets of Fleet's affiliates.
In certain situations or for certain individuals, the front-end sales charge
for Retail A Shares of the Funds may be waived either because of the nature of
the investor or the reduced sales effort required to attract such investments.
In order to receive the sales charge waiver, an investor must explain the status
of his or her investment at the time of purchase. No sales charge is assessed on
purchases of Retail A Shares of the Funds by the following categories of
investors or in the following types of transactions:
- reinvestment of dividends and distributions;
- purchases by any retirement account, including but not limited to SIMPLE,
IRA, SEP, Keogh and Roth accounts;
- purchases by persons who were beneficial owners of shares of the Funds or
any of the other portfolios offered by Galaxy or any other funds advised by
Fleet or its affiliates before December 1, 1995;
- purchases by directors, officers and employees of broker-dealers having
agreements with FD Distributors pertaining to the sale of Retail A Shares to the
extent permitted by such organizations;
- investors who purchase pursuant to a "wrap fee" program offered by any
broker-dealer or other financial institution or financial planning organization;
- purchases made with redemption proceeds from another mutual fund complex
on which a front-end or back-end sales charge has been paid, provided the
purchase is made within 60 days after the redemption;
- purchases by current and retired members of Galaxy's Board of Trustees and
members of their immediate families;
- purchases by officers, directors, employees and retirees of Fleet
Financial Group, Inc. and any of its affiliates and members of their immediate
families;
- purchases by officers, directors, employees and retirees of First Data
Corporation and any of its affiliates and members of their immediate families;
- purchases by persons who are also plan participants in any employee
benefit plan which is the record or beneficial holder of Trust Shares of the
Funds or any of the other portfolios offered by Galaxy;
20
<PAGE>
- purchases by institutional investors, including but not limited to bank
trust departments and registered investment advisers;
- purchases by investment advisers, consultants or financial planners who
place trades for their own accounts or the accounts of their clients and who
charge such clients a management, consulting, advisory or other fee;
- purchases by clients of investment advisors or financial planners who
place trades for their own accounts if such accounts are linked to the master
accounts of such investment advisers or financial planners on the books of the
broker-dealer through whom Retail A Shares are purchased;
- purchases by institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund these plans, which
place trades through an omnibus account maintained with Galaxy by the
broker-dealer; and
- any purchase pursuant to the Reinstatement Privilege described below.
QUANTITY DISCOUNTS
Direct Investors or Customers may be entitled to reduced sales charges
through Rights of Accumulation, a Letter of Intent or a combination of
investments, as described below, even if the Direct Investor or Customer does
not wish to make an investment of a size that would normally qualify for a
quantity discount.
In order to obtain quantity discount benefits, a Direct Investor or Customer
must notify Galaxy's administrator, First Data Investor Services Group, Inc.
("Investor Services Group"), at the time of purchase that he or she would like
to take advantage of any of the discount plans described below. Upon such
notification, the investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time and are subject to
confirmation of a Direct Investor's or Customer's holdings through a check of
appropriate records. For more information about quantity discounts, please
contact FD Distributors or your Institution.
RIGHTS OF ACCUMULATION. A reduced sales charge applies to any purchase of
Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where a Direct Investor's or Customer's then current aggregate
investment in Retail A Shares is $50,000 or more. "Aggregate investment" means
the total of: (a) the dollar amount of the then current purchase of shares of an
Eligible Fund; and (b) the value (based on current net asset value) of
previously purchased and beneficially-owned shares of any Eligible Fund on which
a sales charge has been paid. If, for example, a Direct Investor or Customer
beneficially owns shares of one or more Eligible Funds with an aggregate current
value of $49,000 on which a sales charge has been paid and subsequently
purchases shares of an Eligible Fund having a current value of $1,000, the sales
charge applicable to the subsequent purchase would be reduced to 3.50% of the
offering price. Similarly, with respect to each subsequent investment, all
shares of Eligible Funds that are beneficially owned by the investor at the time
of investment may be combined to determine the applicable sales charge.
LETTER OF INTENT. By completing the Letter of Intent included as part of
the Account Application, a Direct Investor or Customer becomes eligible for the
reduced sales charge applicable to the total number of Eligible Fund Retail A
Shares purchased in a 13-month period pursuant to the terms and under the
conditions set forth below and in the Letter of Intent. To compute the
applicable sales charge, the offering price of Retail A Shares of an Eligible
Fund on which a sales charge has been paid and that are beneficially owned by a
Direct Investor or Customer on the date of submission of the Letter of Intent
may be used as a credit toward completion of the Letter of Intent. However, the
reduced sales charge will be applied only to new purchases.
Investor Services Group will hold in escrow Retail A Shares equal to 5% of
the amount indicated in the Letter of Intent for payment of a higher sales
charge if a Direct Investor or Customer does not purchase the full amount
indicated in the Letter of Intent. The escrow will be released when a Direct
Investor or Customer fulfills the terms of the Letter of Intent by purchasing
the specified amount. If purchases qualify for a further sales charge reduction,
the sales charge will be adjusted to reflect a Direct Investor's or Customer's
total purchases. If total purchases are less than the amount specified, a Direct
Investor or Customer will be requested to remit an amount equal to the
difference between the sales charge actually paid and the sales charge
applicable to the total purchases. If such remittance is not received within 20
days, Investor Services Group, as attorney-in-fact pursuant to the terms of the
Letter of Intent and at FD Distributors' direction, will redeem an appropriate
number of Retail A Shares held in escrow to realize the difference. Signing a
Letter of Intent does not bind a Direct Investor or Customer to purchase the
full amount indicated at the sales charge in effect at the time of signing, but
a Direct Investor or Customer must complete the intended purchase in accordance
with the terms of the Letter of Intent to obtain the reduced sales charge. To
apply, a Direct Investor or Customer must indicate his or her intention to do so
under a Letter of Intent at the time of purchase.
QUALIFICATION FOR DISCOUNTS. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit sharing plan established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
REINSTATEMENT PRIVILEGE. Direct Investors and Customers may reinvest all or
any portion of their redemption proceeds
21
<PAGE>
in Retail A Shares of the Funds or in Retail A Shares of another portfolio of
Galaxy within 90 days of the redemption trade date without paying a sales load.
Retail A Shares so reinvested will be purchased at a price equal to the net
asset value next determined after Investor Services Group, Galaxy's transfer
agents receive a reinstatement request and payment in proper form.
Direct Investors and Customers wishing to exercise this Privilege must
submit a written reinstatement request to Investor Services Group as transfer
agent stating that the investor is eligible to use the Privilege. The
reinstatement request and payment must be received within 90 days of the trade
date of the redemption. Currently, there are no restrictions on the number of
times an investor may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the Internal Revenue Code's "wash
sale" rules.
APPLICABLE SALES CHARGES--RETAIL B SHARES
The public offering price for Retail B Shares of the Short-Term Bond and
High Quality Bond Funds is the net asset value of the Retail B Shares purchased.
Although Direct Investors and Customers pay no front-end sales charge on
purchases of Retail B Shares, such Shares are subject to a contingent deferred
sales charge at the rates set forth below if they are redeemed within six years
of purchase. Securities dealers, brokers, financial institutions and other
industry professionals will receive commissions from FD Distributors in
connection with sales of Retail B Shares. These commissions may be different
than the reallowances or placement fees paid to dealers in connection with sales
of Retail A Shares. Certain affiliates of Fleet may, at their own expense,
provide additional compensation to Fleet Enterprises, Inc., a broker-dealer
affiliate of Fleet, whose customers purchase significant amounts of Retail B
Shares of a Fund. See "Applicable Sales Charges--Retail A Shares." The
contingent deferred sales charge on Retail B Shares is based on the lesser of
the net asset value of the Shares on the redemption date or the original cost of
the Shares being redeemed. As a result, no sales charge is imposed on any
increase in the principal value of a Direct Investor's or Customer's Retail B
Shares. In addition, a contingent deferred sales charge will not be assessed on
Retail B Shares purchased through reinvestment of dividends or capital gains
distributions.
The amount of any contingent deferred sales charge Direct Investors and
Customers must pay depends on the number of years that elapse between the
purchase date and the date such Retail B Shares are redeemed. Solely for
purposes of this determination, all payments during a month will be aggregated
and deemed to have been made on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
(AS A PERCENTAGE OF
DOLLAR AMOUNT
NUMBER OF YEARS SUBJECT TO THE
ELAPSED SINCE PURCHASE CHARGE)
-------------------------- --------------------
<S> <C>
Less than one..................................... 5.00%
More than one but less than two................... 4.00%
More than two but less than three................. 3.00%
More than three but less than four................ 3.00%
More than four but less than five................. 2.00%
More than five but less than six.................. 1.00%
After six......................................... None
</TABLE>
When a Direct Investor or Customer redeems his or her Retail B Shares, the
redemption request is processed to minimize the amount of the contingent
deferred sales charge that will be charged. Retail B Shares are redeemed first
from those shares that are not subject to a contingent deferred sales charge
(I.E., Retail B Shares that were acquired through reinvestment of dividends or
distributions or that qualify for other deferred sales charge exemptions) and
after that from the Retail B Shares that have been held the longest.
The proceeds from the contingent deferred sales charge that a Direct
Investor or Customer may pay upon redemption go to FD Distributors, which may
use such amounts to defray the expenses associated with the distribution-related
services involved in selling Retail B Shares.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. Certain types of
redemptions may also qualify for an exemption from the contingent deferred sales
charge. To receive exemptions (i), (iv) or (viii) listed below, a Direct
Investor or Customer must explain the status of his or her redemption at the
time Retail B Shares are redeemed. The contingent deferred sales charge with
respect to Retail B Shares is not assessed on: (i) exchanges described under
"Investor Programs--Exchange Privilege" below; (ii) redemptions in connection
with required (or, in some cases, discretionary) distributions to participants
or beneficiaries of an employee pension, profit-sharing or other trust or
qualified retirement or Keogh plan, individual retirement account or custodial
account maintained pursuant to Section 403(b)(7) of the Internal Revenue Code of
1986, as amended, (the "Code"); (iii) redemptions in connection with required
(or, in some cases, discretionary) distributions to participants in qualified
retirement or Keogh plans, individual retirement accounts or custodial accounts
maintained pursuant to Section 403(b)(7) of the Code due to death, disability or
the attainment of a specified age; (iv) redemptions effected pursuant to a
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of Retail B Shares held in the account is less than the minimum account
size; (v) redemptions in connection with the combination of the Funds with any
other investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (vi) redemptions in connection with the
death or disability of a shareholder; (vii) redemptions resulting from a
22
<PAGE>
tax-free return of an excess contribution pursuant to Section 408(d)(4) or (5)
of the Code; or (viii) any redemption of Retail B Shares held by Direct
Investors or Customers, provided the Direct Investor or Customer was the
beneficial owner of shares of the Short-Term Bond or High Quality Bond Funds (or
any of the other portfolios offered by Galaxy or otherwise advised by Fleet or
its affiliates) before December 1, 1995. In addition to the foregoing
exemptions, no contingent deferred sales charge will be imposed on redemptions
made pursuant to the Systematic Withdrawal Plan, subject to the limitations set
forth under "Investor Programs-- Automatic Investment Program and Systematic
Withdrawal Plan" below.
CHARACTERISTICS OF RETAIL A SHARES AND RETAIL B SHARES
The primary difference between Retail A Shares and Retail B Shares lies in
their sales charge structures and shareholder servicing/distribution expenses. A
Direct Investor or Customer should understand that the purpose and function of
the sales charge structures and shareholder servicing/ distribution arrangements
for both Retail A Shares and Retail B Shares are the same.
Retail A Shares of the Funds are sold at their net asset value plus a
front-end sales charge of up to 3.75%. This front-end sales charge may be
reduced or waived in some cases. (See "Applicable Sales Charges--Retail A
Shares" and "Quantity Discounts.") Retail A Shares of a Fund are currently
subject to ongoing shareholder servicing fees at an annual rate of up to .15% of
a Fund's average daily net assets attributable to its Retail A Shares.
Retail B Shares of the Short-Term Bond Fund and High Quality Bond Fund are
sold at net asset value without an initial sales charge. Normally, however, a
deferred sales charge is paid if the Shares are redeemed within six years of
investment. (See "Applicable Sales Charges--Retail B Shares.") Retail B Shares
of a Fund are currently subject to ongoing shareholder servicing and
distribution fees at an annual rate of up to .80% of the Fund's average daily
net assets attributable to its Retail B Shares. These ongoing fees, which are
higher than those charged on Retail A Shares, will cause Retail B Shares to have
a higher expense ratio and pay lower dividends than Retail A Shares.
Six years after purchase, Retail B Shares of the Short-Term Bond Fund and
High Quality Bond will convert automatically to Retail A Shares of the Funds.
The purpose of the conversion is to relieve a holder of Retail B Shares of the
higher ongoing expenses charged to those Shares, after enough time has passed to
allow FD Distributors to recover approximately the amount it would have received
if a front-end sales charge had been charged. The conversion from Retail B
Shares to Retail A Shares takes place at net asset value, as a result of which a
Direct Investor or Customer receives dollar-for-dollar the same value of Retail
A Shares as he or she had of Retail B Shares. The conversion occurs six years
after the beginning of the calendar month in which the Shares are purchased.
Upon conversion, the converted Shares will be relieved of the distribution and
shareholder servicing fees borne by Retail B Shares, although they will be
subject to the shareholder servicing fees borne by Retail A Shares.
Retail B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charges--Retail B Shares")
are also converted at the earlier of two dates--six years after the beginning of
the calendar month in which the reinvestment occurred or the date of conversion
of the most recently purchased Retail B Shares that were not acquired through
reinvestment of dividends or distributions. For example, if a Direct Investor or
Customer makes a one-time purchase of Retail B Shares of a Fund, and
subsequently acquires additional Retail B Shares of such Fund only through
reinvestment of dividends and/or distributions, all of such Direct Investor's or
Customer's Retail B Shares in the Fund, including those acquired through
reinvestment, will convert to Retail A Shares of such Fund on the same date.
FACTORS TO CONSIDER WHEN SELECTING RETAIL A SHARES OR RETAIL B SHARES
Before purchasing Retail A Shares or Retail B Shares of the Short-Term Bond
Fund or High Quality Bond Fund, Direct Investors and Customers should consider
whether, during the anticipated periods of their investments in the particular
Fund, the accumulated distribution and shareholder servicing fees and potential
contingent deferred sales charge on Retail B Shares prior to conversion would be
less than the initial sales charge and accumulated shareholder servicing fees on
Retail A Shares purchased at the same time, and to what extent such differential
would be offset by the higher yield of Retail A Shares. In this regard, to the
extent that the sales charge for Retail A Shares is waived or reduced by one of
the methods described above, investments in Retail A Shares become more
desirable. An investment of $250,000 or more in Retail B Shares would not be in
most shareholders' best interest. Shareholders should consult their financial
advisers and/or brokers with respect to the advisability of purchasing Retail B
Shares in amounts exceeding $250,000.
Although Retail A Shares are subject to a shareholder servicing fee, they
are not subject to the higher distribution and shareholder servicing fee
applicable to Retail B Shares. For this reason, Retail A Shares can be expected
to pay correspondingly higher dividends per Share. However, because initial
sales charges are deducted at the time of purchase, purchasers of Retail A
Shares (that do not qualify for exemptions from or reductions in the initial
sales charge) would have less of their purchase price initially invested in
these Funds than purchasers of Retail B Shares in the Funds.
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As described above, purchasers of Retail B Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Retail B Shares. Because a Fund's future returns cannot
be predicted, there can be no assurance that this will be the case. Holders of
Retail B Shares would, however, own shares that are subject to a contingent
deferred sales charge of up to 5.00% upon redemption, depending upon the year of
redemption. Direct Investors or Customers expecting to redeem during this
six-year period should compare the cost of the contingent deferred sales charge
plus the aggregate annual distribution and shareholder servicing fees on Retail
B Shares to the cost of the initial sales charge and shareholder servicing fees
on the Retail A Shares. Over time, the expense of the annual distribution and
shareholder servicing fees on the Retail B Shares may equal or exceed the
initial sales charge and annual shareholder servicing fee applicable to Retail A
Shares. For example, if net asset value remains constant, the aggregate
distribution and shareholder servicing fees with respect to Retail B Shares of a
Fund would equal or exceed the initial sales charge and aggregate shareholder
servicing fees of Retail A Shares approximately six years after the purchase. In
order to reduce such fees for investors that hold Retail B Shares for more than
six years, Retail B Shares will be automatically converted to Retail A Shares as
described above at the end of such six-year period.
HOW TO REDEEM SHARES
GENERAL
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Proceeds from the redemptions of Retail B Shares
of the Short-Term Bond and High Quality Bond Funds will be reduced by the amount
of any applicable contingent deferred sales charge. Galaxy reserves the right to
transmit redemption proceeds within seven days after receiving the redemption
order if, in its judgment, an earlier payment could adversely affect a Fund.
REDEMPTION PROCEDURES--CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or part of their Retail Shares in
accordance with procedures governing their accounts at Institutions. It is the
responsibility of the Institutions to transmit redemption orders to FD
Distributors and credit their Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy, although Institutions may charge a Customer's account for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institutions.
Payments for redemption orders received by FD Distributors on a Business Day
will normally be wired on the third Business Day to the Institutions.
Direct Investors may redeem all or part of their Retail Shares in accordance
with any of the procedures described below.
REDEMPTION PROCEDURES--DIRECT INVESTORS
REDEMPTION BY MAIL. Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
A written redemption request must (i) state the name of the Fund and the
number of shares to be redeemed, (ii) identify the shareholder account number
and tax identification number, and (iii) be signed by each registered owner
exactly as the Retail Shares are registered. A redemption request for an amount
in excess of $50,000, or for any amount where (i) the proceeds are to be sent
elsewhere than the address of record (excluding the transfer of assets to a
successor custodian), (ii) the proceeds are to be sent to an address of record
which has changed in the preceding 30 days, or (iii) the check is to be made
payable to someone other than the registered owner(s), must be accompanied by
signature guarantees. The guarantor of a signature must be a bank which is a
member of the FDIC, a trust company, a member firm of a national securities
exchange or any other eligible guarantor institution. FD Distributors will not
accept guarantees from notaries public. FD Distributors may require additional
supporting documents for redemptions made by corporations, executors,
administrators, trustees and guardians. A redemption request will not be deemed
to be properly
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received until FD Distributors receives all required documents in proper form.
The Funds ordinarily will make payment for Retail Shares redeemed by mail within
three Business Days after proper receipt by FD Distributors of the redemption
request. Questions with respect to the proper form for redemption requests
should be directed to FD Distributors at 1-800-628-0414.
REDEMPTION BY TELEPHONE. Direct Investors who have not otherwise indicated
on the application, or in a subsequent notification in writing, may redeem
Retail Shares by calling 1-800-628-0414 and instructing FD Distributors to mail
a check for redemption proceeds of up to $50,000 to the address of record. A
redemption request for an amount in excess of $50,000, or for any amount where
(i) the proceeds are to be sent elsewhere than the address of record (excluding
the transfer of assets to a successor custodian), (ii) the proceeds are to be
sent to an address of record which has changed in the preceding 30 days, or
(iii) the check is to be made payable to someone other than the registered
owner(s), must be accompanied by signature guarantees. (See "Redemption by Mail"
above for details regarding signature guarantees.)
REDEMPTION BY WIRE. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
Retail Shares by instructing FD Distributors by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to the Direct Investor's account
at any commercial bank in the United States. FD Distributors charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption proceeds.
The redemption proceeds must be paid to the same bank and account as designated
on the application or in written instructions subsequently received by FD
Distributors. To request redemption of Retail Shares by wire, Direct Investors
should call FD Distributors at 1-800-628-0414.
In order to arrange for redemption by wire after an account has been opened
or to change the bank or account designated to receive redemption proceeds, a
written request must be sent to Galaxy at the address listed above under
"Redemption by Mail." Such requests must be signed by the investor and
accompanied by a signature guarantee (see "Redemption by Mail" above for details
regarding signature guarantees). Further documentation may be requested from
corporations, executors, administrators, trustees, or guardians. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures for transactions
by wire or mail which are described above.
Galaxy reserves the right to refuse a wire or telephone redemption if it
believes it is advisable to do so. Procedures for redeeming Retail Shares by
wire or telephone may be modified or terminated at any time by Galaxy or FD
Distributors. In attempting to confirm that telephone instructions are genuine,
Galaxy will use such procedures as are considered reasonable, including
recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security number, address and/or bank). If Galaxy fails to follow established
procedures for the authentication of the telephone instructions, it may be
liable for losses due to unauthorized or fraudulent telephone transactions.
NO REDEMPTION BY A DIRECT INVESTOR IN ANY FUND WILL BE PROCESSED UNTIL
GALAXY HAS RECEIVED A COMPLETED APPLICATION WITH RESPECT TO THE DIRECT
INVESTOR'S ACCOUNT.
IF ANY PORTION OF THE RETAIL SHARES TO BE REDEEMED REPRESENTS AN INVESTMENT
MADE BY PERSONAL CHECK, GALAXY RESERVES THE RIGHT TO DELAY PAYMENT OF PROCEEDS
UNTIL FD DISTRIBUTORS IS REASONABLY SATISFIED THAT THE CHECK HAS BEEN COLLECTED
WHICH COULD TAKE UP TO 15 DAYS FROM THE PURCHASE DATE. A DIRECT INVESTOR WHO
ANTICIPATES THE NEED FOR MORE IMMEDIATE ACCESS TO HIS OR HER INVESTMENT SHOULD
PURCHASE RETAIL SHARES BY FEDERAL FUNDS OR BANK WIRE OR BY CERTIFIED OR
CASHIER'S CHECK. BANKS NORMALLY IMPOSE A CHARGE IN CONNECTION WITH THE USE OF
BANK WIRES, AS WELL AS CERTIFIED CHECKS, CASHIER'S CHECKS AND FEDERAL FUNDS.
OTHER REDEMPTION INFORMATION
Except as provided under "Investor Programs" below, Galaxy reserves the
right to redeem accounts (other than retirement plan accounts) involuntarily,
upon 60 days' written notice, if the account's net asset value falls below $250
as a result of redemptions. In addition, if an investor has agreed with a
particular Institution to maintain a minimum balance in his or her account at
the Institution with respect to Retail Shares of a Fund, and the balance in such
account falls below that minimum, the Customer may be obliged by the Institution
to redeem all of his or her shares.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Direct Investors and Customers of Institutions may, after appropriate prior
authorization, exchange Retail A Shares of a Fund having a value of at least
$100 for Retail A Shares of any of the other Funds or portfolios offered by
Galaxy or for shares of any other investment portfolios otherwise advised by
Fleet or its affiliates in which the Direct Investor or Customer maintains an
existing account, provided that such other shares may legally be sold in the
state of the investor's residence. Direct Investors and Customers of
Institutions may exchange Retail B Shares of the Short-Term Bond and High
Quality Bond Funds for Retail B Shares of the Money Market, Tax-Exempt Bond,
Equity Value, Equity Growth, Small
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Company Equity, MidCap Equity, Asset Allocation, Growth and Income, and
Strategic Equity Funds offered by Galaxy, provided that such other Retail B
Shares may legally be sold in the state of the investor's residence.
No additional sales charge will be incurred when exchanging Retail A Shares
of a Fund for Retail A Shares of another Galaxy portfolio that imposes a sales
charge. Retail B Shares may be exchanged without the payment of any contingent
deferred sales charge at the time the exchange is made. In determining the
holding period for calculating the contingent deferred sales charge payable on
redemptions of Retail B Shares, the holding period of the Retail B Shares
originally held will be added to the holding period of the Retail B Shares
acquired through exchange.
The minimum initial investment to establish an account in another Fund or
portfolio by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless at the time of the exchange the Direct Investor or
Customer elects, with respect to the Fund or portfolio into which the exchange
is being made, to participate in the Automatic Investment Program described
below, in which event there is no minimum initial investment requirement, or in
the College Investment Program described below, in which event the minimum
initial investment is generally $100. The minimum initial investment to
establish an account by exchange in the Institutional Government Money Market
Fund is $2 million.
An exchange involves a redemption of all or a portion of the Retail Shares
of a Fund and the investment of the redemption proceeds in Retail Shares of
another Fund or portfolio offered by Galaxy or, with respect to Retail A Shares,
otherwise advised by Fleet or its affiliates. The redemption will be made at the
per share net asset value next determined after the exchange request is
received. The Retail Shares of a Fund or portfolio to be acquired will be
purchased at the per share net asset value next determined after acceptance of
the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege, Direct
Investors should call Investor Services Group at 1-800-628-0414. Customers of
Institutions should call their Institution for such information. Customers
exercising the exchange privilege into other portfolios should request and
review these portfolios' prospectuses prior to making an exchange. Telephone
1-800-628-0414 for a prospectus or to make an exchange. See "How to Redeem
Shares--Redemption Procedure--Direct Investors--Redemptions by Wire" above for a
description of Galaxy's policy regarding telephone transactions.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the SEC.
Galaxy does not charge any exchange fee. However, Institutions may charge
such fees with respect to either all exchange requests or with respect to any
request which exceeds the permissible number of free exchanges during a
particular period. Customers of Institutions should contact their respective
Institutions for applicable information.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, a Customer or Direct Investor should consult a tax
or other financial adviser to determine the tax consequences.
RETIREMENT PLANS
Retail Shares of the Funds are available for purchase in connection with the
following tax-deferred prototype retirement plans:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") (including traditional, Roth and
Education IRAs and "rollovers" from existing retirement plans), a
retirement-savings vehicle for qualifying individuals. The minimum initial
investment for an IRA account is $500 (including a spousal account).
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPS"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
MULTI-EMPLOYEE RETIREMENT PLANS ("MERPS"), a retirement vehicle established
by employers for their employees which is qualified under Sections 401(k) and
403(b) of the Internal Revenue Code. The minimum initial investment for a MERP
is $500.
KEOGH PLANS, a retirement vehicle for self-employed individuals. The minimum
initial investment for a Keogh Plan is $500.
Investors purchasing Retail Shares pursuant to a retirement plan are not
subject to the minimum investment provisions described above under "How to
Purchase Shares-- Other Purchase Information." Detailed information concerning
eligibility, service fees and other matters relating to these plans and the form
of application is available from Galaxy's distributor (call 1-800-628-0414) with
respect to IRAs, SEPs and Keogh Plans and from Fleet Brokerage Securities, Inc.
(call 1-800-221-8210) with respect to MERPs.
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AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits a Direct Investor to purchase
Retail Shares of a Fund (minimum of $50 per transaction) each month or each
quarter. Provided the Direct Investor's financial institution allows automatic
withdrawals, Retail Shares are purchased by transferring funds from a Direct
Investor's checking, bank money market, NOW or savings account designated by the
Direct Investor. The account designated will be debited in the specified amount,
and Retail Shares will be purchased on a monthly or quarterly basis, on any
Business Day designated by a Direct Investor. If the designated day falls on a
weekend or holiday, the purchase will be made on the Business Day closest to the
designated day. Only an account maintained at a domestic financial institution
which is an Automated Clearing House member may be so designated.
The Systematic Withdrawal Plan permits a Direct Investor to automatically
redeem Retail Shares on a monthly, quarterly, semi-annual, or annual basis on
any Business Day designated by a Direct Investor, if the account has a starting
value of at least $10,000. If the designated day falls on a weekend or holiday,
the redemption will be made on the Business Day closest to the designated day.
Proceeds of the redemption will be sent to the shareholder's address of record
or financial institution within three Business Days of the redemption. If
redemptions exceed purchases and dividends, the number of shares in the account
will be reduced. Investors may terminate the Systematic Withdrawal Plan at any
time upon written notice to the Investor Services Group, Galaxy's transfer agent
(but not less than five days before a payment date). There is no charge for this
service. Purchases of additional Retail A Shares concurrently with withdrawals
are ordinarily not advantageous because of the sales charge involved in the
additional purchases. No contingent deferred sales charge will be assessed on
redemptions of Retail B Shares made through the Systematic Withdrawal Plan that
do not exceed 12% of an account's net asset value on an annualized basis. For
example, monthly, quarterly and semi-annual Systematic Withdrawal Plan
redemptions of Retail B Shares will not be subject to the contingent deferred
sales charge if they do not exceed 1%, 3% and 6%, respectively, of an account's
net asset value on the redemption date. Systematic Withdrawal Plan redemptions
of Retail B Shares in excess of this limit are still subject to the applicable
contingent deferred sales charge.
PAYROLL DEDUCTION PROGRAM
The Payroll Deduction Program provides Direct Investors with a convenient,
systematic way to purchase Fund shares by deducting a minimum amount of $25 per
pay period from their paycheck. To be eligible for the Program, the payroll
department of a Direct Investor's employer must have the capability to forward
transactions directly through the Automated Clearing House (ACH), or indirectly
through a third party payroll processing company that has access to the ACH. A
Direct Investor must complete and submit a Galaxy Payroll Deduction Application
to his or her employer's payroll department, which will arrange for the
specified amount to be debited from the Direct Investor's paycheck each pay
period. Retail Shares of Galaxy will be purchased within three days after the
debit occurs. If the designated day falls on a weekend or non-Business Day, the
purchase will be made on the Business Day closest to the designated day. A
Direct Investor should allow between two to four weeks for the Payroll Deduction
Program to be established after submitting an application to the employer's
payroll department.
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits a Direct
Investor to open an account with Galaxy and purchase Retail Shares of a Fund
with a minimum amount of $100 for initial or subsequent investments, except that
if the Direct Investor purchases Retail Shares through the Automatic Investment
Program, the minimum per transaction is $50. The College Program is designed to
assist Direct Investors who want to finance a college savings plan. See
"Investor Programs--Automatic Investment Program and Systematic Withdrawal Plan"
for information on the Automatic Investment Program. Galaxy reserves the right
to redeem accounts participating in the College Program involuntarily, upon 60
days' written notice, if the account's net asset value falls below the
applicable minimum initial investment as a result of redemptions. See "How to
Redeem Shares--Other Redemption Information" above for further information.
Direct Investors in the College Program will receive consolidated monthly
statements of their accounts. Detailed information concerning College Program
accounts and applications may be obtained from FD Distributors (call
1-800-628-0414).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for the
Direct Deposit Program. This Program enables a Direct Investor to purchase
Retail Shares of a Fund by having social security payments automatically
deposited into his or her Fund account. There is no minimum deposit requirement.
For instructions on how to enroll in the Direct
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Deposit Program, Direct Investors should call FD Distributors at 1-800-628-0414.
Death or legal incapacity will terminate a Direct Investor's participation in
the Program. A Direct Investor may elect at any time to terminate his or her
participation by notifying in writing the Social Security Administration.
Further, Galaxy may terminate a Direct Investor's participation upon 30 days'
notice to the Direct Investor.
INFORMATION SERVICES
GALAXY INFORMATION CENTER--24 HOUR INFORMATION SERVICE
The Galaxy Information Center provides Fund performance and investment
information 24 hours a day, 7 days a week. To access the Galaxy Information
Center, just call 1-800-628-0414.
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to Fund
and account information as well as the ability to make telephone redemptions and
exchanges. These transactions are subject to the terms and conditions described
under "How To Redeem Shares" and "Investor Programs" above. To access the Voice
Response System, just call 1-800-628-0414 from any touch-tone telephone and
follow the recorded instructions.
GALAXY SHAREHOLDER SERVICES
For account information and recent exchange transactions, Direct Investors
can call Galaxy Shareholder Services Monday through Friday, between the hours of
9:00 a.m. to 5:00 p.m. (Eastern Time) at 1-800-628-0414.
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, 7 days a week.
Direct Investors residing outside the United States can contact Galaxy by
calling 1-508-855-5237.
Investment returns and principal values will vary with market conditions so
that an investor's Retail Shares, when redeemed, may be worth more or less than
their original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price,
deduction of any applicable sales charge, and reinvestment of dividends and
capital gains distributions, if any.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Funds are declared daily and
paid monthly. Dividends on each share of the Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers and Direct
Investors may elect to have their dividends reinvested in additional Retail
Shares of the same series of a Fund at the net asset value of such Shares on the
ex-dividend date. Such election, or any revocation thereof, must be communicated
in writing to Galaxy's transfer agent (see "Custodian and Transfer Agent" below)
and will become effective with respect to dividends paid after its receipt.
TAXES
FEDERAL
Each Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Code. Such qualification
generally relieves a Fund of liability for federal income taxes to the extent
the Fund's earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that a Fund distribute to its shareholders an
amount equal to at least 90% of its investment company taxable income and 90% of
its tax-exempt interest income (if any) net of certain deductions for such year.
In general, a Fund's investment company taxable income will be its taxable
income, including dividends, interest and short-term capital gains (the excess
of net short-term capital gain over net long-term capital loss), subject to
certain adjustments and excluding the excess of any net long-
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term capital gain for the taxable year over the net short-term capital loss, if
any, for such year. The policy of each Fund is to distribute as dividends
substantially all of its investment company taxable income and any net
tax-exempt interest income each year. Such dividends will be taxable as ordinary
income to each Fund's shareholders who are not currently exempt from federal
income taxes, whether such dividends are received in cash or reinvested in
additional shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) It is anticipated that
no part of any distribution will qualify for the dividends received deduction
for corporations.
Distribution by a Fund of "net capital gain" (the excess of its net
long-term capital gain over net short-term capital loss), if any, of a Fund, is
taxable to shareholders as long-term capital gain, regardless of how long the
shareholder has held shares and whether such gains are received in cash or
reinvested in additional Retail Shares. Such long-term capital gain will be 20%
or 28% rate gain, depending upon the Fund's holding period for the assets the
sale of which generated the capital gain. Such distributions are not eligible
for the dividends received deduction.
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
Prior to any purchase of shares of a Fund, the impact of capital gain and
other distributions which are expected to be declared or have been declared, but
not paid, should be carefully considered. Any capital gain or other distribution
paid shortly after the purchase of shares of a Fund will have the effect of
reducing the per share net asset value by the per share amount of the
distribution. Furthermore, all or a portion of such distributions, although in
effect a return of capital to the shareholder, are subject to tax.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of a Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Funds and their shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Funds should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to contact their tax advisers concerning the
application of state and local taxes, which may have different consequences than
those of the federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts,
02109, serves as the investment adviser to the Funds. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients and
manages the other investment portfolios of Galaxy.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with each Fund's investment policies, Fleet manages each Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Funds,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of .75% of the average daily net assets of each Fund.
Fleet may from time to time, in its discretion, waive advisory fees payable
by the Funds in order to help maintain a competitive expense ratio and may from
time to time allocate a portion of its advisory fees to Fleet Bank or other
subsidiaries of Fleet Financial Group, Inc. in consideration for administrative
and/or shareholder support services which they provide to beneficial
shareholders. Fleet is currently waiving a portion of the advisory fees payable
to it by the Funds so that it is entitled to receive advisory fees at the annual
rate of .55% of each Fund's average daily net assets, but Fleet may in its
discretion revise or discontinue this waiver at any time. For the fiscal year
ended October 31, 1997, Fleet received advisory fees (after fee waivers) at the
effective annual rates of .55%, .55% and .55%, respectively, of the Short-Term
Bond, Intermediate Government Income and High Quality Bond Funds' average daily
net assets. In addition to fee waivers, during the fiscal year ended October 31,
1997, Fleet also reimbursed the Short-Term Bond and High Quality Bond Funds for
certain operating expenses, which reimbursement may be revised or discontinued
at any time.
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The Short-Term Bond Fund's portfolio manager, Perry J. Vieth, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Vieth, a Vice President, has over eleven years of experience as an
investment manager and previously managed the Shawmut Limited Term Income Fund
for Shawmut Investment Advisors and was a manager of Fuji Securities, Inc.'s
derivative products group. He also was responsible for fixed income risk
management at NationsBank CRT. Mr. Vieth has managed the Short-Term Bond Fund
since March 1, 1996.
The Intermediate Government Income Fund's portfolio manager, Marie H.
Schofield, is primarily responsible for the day-to-day management of the Fund's
investment portfolio. Ms. Schofield, a Vice President, has been with Fleet since
1991 and has been engaged in providing investment management services for over
twenty years. She has managed the Intermediate Government Income Fund since
December 1, 1996.
Ms. Schofield also serves as portfolio manager of the High Quality Bond Fund
and is primarily responsible for the day-to-day management of the Fund's
investment portfolio. Ms. Schofield began serving as co-portfolio manager of the
Fund on March 1, 1996 and has been sole portfolio manager of the Fund since
April 1, 1996.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Retail
Shares of the Funds, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which have agreed to provide shareholder support services that are
banks or bank affiliates are subject to such banking laws and regulations.
Should legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Funds,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Funds' method of operation would not
affect their net asset value per share or result in financial losses to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Funds' administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Funds in their administration
and operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Funds, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of combined
average daily net assets of the Funds and the other portfolios offered by Galaxy
(collectively, the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily all or a portion of the
administration fee payable to it by the Funds. For the fiscal year ended October
31, 1997, Investor Services Group received administration fees at the effective
annual rate of .082% of each Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each series of the Funds as follows: Class D
shares (Trust Shares) and Class D--Special Series 1 shares (Retail A Shares),
each series representing interests in the Intermediate Government Income Fund;
Class J Series 1 shares (Trust Shares), Class J-- Series 2 shares (Retail A
Shares) and Class J--Series 3 shares (Retail B Shares), each series representing
interests in the High Quality Bond Fund; and Class L--Series 1 shares (Trust
Shares), Class L--Series 2 shares (Retail A Shares) and Class L--Series 3 shares
(Retail B Shares), each series representing interests in the Short-Term Bond
Fund, each of which is a diversified company under the 1940 Act.
30
<PAGE>
The Board of Trustees has also authorized the issuance of additional classes
and services of shares representing interests in other investment portfolios of
Galaxy. For information concerning the Funds' Retail Shares and these other
portfolios, which are offered through separate prospectuses, contact FD
Distributors at 1-800-628-0414.
Shares of each series in a Fund bear their pro rata portion of all operating
expenses paid by that Fund except as follows. Holders of a Fund's Retail A
Shares bear the fees that are paid under Galaxy's Shareholder Services Plan
described below and holders of Retail B Shares of the Short-Term Bond and High
Quality Bond Funds bear the fees that are paid under Galaxy's Distribution and
Services Plan described below. Currently, these payments are not made with
respect to a Fund's Trust Shares. In addition, shares of each series in a Fund
bear differing transfer agency expenses. Standardized yield and total return
quotations are computed separately for each series of shares. The difference in
the expenses paid by the respective series will affect their performance.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolios with other shares of the same class, and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to such investment portfolio as are declared in the discretion of
Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.30% of the average daily net asset value of Retail A Shares of the Funds owned
beneficially by Customers. Institutions may receive up to one-half of this fee
for providing one or more of the following services to such Customers:
aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with FD Distributors; processing dividend
payments from a Fund; providing sub-accounting with respect to Retail A Shares
or the information necessary for sub-accounting; and providing periodic mailings
to Customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such Customers: providing
Customers with information as to their positions in Retail A Shares; responding
to Customer inquiries; and providing a service to invest the assets of Customers
in Retail A Shares. These services are described more fully in the Statement of
Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of each Fund, and
to limit the payment under these servicing agreements for each Fund to an
aggregate fee of not more than .15% (on an annualized basis) of the average
daily net asset value of the Retail A Shares of the Fund beneficially owned by
Customers of Institutions. Galaxy understands that Institutions may charge fees
to their Customers who are the beneficial owners of Retail A Shares in
connection with their accounts with such Institutions. Any such fees would be in
addition to any amounts which may be received by an Institution under the
Shareholder Services Plan. Under the terms of each servicing agreement entered
into with Galaxy, Institutions are required to provide to their Customers a
schedule of any fees that they may charge in connection with Customer
investments in Retail A Shares.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act with respect to Retail B Shares of the Short-Term Bond and
High Quality Bond Funds. Under the Distribution and Services Plan, Galaxy may
pay (a) FD Distributors or another person for expenses and activities intended
to result in the sale of Retail B Shares, including the payment of commissions
to broker-dealers and other industry professionals who sell Retail B Shares and
the direct or indirect cost of financing such payments, (b) Institutions for
shareholder liaison services, which means personal services for holders of
Retail B Shares and/or the maintenance of shareholder accounts, such
31
<PAGE>
as responding to customer inquiries and providing information on accounts, and
(c) Institutions for administrative support services, which include but are not
limited to (i) transfer agent and subtransfer agent services for beneficial
owners of Retail B Shares; (ii) aggregating and processing purchase and
redemption orders; (iii) providing beneficial owners with statements showing
their positions in Retail B Shares; (iv) processing dividend payments; (v)
providing sub-accounting services for Retail B Shares held beneficially; (vi)
forwarding shareholder communications, such as proxies, shareholder reports,
dividend and tax notices, and updating prospectuses to beneficial owners; and
(vii) receiving, translating and transmitting proxies executed by beneficial
owners.
Under the Distribution and Services Plan for Retail B Shares, payments by
Galaxy (i) for distribution expenses may not exceed the annual rate of .65% of
the average daily net assets attributable to the Short-Term Bond and High
Quality Bond Funds' outstanding Retail B Shares, and (ii) to an Institution for
shareholder liaison services and/or administrative support services may not
exceed the annual rates of .15% and .15%, respectively, of the average daily net
assets attributable to each such Funds' outstanding Retail B Shares which are
owned of record or beneficially by that Institution's Customers for whom the
Institution is the dealer of record or shareholder of record or with whom it has
a servicing relationship. As of the date of this Prospectus, Galaxy intends to
limit the Funds' payments for shareholder liaison and administrative support
services under the Plan to an aggregate fee of not more than .15% (on an
annualized basis) of the average daily net asset value of Retail B Shares owned
of record or beneficially by Customers of Institutions.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-accounting and administrative functions ("Sub-Account Services") on
a per account basis with respect to Trust Shares of each Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Funds to Investor Services Group have
been increased by an amount equal to these fees. In substance, therefore, the
holders of Trust Shares of these Funds indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at One Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as the custodian of the Funds' assets. Chase Manhattan may employ
sub-custodians for the Short-Term Bond Fund for the purpose of providing
custodian services for the Fund's foreign assets held outside the United States.
First Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-
owned subsidiary of First Data Corporation, serves as the Funds' transfer and
dividend disbursing agent. Services performed by both entities for the Funds are
described in the Statement of Additional Information. Communications to Investor
Services Group should be directed to Investor Services Group at P.O. Box 5108,
4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Funds. Galaxy bears
the expenses incurred in the Funds' operations including taxes; interest; fees
(including fees paid to its trustees and officers who are not affiliated with
Investor Services Group); SEC fees; state securities fees; costs of preparing
and printing prospectuses for regulatory purposes and for distribution to
existing shareholders; advisory, administration, shareholder servicing, Rule
12b-1 distribution (if applicable), fund accounting and custody fees; charges of
the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholder reports and meetings; and any extraordinary expenses. The
Funds also pay for brokerage fees and commissions in connection with the
purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant bond
indices or to rankings prepared by independent services or
32
<PAGE>
other financial or industry publications that monitor the performance of mutual
funds. For example, the performance of the Funds may be compared to data
prepared by LIPPER ANALYTICAL SERVICES, INC., a widely recognized independent
service which monitors the performance of mutual funds.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or publications of a local or regional nature, may also
be used in comparing the performance of the Funds. Performance data will be
calculated separately for Trust Shares, Retail A Shares and/or Retail B Shares
of the Funds.
The standard yield is computed by dividing a Fund's average daily net
investment income per Share during a 30-day (or one month) base period
identified in the advertisement by the maximum public offering price per share
on the last day of the period, and analyzing the result on a semi-annual basis.
A Fund may also advertise its "effective yield," which is calculated similarly
but, when annualized, the income earned by an investment in a Fund is assumed to
be reinvested.
The Funds may also advertise their performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of a Fund's operations, or on a year-by-year
basis. Each Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in a
Fund for the specified period. Both methods of calculating total return reflect
the maximum front-end sales load charged by the Funds for Retail A Shares and
the applicable contingent deferred sales charge for Retail B Shares and assume
that dividends and capital gains distributions made by a Fund during the period
are reinvested in Fund shares.
The Funds may also advertise total return data without reflecting the sales
charge imposed on the purchase of Retail A Shares or the redemption of Retail B
Shares in accordance with the rules of the SEC. Quotations that do not reflect
the sales charge will be higher than quotations that do reflect the sales
charge.
The performance of the Funds will fluctuate and any quotation of performance
should not be considered as representative of future performance. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in a
Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance data are
generally functions of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
additional fees charged directly by Institutions to accounts of Customers that
have invested in shares of a Fund will not be included in performance
calculations.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of a particular Fund or a particular series of shares means,
with respect to the approval of an investment advisory agreement, a distribution
plan or a change in an investment objective or fundamental investment policy,
the affirmative vote of the holders of the lesser of (a) more than 50% of the
outstanding shares of such Fund or such series of shares, or (b) 67% or more of
the shares of such Fund or such series of shares present at a meeting if more
than 50% of the outstanding shares of such Fund or such series of shares are
represented at the meeting in person or by proxy.
33
<PAGE>
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- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
------------------------------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
HIGHLIGHTS................................................................ 1
EXPENSE SUMMARY........................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 5
INVESTMENT OBJECTIVES AND POLICIES........................................ 9
Short-Term Bond Fund.................................................... 9
Intermediate Government Income Fund..................................... 10
High Quality Bond Fund.................................................. 10
Special Risk Considerations............................................. 11
Other Investment Policies and Risk Considerations....................... 11
INVESTMENT LIMITATIONS.................................................... 17
PRICING OF SHARES......................................................... 17
HOW TO PURCHASE SHARES.................................................... 18
Distributor............................................................. 18
General................................................................. 18
Purchase Procedures--Customers of Institutions.......................... 18
Purchase Procedures--Direct Investors................................... 19
Other Purchase Information.............................................. 19
Applicable Sales Charges--Retail A Shares............................... 20
Quantity Discounts...................................................... 21
Applicable Sales Charges--Retail B Shares............................... 22
Characteristics of Retail A Shares and Retail B Shares.................. 23
Factors to Consider When Selecting Retail A Shares or Retail B Shares... 23
HOW TO REDEEM SHARES...................................................... 24
General................................................................. 24
Redemption Procedures--Customers of Institutions........................ 24
Redemption Procedures--Direct Investors................................. 24
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PAGE
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<S> <C>
Other Redemption Information............................................ 25
INVESTOR PROGRAMS......................................................... 25
Exchange Privilege...................................................... 25
Retirement Plans........................................................ 26
Automatic Investment Program and Systematic Withdrawal Plan............. 27
Payroll Deduction Program............................................... 27
College Investment Program.............................................. 27
Direct Deposit Program.................................................. 27
INFORMATION SERVICES...................................................... 28
Galaxy Information Center--24 Hour Information Service.................. 28
Voice Response System................................................... 28
Galaxy Shareholder Services............................................. 28
DIVIDENDS AND DISTRIBUTIONS............................................... 28
TAXES..................................................................... 28
Federal................................................................. 28
State and Local......................................................... 29
MANAGEMENT OF THE FUNDS................................................... 29
Investment Adviser...................................................... 29
Authority to Act as Investment Adviser.................................. 30
Administrator........................................................... 30
DESCRIPTION OF GALAXY AND ITS SHARES...................................... 30
Shareholder Services Plan............................................... 31
Distribution and Services Plan.......................................... 31
Agreements for Sub-Account Services..................................... 32
CUSTODIAN AND TRANSFER AGENT.............................................. 32
EXPENSES.................................................................. 32
PERFORMANCE REPORTING..................................................... 32
MISCELLANEOUS............................................................. 33
</TABLE>
[LOGO]
50% Recycled Paper
10% Post-Consumer Waste
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THE GALAXY FUND
4400 Computer Drive For an application and information regarding
Westboro, Massachusetts purchases, redemptions, exchanges and other
01581-5108 shareholder services or for current performance,
call 1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Retail A Shares"), which
represent interests in the CORPORATE BOND FUND (the "Fund") offered by Galaxy.
The Fund's investment objective is to seek a high level of current income by
investing primarily in investment grade, fixed income obligations. Subject to
this objective, the Fund's investment adviser will consider the total rate of
return on portfolio securities in managing the Fund. Under normal market and
economic conditions, at least 65% of the Fund's total assets will be invested in
obligations of private and public corporations. Under normal market and economic
conditions, the Fund will invest substantially all of its assets in investment
grade debt obligations rated at the time of purchase within the four highest
rating categories assigned by Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("Moody's") (or which, if unrated, are of comparable
quality) and in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and "money market" instruments.
The Retail A Shares described in this Prospectus are offered to customers
("Customers") of FIS Securities, Inc., Fleet Brokerage Securities, Inc., Fleet
Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its
affiliates, their correspondent banks, and other qualified banks, savings and
loan associations and broker/dealers ("Institutions"). Retail A Shares may also
be purchased directly by individuals, corporations or other entities, who submit
a purchase application to Galaxy, purchasing either for their own accounts or
for the accounts of others ("Direct Investors"). Galaxy is also authorized to
issue an additional series of shares in the Fund ("Trust Shares"), which are
offered under a separate Prospectus primarily to investors maintaining qualified
accounts primarily at bank and trust institutions affiliated with Fleet
Financial Group, Inc. and to participants in employer-sponsored defined
contribution plans. Retail A Shares and Trust Shares represent equal pro rata
interests in the Fund, except they bear different expenses which reflect the
difference in the range of services provided to them. See "Financial
Highlights", "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
FEBRUARY 28, 1998
<PAGE>
HIGHLIGHTS
Q: WHAT IS THE GALAXY FUND?
A: Galaxy is an open-end management investment company (commonly known as a
mutual fund) that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives and policies.
This Prospectus describes Galaxy's CORPORATE BOND FUND. Prospectuses for
Galaxy's MONEY MARKET, GOVERNMENT, U.S. TREASURY, TAX-EXEMPT, CONNECTICUT
MUNICIPAL MONEY MARKET, MASSACHUSETTS MUNICIPAL MONEY MARKET, INSTITUTIONAL
GOVERNMENT MONEY MARKET, EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME,
INTERNATIONAL EQUITY, SMALL COMPANY EQUITY, MIDCAP EQUITY, ASSET ALLOCATION,
SMALL CAP VALUE, GROWTH AND INCOME, STRATEGIC EQUITY, SHORT-TERM BOND,
INTERMEDIATE GOVERNMENT INCOME, HIGH QUALITY BOND, TAX-EXEMPT BOND, NEW JERSEY
MUNICIPAL BOND, NEW YORK MUNICIPAL BOND, CONNECTICUT MUNICIPAL BOND,
MASSACHUSETTS MUNICIPAL BOND and RHODE ISLAND MUNICIPAL BOND FUNDS may be
obtained by calling 1-800-628-0414.
Q: WHO ADVISES THE FUND?
A: The Fund is managed by Fleet Investment Advisors Inc. ("Fleet"), an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc. Fleet Financial
Group, Inc. is a financial services company with total assets as of December 31,
1997 of approximately $85.5 billion. See "Management of the Fund--Investment
Adviser."
Q: WHAT ADVANTAGES DOES THE FUND OFFER?
A: The Fund offers investors the opportunity to invest in a professionally
managed investment portfolio without having to become involved with the detailed
accounting and safekeeping procedures normally associated with direct
investments in securities. The Fund also offers the economic advantages of block
trading in portfolio securities and the availability of a family of twenty-seven
mutual funds should your investment goals change.
Q: HOW DOES ONE BUY AND REDEEM SHARES?
A: The Fund is distributed by First Data Distributors, Inc. ("FD
Distributors"). Retail A Shares of the Fund are sold to individuals,
corporations or other entities, who submit a purchase application to Galaxy,
purchasing either for their own accounts or for the accounts of others ("Direct
Investors"). Retail Shares may also be purchased on behalf of customers
("Customers") of FIS Securities, Inc., Fleet Brokerage Securities Inc., Fleet
Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its
affiliates, their correspondent banks and other qualified banks, savings and
loan associations and broker/dealers ("Institutions"). Retail A Shares of the
Fund may be purchased at their net asset value plus a maximum initial sales
charge of 3.75%. Retail A Shares are currently subject to a shareholder
servicing fee of up to .15% of the average daily net asset value of such shares.
Share purchase and redemption information for both Direct Investors and
Customers is provided below under "How to Purchase and Redeem Shares." Except as
provided below under "Investor Programs," the minimum initial investment for
Direct Investors and the minimum initial aggregate investment for Institutions
purchasing on behalf of their Customers is $2,500. The minimum investment for
subsequent purchases is $100. There are no minimum investment requirements for
investors participating in the Automatic Investment Program described below. The
minimum initial investment in the College Investment program described below is
$100 ($50 minimum per transaction if the investment is made through the
Automatic Investment Program). Institutions may require Customers to maintain
certain minimum investments in Retail A Shares. See "How to Purchase and Redeem
Shares" below.
Q: WHEN ARE DIVIDENDS PAID?
A: Dividends from net investment income of the Fund are declared daily and
paid monthly. Net realized capital gains of the Fund are distributed at least
annually. See "Dividends and Distributions."
Q: WHAT POTENTIAL RISKS ARE PRESENTED BY THE FUND'S INVESTMENT PRACTICES?
A: The Fund invests at least 65% of its assets in corporate debt
obligations, which may be convertible into common stock or other securities,
rated within the four highest rating categories assigned by S&P or Moody's. Debt
obligations rated in the fourth highest rating category are more susceptible
than those in the top three rating categories to changes in economic or other
conditions that could lead to a weakened capacity to make payments of principal
and interest. The Fund may invest in the debt obligations of foreign companies,
which may be convertible into common stock or other securities, and in
obligations issued or guaranteed by foreign governments or any of their
political sub-divisions or instrumentalities. The Fund may lend its securities
and enter into repurchase agreements and reverse repurchase agreements with
qualifying banks and broker/dealers. In addition, the Fund may enter into
interest rates futures contracts. The Fund may purchase securities on a
"when-issued" basis and may purchase or sell securities on a "forward
commitment" or "delayed settlement" basis. The value of the Fund's portfolio
securities will generally vary inversely with changes in prevailing interest
rates. See "Investment Objective and Policies."
Q: WHAT SHAREHOLDER PRIVILEGES ARE OFFERED BY THE FUND?
A: Investors may exchange Retail A Shares of the Fund having a value of at
least $100 for Retail A Shares of any other portfolio offered by Galaxy in which
the investor has an existing account. Galaxy offers Individual Retirement
Accounts ("IRAs"), Simplified Employee Pension Plan ("SEP") accounts and Keogh
Plan accounts, which can be established by contacting Galaxy's distributor.
Retail Shares are also available for purchase through Multi-Employee Retirement
Plan ("MERP") accounts which can be established by customers directly with Fleet
Brokerage Securities, Inc. or its affiliates. Galaxy also offers an Automatic
Investment Program which allows investors to automatically invest in Retail A
Shares on a monthly basis, as well as other shareholder privileges. See
"Investor Programs."
1
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Retail A Shares and (ii) the operating
expenses for Retail A Shares of the Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
CORPORATE BOND FUND
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<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
Maximum Front-End Sales Charge Imposed on Purchases (on a percentage of offering
price)......................................................................... 3.75%(1)
Maximum Front-End Sales Charge Imposed on Reinvested Dividends.................. None
Deferred Sales Load............................................................. None
Redemption Fees(2).............................................................. None
Exchange Fees................................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- --------------------------------------------------------------------------------
Advisory Fees (After Fee Waivers)............................................... 0.55%
12b-1 Fees...................................................................... None
Other Expenses.................................................................. 0.33%
-------
Total Fund Operating Expenses (After Fee Waivers)............................... 0.88%
-------
</TABLE>
- --------------------------
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1% is assessed on certain redemptions of Retail A Shares that are
purchased with no initial sales charge as part of an investment of $500,000
or more. See "How to Purchase and Redeem Shares--Public Offering Price" and
"How to Purchase and Redeem Shares--Quantity Discounts."
(2) Direct Investors are charged a $5.00 fee if redemption proceeds are paid by
wire.
- --------------------------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- --------
<S> <C> <C> <C> <C>
Corporate Bond Fund............................... $46 $64 $84 $140
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in Retail A Shares of the
Fund will bear directly or indirectly. The information contained in the Expense
Summary and Example is based on expenses the Fund expects to incur during the
current fiscal year on its Retail A Shares. Without voluntary fee waivers by
Fleet, Advisory Fees would be .75% and Total Fund Operating Expenses would be
1.08% for Retail A Shares of the Fund. Fleet is under no obligation to waive
fees and/or reimburse expenses but has advised Galaxy that it intends to waive
fees and/or reimburse expenses during the current year to the extent necessary
to maintain the Fund's operating expenses at the level set forth in the above
table. See "How to Purchase and Redeem Shares-- Public Offering Price" and "How
to Purchase and Redeem Shares--Quantity Discounts." For more complete
descriptions of these costs and expenses, see "Management of the Fund" and
"Description of Galaxy and Its Shares" in this Prospectus. Any fees that are
charged by affiliates of Fleet or other Institutions directly to their Customer
accounts for services related to an investment in Retail A Shares of the Fund
are in addition to and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Retail A Shares in the Fund. Galaxy is also
authorized to issue an additional series of Shares in the Fund, Trust Shares,
which are offered under a separate prospectus. As described below under
"Description of Galaxy and Its Shares," Retail A Shares and Trust Shares
represent equal pro rata interests in the Fund, except that (i) Retail A Shares
of the Fund bear the expenses incurred under Galaxy's Shareholder Services Plan
at an annual rate of up to .15% of the average daily net asset value of the
Fund's outstanding Retail A Shares, and (ii) Retail A Shares and Trust Shares
bear differing transfer agency expenses.
During the periods shown in the financial highlights presented below, the
Fund offered only Trust Shares. The financial highlights set forth certain
historic investment results of the Trust Shares of the Fund and is intended to
give you a longer term perspective of the Fund's financial history. The
financial highlights presented below have been audited by Coopers & Lybrand
L.L.P., Galaxy's independent accountants, whose report is contained in Galaxy's
Annual Report to Shareholders relating to the Fund dated October 31, 1997 (the
"Annual Report"). Such financial highlights should be read in conjunction with
the financial statements contained in the Annual Report and incorporated by
reference into the Statement of Additional Information. More information about
the performance of the Fund is also contained in the Annual Report, which may be
obtained without charge by contacting Galaxy at its telephone number or address
provided above.
3
<PAGE>
CORPORATE BOND FUND
(FOR A TRUST SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, PERIOD ENDED
----------------- OCTOBER 31,
1997 1996 1995(1)
------- -------- ------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 10.53 $ 10.74 $ 10.00
------- -------- -------
Income from Investment Operations:
Net investment income(2)........................ 0.66 0.64 0.61
Net realized and unrealized gain (loss) on
investments.................................... 0.11 (0.13) 0.74
------- -------- -------
Total from Investment Operations:........... 0.77 0.51 1.35
------- -------- -------
Less Dividends:
Dividends from net investment income............ (0.66) (0.64) (0.61)
Dividends from net realized capital gains....... (0.01) (0.08) --
------- -------- -------
Total Dividends............................. (0.67) (0.72) (0.61)
------- -------- -------
Net increase (decrease) in net asset value........ 0.10 (0.21) 0.74
------- -------- -------
Net Asset Value, End of Period.................... $ 10.63 $ 10.53 $ 10.74
------- -------- -------
------- -------- -------
Total Return...................................... 7.56% 5.00% 13.85%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)................. $91,728 $107,728 $37,391
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 6.27% 6.13% 6.61%(4)
Operating expenses including
reimbursement/waiver........................... 0.80% 0.85% 1.06%(4)
Operating expenses excluding
reimbursement/waiver........................... 1.00% 1.05% 1.26%(4)
Portfolio Turnover Rate........................... 37% 84% 41%(3)
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 12, 1994.
(2) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1997
and 1996 and for the period ended October 31, 1995 was $0.64, $0.62 and
$0.57, respectively.
(3) Not Annualized.
(4) Annualized.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek a high level of current income.
Subject to this objective, Fleet will consider the total rate of return on
securities in managing the Fund. Under normal market and economic conditions,
the Fund invests at least 65% of its total assets in corporate debt obligations,
which means obligations of (i) domestic or foreign business corporations, which
may be convertible into common stock or other securities, or (ii) agencies,
instrumentalities or authorities which are organized in corporate form by the
United States, by, one or more states or political subdivisions in the United
States or by one or more foreign governments or political subdivisions. The
value of convertible securities fluctuates in relation to changes in interest
rates like bonds and, in addition, fluctuates in relation to the underlying
common stock. The Fund may also invest in obligations issued or guaranteed by
the U.S. or foreign governments, their agencies or instrumentalities, or by
supranational banks or other organizations. Examples of supranational banks
include the International Bank for Reconstruction and Development ("World
Bank"), the Asian Development Bank and the InterAmerican Development Bank.
Obligations of supranational banks may be supported by appropriated but unpaid
commitments of their member countries and there is no assurance that those
commitments will be undertaken or met in the future. The Fund may invest, from
time to time, in municipal securities. The purchase of municipal securities may
be advantageous when, as a result of their tax status or prevailing economic,
regulatory or other circumstances, the performance of such securities is
expected to be comparable to that of corporate or U.S. Government debt
obligations. The Fund may enter into interest rate futures contracts to hedge
against changes in market values. See "Other Investment Policies and Risk
Considerations." The Fund may also invest in "money market" instruments. The
Fund will not invest in common stock, and any common stock received through the
conversion of convertible debt obligations will be sold in an orderly manner as
soon as possible.
Under normal market and economic conditions, the Fund invests substantially
all (and not less than 95%) of its assets in debt obligations rated, at the time
of purchase, within the four highest rating categories assigned by S&P ("AAA,"
"AA," "A" and "BBB") or Moody's ("Aaa," "Aa," "A" and "Baa") (or which, if
unrated, are determined by Fleet to be of comparable quality), obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
and money market instruments. Debt obligations rated in the fourth highest
rating categories (BBB or Baa) possess speculative characteristics and are more
susceptible than those in the top three rating categories to changes in economic
or other conditions that could lead to a weakened capacity to make payments of
interest and principal. In the event that the rating of any debt obligation held
by the Fund falls below the four highest rating categories assigned by S&P or
Moody's, the Fund will not be obligated to dispose of such investment obligation
and may continue to hold the obligation as long as (i) the value of all the debt
obligations of the Fund which are rated below such four highest rating
categories does not exceed 5% of the Fund's net assets, and (ii) in the opinion
of Fleet, such investment is considered appropriate under the circumstances.
Unrated securities will be determined to be of comparable quality to rated debt
obligations if, among other things, other outstanding obligations of the issuers
of such securities are rated BBB/Baa or better. When, in the opinion of Fleet, a
defensive investment posture is warranted, the Fund may invest temporarily and
without limitation in high quality, short-term "money market" instruments. See
Appendix A to the Statement of Additional Information for a description of S&P's
and Moody's rating categories.
In addition, the Fund may invest in debt obligations of foreign issuers such
as foreign corporations and banks, as well as foreign governments and their
political subdivisions. Such investments may subject the Fund to special
investment risks. See "Special Risk Considerations." The Fund may also invest in
dollar-denominated debt obligations of U.S. corporations issued outside the
United States.
The Fund may enter into currency forward contracts (agreements to exchange
one currency for another at a future date) to manage currency risks and to
facilitate transactions in foreign securities. Although currency forward
contracts can be used to protect the Fund from adverse rate changes, they
involve a risk of loss if Fleet fails to predict foreign currency values
correctly.
Fleet expects that under normal market conditions, the Fund's portfolio
securities will have an average weighted maturity of three to ten years. See
"Other Investment Policies and Risk Considerations" below for information
regarding additional investment policies of the Fund.
Fleet will use its best efforts to achieve the Fund's investment objective,
although its achievement cannot be assured. The investment objective of the Fund
may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program.
SPECIAL RISK CONSIDERATIONS
Generally, the market value of fixed income securities, in the Fund can be
expected to vary inversely to changes in prevailing interest rates. During
periods of declining interest rates, the market value of investment portfolios
comprised
5
<PAGE>
primarily of fixed income securities, such as the Fund, will tend to increase,
and during periods of rising interest rates, the market value will tend to
decrease. In addition, during periods of declining interest rates, the yields of
investment portfolios comprised primarily of fixed income securities will tend
to be higher than prevailing market rates and, in periods of rising interest
rates, yields will tend to be somewhat lower. Fixed income securities with
longer maturities, which tend to produce higher yields, are subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities. Changes in the financial strength of an issuer or changes in
the ratings of any particular security may also affect the value of these
investments. Fluctuations in the market value of fixed income securities
subsequent to their acquisition will not affect cash income from such securities
but will be reflected in the Fund's net asset value.
Investments in foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs, as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of principal and interest on
foreign obligations. In addition, foreign issuers in general may be subject to
different accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic companies, and securities of foreign issuers may be less
liquid and their prices more volatile than those of comparable domestic issuers.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
price of the Fund's foreign securities in their local markets. Conversely, a
decrease in the value of the U.S. dollar will have the opposite effect of
magnifying the effect of increases and reducing the effect of decreases in the
prices of the Fund's foreign securities in their local markets. In addition to
favorable and unfavorable currency exchange rate developments, the Fund is
subject to the possible imposition of exchange control regulations or freezes on
convertibility of currency.
The Fund's investments in obligations rated below the four highest ratings
assigned by S&P and Moody's have different risks than investments in securities
that are rated "investment grade." Risk of loss upon default by the issuer is
significantly greater because lower-rated securities are generally unsecured and
are often subordinated to other creditors of the issuer, and because the issuers
frequently have high levels of indebtedness and are more sensitive to adverse
economic conditions, such as recessions, individual corporate developments and
increasing interest rates than are investment grade issuers. As a result, the
market price of such securities may be particularly volatile.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which the
Fund has the power to utilize. Some may be employed on a regular basis; others
may not be used at all. Accordingly, reference to any particular method or
technique carries no implication that it will be utilized or, if it is, that it
will be successful.
FOREIGN INVESTMENTS
The Fund may invest in debt obligations of foreign issuers such as foreign
corporations and banks, as well as foreign governments and their political
subdivisions. Such investments may subject the Fund to special investment risks.
See "Special Risk Considerations" above. The Fund will not invest more than 20%
of its net assets in the securities of foreign issuers.
The Fund may enter into currency forward contracts (agreements to exchange
one currency for another at a future date) to manage currency risks and to
facilitate transactions in foreign securities. Although currency forward
contracts can be used to protect the Fund from adverse exchange rate changes,
they involve a risk of loss if Fleet fails to predict foreign currency values
correctly.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than 10
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others,
6
<PAGE>
such as those of the Federal Home Loan Banks, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Federal Home Loan Mortgage Corporation, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law. Some of these
instruments may be variable or floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject the Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Fund will invest in the obligations of U.S. branches of foreign banks
or foreign branches of U.S. banks only when Fleet believes that the credit risk
with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations."
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of municipal securities which may be held
by the Fund are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of such private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
The Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
The Fund will not enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand by notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 15% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying
7
<PAGE>
securities (including accrued interest) were less than the repurchase price
(including accrued interest) under the agreement. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with the investment limitations described
below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by Fleet to be of good standing and only when, in Fleet's
judgment, the income to be earned from the loan justifies the attendant risks.
The Fund currently intends to limit the lending of its portfolio securities so
that, at any given time, securities loaned by the Fund represent not more than
one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Fund may invest in securities issued by other investment companies which
invest in high quality, short-term debt securities and which determine their net
asset value per share based on the amortized cost or penny-rounding method.
Investments in other investment companies will cause the Fund (and, indirectly,
the Fund's shareholders) to bear proportionately the costs incurred in
connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Fund within the limits prescribed
by the Investment Company Act of 1940, as amended, (the "1940 Act"). The Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, and any other investment companies
advised by Fleet.
INTEREST RATE FUTURES CONTRACTS
The Fund may enter into contracts (both purchases and sales) which provide
for the future delivery of fixed income securities (commonly known as interest
rate futures contracts). The Fund will not engage in futures transactions for
speculation, but only to hedge against changes in the market values of
securities which the Fund holds or intends to purchase. The Fund will engage in
futures transactions only to the extent permitted by the Commodity Futures
Trading Commission ("CFTC") and the Securities and Exchange Commission ("SEC").
The purchase of futures instruments in connection with securities which the Fund
intends to purchase will require an amount of cash or other liquid assets, equal
to the market value of the outstanding futures contracts, to be deposited in a
segregated account to collateralize the position and thereby insure that the use
of such futures is unleveraged. The Fund will limit its hedging transactions in
futures contracts so that, immediately after any such transaction, the aggregate
initial margin that is required to be posted by the Fund under the rules of the
exchange on which the futures contract is traded does not exceed 5% of the
Fund's total assets after taking into account any unrealized profits and
unrealized losses on the Fund's open contracts. In addition, no more than
one-third of the Fund's total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Fund to a number
of risks. Successful use of futures by the Fund is subject to the ability of
Fleet to predict correctly movements in the direction of the market. In
addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market will
exist for any particular futures contract at any particular time. Consequently,
the Fund may realize a loss on a futures transaction that is not offset by a
favorable movement in the price of securities which the Fund holds or intends to
purchase or the Fund may be unable to close a futures position in the event of
adverse price movements. Additional information concerning futures transactions
is contained in Appendix B to the Statement of Additional Information.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. The Fund may also
purchase or sell securities on a "delayed settlement" basis. When-issued and
forward commitment transactions, which involve a commitment by the Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it owns or intends to purchase, regardless of
future changes in interest rates. Delayed settlement describes settlement of a
securities transaction in the secondary market which will occur sometime in the
future. When-
8
<PAGE>
issued, forward commitment and delayed settlement transactions involve the risk,
however, that the yield or price obtained in a transaction may be less favorable
than the yield or price available in the market when the securities delivery
takes place. It is expected that forward commitments, when issued purchases and
delayed settlements will not exceed 25% of the value of the Fund's total assets
absent unusual market conditions. In the event the Fund's forward commitments,
when-issued purchases and delayed settlements ever exceeded 25% of the value of
its total assets, the Fund's liquidity and the ability of Fleet to manage the
Fund might be adversely affected. The Fund does not intend to engage in
when-issued purchases, forward commitments and delayed settlements for
speculative purposes, but only in furtherance of its investment objective.
ASSET-BACKED SECURITIES
The Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the Statement of Additional
Information.
MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities (including collateralized
mortgage obligations) that represent pools of mortgage loans assembled for sale
to investors by various governmental agencies and government-related
organizations such as the Government National Mortgage Association, the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation.
Mortgage-backed securities provide a monthly payment consisting of interest and
principal payments. Additional payment may be made out of unscheduled repayments
of principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-backed securities may tend to increase due
to refinancing of mortgages as interest rates decline. To the extent that the
Fund purchases mortgage-backed securities at a premium, mortgage foreclosures
and prepayments of principal by mortgagors (which may be made at any time
without penalty) may result in some loss of the Fund's principal investment to
the extent of the premium paid. The yield of the Fund from investing in
mortgage-backed securities may be affected by reinvestment of prepayments at
higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
interest rates decline; as a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the values of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
MORTGAGE DOLLAR ROLLS
The Fund may enter into mortgage "dollar rolls" in which the Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date not exceeding 120 days.
During the roll period, the Fund loses the right to receive principal and
interest paid on the securities sold. However, the Fund would benefit to the
extent of any difference between the price received for the securities sold and
the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward purchase. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund compared with what such performance would
have been without the use of mortgage dollar rolls. All cash proceeds will be
invested in instruments that are permissible investments for the Fund. The Fund
will hold and maintain in a segregated account until the settlement date cash or
other liquid assets in an amount equal to the forward purchase price.
For financial reporting and tax purposes, the Fund proposes to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale. The Fund does not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom
the Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet's ability to
9
<PAGE>
predict correctly interest rates and mortgage prepayments. For these reasons,
there is no assurance that mortgage dollar rolls can be successfully employed.
STRIPPED OBLIGATIONS
To the extent consistent with its investment objective, the Fund may
purchase U.S. Treasury receipts and other "stripped" securities that evidence
ownership in either future interest payments or future principal payments on
U.S. Government and other obligations. These participations, which may be issued
by the U.S. Government or by private issuers such as banks and other
institutions are issued at their "face value," and may include stripped
mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage
securities. Stripped securities, particularly SMBS, may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different
proportions of the interest and principal distributions from a pool of
mortgage-backed obligations. A common type of SMBS will have one class receiving
all of the interest, while the other class will receive all of the principal.
However, in some instances, one class will receive some of the interest and most
of the principal while the other class will receive most of the interest and the
remainder of the principal. If the underlying obligations experience greater
than anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities. The market value of the class consisting
entirely of principal payments generally is extremely volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government
agency or instrumentality) are considered illiquid by the Fund. Obligations
issued by the U.S. Government may be considered liquid under guidelines
established by Galaxy's Board of Trustees if they can be disposed of promptly in
the ordinary course of business at a value reasonably close to that used in the
calculation of net asset value per share.
BANK INVESTMENT CONTRACTS
The Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and will
be subject to the Fund's 15% limitation on such investments, unless there is an
active and substantial secondary market for the particular instrument and market
quotations are readily available.
ZERO COUPON BONDS
Zero coupon bonds do not make interest payments; instead, they are sold at a
deep discount from their face value and are redeemed at face value when they
mature. Because zero coupon bonds do not pay current income, their prices can be
very volatile when interest rates change. In calculating its daily dividend, the
Fund takes into account as income a portion of the difference between a zero
coupon bond's purchase price and its face value.
A broker/dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and the
Financing Corporation (FICO) can also be separated in this fashion. Original
issue zeros are zero coupon securities originally issued by the U.S. Government,
a U.S. Government agency or a corporation in zero coupon form.
DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
purchase certain derivative securities. Derivative securities are instruments
that derive their value from the performance of underlying assets, interest or
currency exchange rates or indices, and include, but are not limited to,
interest rate futures, certain asset-backed and mortgage-backed securities,
certain zero coupon bonds and currency forward contracts.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Fund will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
10
<PAGE>
Fleet will evaluate the risks presented by the derivative securities
purchased by the Fund, and will determine in connection with its day-to-day
management of the Fund, how they will be used in furtherance of the Fund's
investment objective. It is possible, however, that Fleet's evaluations will
prove to be inaccurate or incomplete and, even when accurate and complete, it is
possible that the Fund will, because of the risks discussed above, incur loss as
a result of its investments in derivative securities. See "Investment Objectives
and Policies--Derivative Securities" in the Statement of Additional Information
relating to the Fund for additional information.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if Fleet
believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover may result in the realization of substantial capital gains and involves
correspondingly greater transaction costs. To the extent that net capital gains
are realized, distributions derived from such gains are treated as ordinary
income for federal income tax purposes. See "Financial Highlights" and
"Taxes--Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) the Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that the Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase agreements
in accordance with its investment policies and in amounts not in excess of
10% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of its total assets at the time of such
borrowing.
3. Invest more than 15% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other securities
which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total
assets would be invested in such issuer, except that up to 25% of the value
of its total assets may be invested without regard to this limitation.
In addition, the Fund may not purchase any securities which would cause 25%
or more of the value of its total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry).
With respect to Investment Limitation No. 2 above, (i) the Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing, and (ii)
mortgage dollar rolls entered into by the Fund that are not accounted for as
financings shall not constitute borrowings.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading
11
<PAGE>
market for securities otherwise subject to restrictions on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the 1933 Act for resales of certain securities to qualified institutional
buyers. The Fund's investment in Rule 144A securities could have the effect of
increasing the level of illiquidity of the Fund during any period that qualified
institutional buyers were no longer interested in purchasing these securities.
For purposes of the 15% limitation on purchases of illiquid instruments
described under Investment Limitation No. 3 above, Rule 144A securities will not
be considered to be illiquid if Fleet has determined, in accordance with
guidelines established by the Board of Trustees, that an adequate trading market
exists for such securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time), on each day on which the Exchange is open for trading.
Currently, the holidays which Galaxy observes are New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share of the
Fund for purposes of pricing sales and redemptions is calculated separately for
each series of shares by dividing the value of all securities and other assets
attributable to a particular series of shares of the Fund, less the liabilities
attributable to shares of that series of the Fund, by the number of outstanding
shares of that series of the Fund.
The Fund's assets are valued for purposes of pricing sales and redemptions
by an independent pricing service ("Service") approved by Galaxy's Board of
Trustees. When, in the judgment of the Service, quoted bid prices for portfolio
securities are readily available and are representative of the bid side of the
market, these investments are valued at the mean between quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments are carried at fair value as determined by the
Service, based on methods which include consideration of yields or prices of
bonds of comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered broker/
dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
FD Distributors has established several procedures to enable different types
of investors to purchase Retail A Shares of the Fund. The Retail A Shares
described in this Prospectus may be purchased by individuals, corporations or
other entities, who submit a purchase application to Galaxy, purchasing directly
either for their own accounts or for the accounts of others ("Direct
Investors"). Retail A Shares may also be purchased by FIS Securities, Inc.,
Fleet Brokerage Securities Inc., Fleet Securities, Inc., Fleet Enterprises,
Inc., Fleet Financial Group, Inc., its affiliates, their correspondent banks and
other qualified banks, savings and loan associations and broker/dealers
("Institutions") on behalf of their customers ("Customers"). Purchases by Direct
Investors may take place only on days on which FD Distributors, Galaxy's
custodian and Galaxy's transfer agent are open for business ("Business Days").
If an Institution accepts a purchase order from a Customer on a non-Business
Day, the order will not be executed until it is received and accepted by FD
Distributors on a Business Day in accordance with FD Distributors' procedures.
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<PAGE>
PUBLIC OFFERING PRICE
The public offering price for Retail A Shares of the Fund is the sum of the
net asset value of the Retail A Shares pur-chased plus any applicable front-end
sales charge. The sales charge is assessed as follows:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE REALLOWANCE TO DEALERS
-------------------------------- -----------------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
- ------------------------------ -------------- --------------- -----------------------
<S> <C> <C> <C>
Less than $50,000............. 3.75 3.90 3.25
$50,000 but less than
$100,000..................... 3.50 3.63 3.00
$100,000 but less than
$250,000..................... 3.00 3.09 2.50
$250,000 but less than
$500,000..................... 2.50 2.56 2.00
$500,000 and over............. 0.00(*) 0.00(*) 0.00
</TABLE>
- --------------------------
* There is no initial sales charge on purchases of $500,000 or more of Retail
A Shares; however, a contingent deferred sales charge of 1.00% will be
imposed on the lesser of the offering price or the net asset value of such
Retail A Shares on the redemption date for shares redeemed within one year
of purchase. The contingent deferred sales charge will not be assessed on
redemption within one year of purchase in connection with the death or
disability of a shareholder. To receive this exemption, a Direct Investor or
Customer must explain the status of his or her redemption at the time the
Retail A Shares are redeemed.
Further reductions in the sales charges shown above are also possible. See
"Quantity Discounts" below.
FD Distributors will pay the appropriate reallowance to dealers to
broker-dealer organizations which have entered into agreements with the
Distributor. The reallowance to dealers may be changed from time to time.
At various times FD Distributors may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, FD Distributors in its discretion may from time to time, pursuant
to objective criteria established by FD Distributors, pay fees to qualifying
dealers for certain services or activities which are primarily intended to
result in sales of Retail A Shares of the Fund. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by FD
Distributors out of its own assets and not out of the assets of the Fund. These
programs will not change the price of Retail A Shares or the amount that the
Fund will receive from such sales.
Fleet's indirect parent, Fleet National Bank, or another affiliate of Fleet,
may at its expense, provide additional compensation to Fleet Enterprises, Inc.,
a broker-dealer affiliate of Fleet, whose customers purchase significant amounts
of Retail A Shares of the Fund. Such compensation will not represent an
additional expense to the Fund or its shareholders, since it will be paid from
the assets of Fleet's affiliates.
In certain situations or for certain individuals, the front-end sales charge
for Retail A Shares of the Fund may be waived either because of the nature of
the investor or the reduced sales effort required to attract such investments.
In order to receive the sales charge waiver, an investor must explain the status
of his or her investment at the time of purchase. No sales charge is assessed on
purchasers of Retail A Shares of the Fund by the following categories of
investors or in the following types of transactions:
- reinvestment of dividends and distributions;
- purchases by any retirement account, including, but not limited to SIMPLE,
IRA, SEP, Keogh and Roth accounts;
- purchases by persons who were beneficial owners of shares of the Fund or
any of the other portfolios offered by Galaxy or any other funds advised by
Fleet or its affiliates before December 1, 1995;
- purchases by directors, officers and employees of broker-dealers having
agreements with FD Distributors pertaining to the sale of Retail A Shares to the
extent permitted by such organizations;
- investors who purchase pursuant to a "wrap fee" program offered by any
broker-dealer or other financial institution or financial planning organization;
- purchases made with redemption proceeds from another mutual fund complex
on which a front-end or back-end sales charge has been paid, provided the
purchase is made within 60 days after the redemption;
- purchases by current and retired members of Galaxy's Board of Trustees and
members of their immediate families;
- purchases by officers, directors, employees and retirees of Fleet
Financial Group, Inc. and any of its affiliates and members of their immediate
families;
- purchases by officers, directors, employees and retirees of First Data
Corporation and any of its affiliates and members of their immediate families;
- purchases by persons who are also plan participants in any employee
benefit plan which is the record or beneficial holder of Trust Shares of any of
the portfolios offered by Galaxy;
- purchases by institutional investors, including but not limited to bank
trust departments and registered investment advisors;
- purchases by investment advisers, consultants or financial planners who
place trades for their own accounts or the
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<PAGE>
accounts of their clients and who charge such clients a management, consulting,
advisory or other fee;
- purchases by clients of investment advisers or financial planners who
place trades for their own accounts if such accounts are linked to the master
accounts of such investment advisers or financial planners on the books of the
broker-dealer through whom Retail A Shares are purchased;
- purchases by institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund these plans, which
place trades through an omnibus account maintained with Galaxy by the
broker-dealer; and
- any purchase pursuant to the Reinstatement Privilege described below.
QUANTITY DISCOUNTS
Direct Investors or Customers may be entitled to reduced sales charges
through Rights of Accumulation, a Letter of Intent or a combination of
investments, as described below, even if the Direct Investor or Customer does
not wish to make an investment of a size that would normally qualify for a
quantity discount.
In order to obtain quantity discount benefits, a Direct Investor or Customer
must notify Galaxy's administrator, First Data Investor Services Group, Inc.
("Investor Services Group"), at the time of purchase that he or she would like
to take advantage of any of the discount plans described below. Upon such
notification, the investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time and are subject to
confirmation of a Direct Investor's or Customer's holdings through a check of
appropriate records. For more information about quantity discounts, please
contact FD Distributors or your Institution.
RIGHTS OF ACCUMULATION. A reduced sales charge applies to any purchase of
Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where a Direct Investor's or Customer's then current aggregate
investment in Retail A Shares is $50,000 or more. "Aggregate investment" means
the total of: (a) the dollar amount of the then current purchase of shares of an
Eligible Fund; and (b) the value (based on current net asset value) of
previously purchased and beneficially-owned shares of any Eligible Fund on which
a sales charge has been paid. If, for example, a Direct Investor or Customer
beneficially owns shares of one or more Eligible Funds with an aggregate current
value of $49,000 on which a sales charge has been paid and subsequently
purchases shares of an Eligible Fund having a current value of $1,000, the sales
charge applicable to the subsequent purchase would be reduced to 3.50% of the
offering price. Similarly, with respect to each subsequent investment, all
shares of Eligible Funds that are beneficially owned by the investor at the time
of investment may be combined to determine the applicable sales charge.
LETTER OF INTENT. By completing the Letter of Intent included as part of
the Account Application, a Direct Investor or Customer becomes eligible for the
reduced sales charge applicable to the total number of Eligible Fund Retail A
Shares purchased in a 13-month period pursuant to the terms and under the
conditions set forth below and in the Letter of Intent. To compute the
applicable sales charge, the offering price of Retail A Shares of an Eligible
Fund on which a sales charge has been paid and that are beneficially owned by a
Direct Investor or Customer on the date of submission of the Letter of Intent
may be used as a credit toward completion of the Letter of Intent. However, the
reduced sales charge will be applied only to new purchases.
Investor Services Group will hold in escrow Retail A Shares equal to 5% of
the amount indicated in the Letter of Intent for payment of a higher sales
charge if a Direct Investor or Customer does not purchase the full amount
indicated in the Letter of Intent. The escrow will be released when a Direct
Investor or Customer fulfills the terms of the Letter of Intent by purchasing
the specified amount. If purchases qualify for a further sales charge reduction,
the sales charge will be adjusted to reflect a Direct Investor's or Customer's
total purchases. If total purchases are less than the amount specified, a Direct
Investor or Customer will be requested to remit an amount equal to the
difference between the sales charge actually paid and the sales charge
applicable to the total purchases. If such remittance is not received within 20
days, Investor Services Group, as attorney-in-fact pursuant to the terms of the
Letter of Intent and at FD Distributors' direction, will redeem an appropriate
number of Retail A Shares held in escrow to realize the difference. Signing a
Letter of Intent does not bind a Direct Investor or Customer to purchase the
full amount indicated at the sales charge in effect at the time of signing, but
a Direct Investor or Customer must complete the intended purchase in accordance
with the terms of the Letter of Intent to obtain the reduced sales charge. To
apply, a Direct Investor or Customer must indicate his or her intention to do so
under a Letter of Intent at the time of purchase.
QUALIFICATION FOR DISCOUNTS. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit sharing plan established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
REINSTATEMENT PRIVILEGE. Direct Investors and Customers may reinvest all or
any portion of their redemption proceeds in Retail A Shares of the Fund or in
Retail A Shares of another portfolio of Galaxy within 90 days of the redemption
trade date without paying a sales charge. Retail A Shares so reinvested will be
purchased at a price equal to the net asset
14
<PAGE>
value next determined after Investor Services Group, Galaxy's transfer agent
receives a reinstatement request and payment in proper form.
Direct Investors and Customers wishing to exercise this Privilege must
submit a written reinstatement request to Investor Services Group as transfer
agent stating that the investor is eligible to use the Privilege. The
reinstatement request and payment must be received within 90 days of the trade
date of the redemption. Currently, there are no restrictions on the number of
times an investor may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the Internal Revenue Code's "wash
sale" rules.
PURCHASE PROCEDURES--CUSTOMERS OF INSTITUTIONS
Purchase orders for Retail A Shares are placed by Customers of Institutions
through their Institutions. The Institution is responsible for transmitting
Customer purchase orders to FD Distributors and for wiring required funds in
payment to Galaxy's custodian on a timely basis. FD Distributors is responsible
for transmitting such orders to Galaxy's transfer agent for execution. Retail A
Shares purchased by Institutions on behalf of their Customers will normally be
held of record by the Institution and beneficial ownership of Retail A Shares
will be recorded by the Institution and reflected in the account statements
provided to their Customers. Galaxy's transfer agent may establish an account of
record for each Customer of an Institution reflecting beneficial ownership of
Retail A Shares. Depending on the terms of the arrangement between a particular
Institution and Galaxy's transfer agent, confirmations of Retail A Share
purchases and redemptions and pertinent account statements will either be sent
by Galaxy's transfer agent directly to a Customer with a copy to the
Institution, or will be furnished directly to the Customer by the Institution.
Other procedures for the purchase of Retail A Shares established by Institutions
in connection with the requirements of their Customer accounts may apply.
Customers wishing to purchase Retail A Shares through their particular
Institution should contact such entity directly for appropriate purchase
instructions.
PURCHASE PROCEDURES--DIRECT INVESTORS
PURCHASES BY MAIL. Retail A Shares may be purchased by completing a
purchase application and mailing it, together with a check payable to the Fund
to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
All purchase orders placed by mail must be accompanied by a purchase
application. Applications may be obtained by calling FD Distributors at
1-800-628-0414.
Subsequent investments in an existing account may be made at any time by
sending a check for a minimum of $100 payable to the Fund to Galaxy at the
address above along with either (a) the detachable form that regularly
accompanies confirmation of a prior transaction, (b) a subsequent order form
that may be obtained from FD Distributors, or (c) a letter stating the amount of
the investment, the name of the Fund and the account number in which the
investment is to be made. If a Direct Investor's check does not clear, the
purchase will be cancelled.
PURCHASES BY WIRE. Direct Investors may also purchase Retail A Shares by
arranging to transmit federal funds by wire to Fleet Bank of Massachusetts, N.A.
as agent for First Data Investor Services Group, Inc. ("Investor Services
Group"), Galaxy's transfer agent. Such purchases may only be made on days on
which FD Distributors, Galaxy's custodian and Galaxy's transfer agent are open
for business. Prior to making any purchase by wire, an investor must telephone
1-800-628-0414 to place an order and for instructions. Federal funds and
registration instructions should be wired through the Federal Reserve System to:
Fleet Bank of Massachusetts, N.A.
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
[Shareholder Name]
[Shareholder Account Number]
Direct Investors making initial investments by wire must promptly complete a
purchase application and forward it to The Galaxy Fund, P.O. Box 5108, 4400
Computer Drive, Westboro, Massachusetts 01581-5108. Applications may be obtained
by calling FD Distributors at 1-800-628-0414. Redemptions will not be processed
until the application in proper form has been received by Investor Services
Group. Direct Investors making subsequent investments by wire should follow the
instructions above.
EFFECTIVE TIME OF PURCHASES. A purchase order for Retail A Shares received
and accepted by FD Distributors from an Institution or a Direct Investor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be executed at the net asset value per
share determined on that date, provided that Galaxy's custodian receives the
purchase price in federal funds or other immediately available funds prior to
4:00 p.m.
15
<PAGE>
on the third Business Day following the receipt of such order. Such order will
be executed on the day on which the purchase price is received in proper form.
If funds are not received by such date and time, the order will not be accepted
and notice thereof will be given promptly to the Institution or Direct Investor
submitting the order. Payment for orders which are not received or accepted will
be returned. If an Institution accepts a purchase order from a Customer on a
non-Business Day, the order will not be executed until it is received and
accepted by FD Distributors on a Business Day in accordance with the above
procedures. On a Business Day when the Exchange closes early due to a partial
holiday or otherwise, Galaxy will advance the time at which purchase orders must
be received in order to be processed on that Business Day.
OTHER PURCHASE INFORMATION
Except as provided under "Investor Programs" below, the minimum initial
investment by a Direct Investor, or initial aggregate investment by an
Institution investing on behalf of its Customers, is $2,500. The minimum
investment for subsequent purchases is $100. The minimum investment requirement
with respect to IRAs, SEPs, MERPs and Keogh Plans (see below under "Retirement
Plans") is $500 (including spousal IRA accounts). There are no minimum
investment requirements for investors participating in the Automatic Investment
Program described below. Customers may agree with a particular Institution to
varying minimum initial and minimum subsequent purchase requirements with
respect to their accounts.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Retail A Shares to Direct Investors and Institutions is recorded
on the books of Galaxy and share certificates will not be issued.
Investors may be charged a separate fee if they effect transactions in
Retail Shares through a broker or other agent.
REDEMPTION PROCEDURES--CUSTOMERS OF INSTITUTIONS
Customers may redeem all or part of their Retail A Shares in accordance with
procedures governing their accounts at their particular Institutions. It is the
responsibility of the Institutions to transmit redemption orders to FD
Distributors and to credit their Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments to
Institutions is imposed by Galaxy, although Institutions may charge a Customer's
account for redemption services. Information relating to such redemption
services and charges, if any, is available from the Institution.
Payment for redemption orders received by FD Distributors on a Business Day
will normally be wired on the third Business Day to the Institution.
DIRECT INVESTORS MAY REDEEM ALL OR PART OF THEIR RETAIL A SHARES IN
ACCORDANCE WITH ANY OF THE PROCEDURES DESCRIBED BELOW.
REDEMPTION PROCEDURES--DIRECT INVESTORS
REDEMPTION BY MAIL. Retail A Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
A written redemption request must (i) state the number of shares to be
redeemed, (ii) identify the shareholder account number and tax identification
number, and (iii) be signed by each registered owner exactly as the shares are
registered. A redemption request for an amount in excess of $50,000, or for any
amount where (i) the proceeds are to be sent elsewhere than the address of
record (excluding the transfer of assets to a successor custodian), (ii) the
proceeds are to be sent to an address of record which has changed in the
preceding 30 days, or (iii) the check is to be made payable to someone other
than the registered owner(s), must be accompanied by signature guarantees. The
guarantor of a signature must be a bank which is a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
guarantor institution. FD Distributors will not accept guarantees from notaries
public. FD Distributors may require additional supporting documents for
redemptions made by corporations, executors, administrators, trustees and
guardians. A redemption request will not be deemed to be properly received until
FD Distributors receives all required documents in proper form. The Fund
ordinarily will make payment for Retail A Shares redeemed by mail within three
Business Days after proper receipt by FD Distributors of the redemption request.
Questions with respect to the proper form for redemption requests should be
directed to FD Distributors at 1-800-628-0414.
REDEMPTION BY TELEPHONE. Direct Investors who have not otherwise indicated
on the application, or in a subsequent notification in writing, may redeem
Retail A Shares by calling 1-800-628-0414 and instructing FD Distributors to
mail a check for redemption proceeds of up to $50,000 to the address of record.
A redemption request for an amount in excess of $50,000, or for any amount where
(i) the proceeds are to be sent elsewhere than the address of record (excluding
the transfer of assets to a successor custodian), (ii) the proceeds are to be
sent to an address of record which has
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changed in the preceding 30 days, or (iii) the check is to be made payable to
someone other than the registered owner(s), must be accompanied by signature
guarantees. (See "Redemption by Mail" above for details regarding signature
guarantees).
REDEMPTION BY WIRE. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
Retail A Shares by instructing FD Distributors by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to the Direct Investor's account
at any commercial bank in the United States. FD Distributors charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption proceeds.
The redemption proceeds must be paid to the same bank and account as designated
on the application or in written instructions subsequently received by FD
Distributors. To request redemption of Retail A Shares by wire, Direct Investors
should call FD Distributors at 1-800-628-0414.
In order to arrange for redemption by wire after an account has been opened
or to change the bank or account designated to receive redemption proceeds, a
written request must be sent to Galaxy at the address listed above under
"Redemption by Mail." Such requests must be signed by the investor and
accompanied by a signature guarantee (see "Redemption by Mail" above for details
regarding signature guarantees). Further documentation may be requested from
corporations, executors, administrators, trustees, or guardians. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures for transactions
by wire or mail which are described above.
Galaxy reserves the right to refuse a wire or telephone redemption if it
believes it is advisable to do so. Procedures for redeeming Retail A Shares by
wire or telephone may be modified or terminated at any time by Galaxy or FD
Distributors. In attempting to confirm that telephone instructions are genuine,
Galaxy will use such procedures as are considered reasonable, including
recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security number, address and/or bank). If Galaxy fails to follow established
procedures for the authentication of telephone transactions, it may be liable
for losses due to unauthorized or fraudulent telephone transactions.
NO REDEMPTION BY A DIRECT INVESTOR WILL BE PROCESSED UNTIL GALAXY HAS
RECEIVED A COMPLETED APPLICATION WITH RESPECT TO THE DIRECT INVESTOR'S ACCOUNT.
IF ANY PORTION OF THE RETAIL A SHARES TO BE REDEEMED REPRESENTS AN
INVESTMENT MADE BY PERSONAL CHECK, GALAXY RESERVES THE RIGHT TO DELAY PAYMENT OF
PROCEEDS UNTIL FD DISTRIBUTORS IS REASONABLY SATISFIED THAT THE CHECK HAS BEEN
COLLECTED WHICH COULD TAKE UP TO 15 DAYS FROM THE PURCHASE DATE. A DIRECT
INVESTOR WHO ANTICIPATES THE NEED FOR MORE IMMEDIATE ACCESS TO HIS OR HER
INVESTMENT SHOULD PURCHASE RETAIL A SHARES BY FEDERAL FUNDS OR BANK WIRE OR BY
CERTIFIED OR CASHIER'S CHECK. BANKS NORMALLY IMPOSE A CHARGE IN CONNECTION WITH
THE USE OF BANK WIRES, AS WELL AS CERTIFIED CHECKS, CASHIER'S CHECKS AND FEDERAL
FUNDS.
OTHER REDEMPTION INFORMATION
Except as provided under "Investor Programs" below, Galaxy reserves the
right to redeem accounts (other than retirement plan accounts) involuntarily,
upon 60 days' written notice, if the account's net asset value falls below $250
as a result of redemptions. In addition, if an investor has agreed with a
particular Institution to maintain a minimum balance in his or her account at
the Institution with respect to Retail A Shares of the Fund, and the balance in
such account falls below that minimum, the Customer may be obliged by the
Institution to redeem all of his or her shares.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Galaxy reserves the right to wire redemption
proceeds within seven days after receiving the redemption order if, in its
judgment, an earlier payment could adversely affect the Fund.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Direct Investors and Customers of Institutions may, after appropriate prior
authorization, exchange Retail A Shares of the Fund having a value of at least
$100 for Retail A Shares of any of the other portfolios offered by Galaxy or for
shares of any other investment portfolios otherwise advised by Fleet or its
affiliates in which the Direct Investor or Customer maintains an existing
account, provided that such other shares may legally be sold in the state of the
investor's residence. No additional sales charge will be incurred when
exchanging Retail A Shares of the Fund for Retail A Shares of another Galaxy
portfolio that imposes a sales charge.
The minimum initial investment to establish an account in another portfolio
by exchange, except for the Institutional Government Money Market Fund, is
$2,500, unless at the time of exchange the Direct Investor or Customer elects,
with respect to the portfolio into which the exchange is being
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<PAGE>
made, to participate in the Automatic Investment Program described below, in
which event there is no minimum initial investment requirement or in the College
Investment Program described below, in which event the minimum initial
investment is generally $100. The minimum initial investment to establish an
account by exchange in the Institutional Government Money Market Fund is $2
million.
An exchange involves a redemption of all or a portion of the shares of the
Fund and the investment of the redemption proceeds in shares of another
portfolio offered by Galaxy or otherwise advised by Fleet or its affiliates. The
redemption will be made at the per share net asset value next determined after
the exchange request is received. The shares of the portfolio to be acquired
will be purchased at the per share net asset value next determined after
acceptance of the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in the Fund. For
further information regarding Galaxy's exchange privilege, Direct Investors
should call Investor Services Group at 1-800-628-0414. Customers of Institutions
should call their Institution for such information. Customers exercising the
exchange privilege into other portfolios should request and review these
portfolios' prospectuses prior to making an exchange. Telephone 1-800-628-0414
for a prospectus or to make an exchange. See "How to Purchase and Redeem
Shares--Redemption Procedures-- Direct Investors--Redemption by Wire" above for
a description of Galaxy's policy regarding telephone instructions.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the SEC.
Galaxy does not charge any exchange fee. However, Institutions may charge
such fees with respect to either all exchange requests or with respect to any
request which exceeds the permissible number of free exchanges during a
particular period. Customers of Institutions should contact their Institution
for applicable information.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, a Customer or Direct Investor should consult a tax
or other financial adviser to determine the tax consequences.
RETIREMENT PLANS
Retail A Shares of the Fund are available for purchase in connection with
the following tax deferred prototype retirement plans:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") (including traditional, Roth and
Education IRAs and "rollovers" from existing retirement plans), a
retirement-savings vehicle for qualifying individuals. The minimum initial
investment for an IRA account is $500 (including a spousal account).
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPS"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
MULTI-EMPLOYEE PENSION PLANS ("MERPS"), a retirement vehicle established by
employers for their employees which is qualified under Section 401(k) and 403(b)
of the Internal Revenue Code. The minimum initial investment for a MERP is $500.
KEOGH PLANS, a retirement vehicle for self-employed individuals. The minimum
initial investment for a Keogh Plan is $500.
Investors purchasing Retail A Shares pursuant to a retirement plan are not
subject to the minimum investment provisions described above under "How to
Purchase and Redeem Shares--Other Purchase Information." Detailed information
concerning eligibility and other matters relating to these plans and the form of
application is available from FD Distributors (call 1-800-628-0414) with respect
to IRAs, SEPs and Keogh Plans and from Fleet Brokerage Securities, Inc. (call
1-800-221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits a Direct Investor to purchase
Retail A Shares of the Fund (minimum of $50 per transaction) each month or each
quarter. Provided the Direct Investor's financial institution allows automatic
withdrawals, Retail A Shares are purchased by transferring funds from a Direct
Investor's checking, bank money market, NOW or savings account designated by the
investor. The account designated will be debited in the specified amount, and
Retail A Shares will be purchased, on any Business Day designated by a Direct
Investor. If the designated day falls on a weekend or holiday, the purchase will
be made on the Business Day closest to the designated day. Only an account
maintained at a domestic financial institution which is an Automated Clearing
House member may be so designated.
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The Systematic Withdrawal Plan permits a Direct Investor to redeem Retail A
Shares of the Fund on a monthly, quarterly, semi-annual, or annual basis on any
Business Day designated by a Direct Investor, if the account has a starting
value of at least $10,000. If the designated day falls on a weekend or holiday,
the redemption will be made on the Business Day closest to the designated day.
Proceeds of the redemption will be sent to the shareholder's address of record
or financial institution within five business days of the redemption. If
redemptions exceed purchases and dividends, the number of shares in the account
will be reduced. Investors may terminate the Systematic Withdrawal Plan at any
time upon written notice to Investor Services Group, Galaxy's transfer agent
(but not less than five days before a payment date). There is no charge for this
service.
PAYROLL DEDUCTION PROGRAM
The Payroll Deduction Program provides Direct Investors with a convenient,
systematic way to purchase Fund shares by deducting a minimum amount of $25 per
pay period from their paycheck. To be eligible for the Program, the payroll
department of a Direct Investor's employer must have the capability to forward
transactions directly through the Automated Clearing House (ACH), or indirectly
through a third party payroll processing company that has access to the ACH. A
Direct Investor must complete and submit a Galaxy Payroll Deduction Application
to his or her employer's payroll department, which will arrange for the
specified amount to be debited from the Direct Investor's paycheck each pay
period. Retail A Shares of the Fund will be purchased up to three days after the
debit occurs. If the designated day falls on a weekend or non-Business Day, the
purchase will be made on the Business Day closest to the designated day. A
Direct Investor should allow between two to four weeks for the Payroll Deduction
Program to be established after submitting an application to the employer's
payroll department.
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits a Direct
Investor to open an account with Galaxy and purchase Retail A Shares of the Fund
with a minimum amount of $100 for initial or subsequent investments, except that
if the Direct Investor purchases Retail A Shares through the Automatic
Investment Program, the minimum per transaction is $50. The College Program is
designed to assist Direct Investors who want to finance a college savings plan.
See "Investor Programs--Automatic Investment Program and Systematic Withdrawal
Plan" for information on the Automatic Investment Program. Galaxy reserves the
right to redeem accounts participating in the College Program involuntarily,
upon 60 days' written notice, if the account's net asset value falls below the
applicable minimum initial investment as a result of redemptions. See "How to
Purchase and Redeem Shares--Other Redemption Information" above for further
information.
Direct Investors in the College Program will receive consolidated monthly
statements of their accounts. Detailed information concerning College Program
accounts and applications may be obtained from FD Distributors (call
1-800-628-0414).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for the
Direct Deposit Program. This Program enables Direct Investors to purchase Retail
A Shares of the Fund by having social security payments automatically deposited
into his or her Fund account. There is no minimum deposit requirement. For
instructions on how to enroll in the Direct Deposit Program, Direct Investors
should call FD Distributors at 1-800-628-0414.
Death or legal incapacity will terminate a Direct Investor's participation
in the Program. A Direct Investor may elect at any time to terminate his or her
participation by notifying in writing the Social Security Administration.
Further, Galaxy may terminate a Direct investor's participation upon 30 days'
notice to the Direct Investor.
INFORMATION SERVICES
GALAXY INFORMATION CENTER--24 HOUR INFORMATION SERVICE
The Galaxy Information Center provides Fund performance and investment
information 24 hours a day, seven days a week. To access the Galaxy Information
Center Automated Telephone Service, just call 1-800-628-0414.
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VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to Fund
and account information as well as the ability to make telephone redemptions and
exchanges. These transactions are subject to the terms and conditions described
above under "How To Purchase and Redeem Shares" and "Investor
Programs--Exchanges". To access the Voice Response System, just call
1-800-628-0414 from any touch-tone telephone and follow the recorded
instructions.
GALAXY SHAREHOLDER SERVICES
For account information, Direct Investors can call Galaxy Shareholder
Services Monday through Friday, between the hours of 9:00 a.m. to 5:00 p.m.
(Eastern Time) at 1-800-628-0414.
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
Direct Investors residing outside the United States can contact Galaxy by
calling 1-508-855-5237.
Investment returns and principal values will vary with market conditions so
that an investor's Retail A Shares, when redeemed, may be worth more or less
than their original cost. Past performance is no guarantee of future results.
Unless otherwise indicated, total return figures include changes in share price,
and reinvestment of dividends and capital gains distributions, if any.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared daily and paid
monthly. Dividends on each share of the Fund are determined in the same manner,
irrespective of series, but may differ in amount because of the difference in
the expenses paid by the respective series. Net realized capital gains are
distributed at least annually.
Dividends and distributions will be paid in cash. Customers and Direct
Investors may elect to have their dividends reinvested in additional Retail A
Shares of the Fund at the net asset value of such Shares on the ex-dividend
date. Such election, or any revocation thereof, must be communicated in writing
to Galaxy's transfer agent and will become effective with respect to dividends
paid after its receipt.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that the Fund distribute to its shareholders
an amount equal to at least 90% of its investment company taxable income and 90%
of its tax-exempt interest income, if any, net of certain deductions for such
year. In general, the Fund's investment company taxable income will be its
taxable income, including dividends, interest and short-term capital gains (the
excess of net short-term capital gain over net long-term capital loss), if any,
subject to certain adjustments and excluding the excess of any net long-term
capital gain for the taxable year over the net short-term capital loss, if any,
for such year. The policy of the Fund is to distribute as dividends
substantially all of its investment company taxable income and any net
tax-exempt interest income each year. Such dividends will be taxable as ordinary
income to the Fund's shareholders who are not currently exempt from federal
income taxes, whether such dividends are received in cash or reinvested in
additional Retail A Shares. (Federal income taxes for distributions to an IRA or
a qualified retirement plan are deferred under the Code). It is anticipated that
no part of any distribution will qualify for the dividends received deduction
for corporate shareholders.
Distribution by the Fund of "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss) if any, of the Fund, is taxable
to shareholders as long-term capital gain, regardless of how long the
shareholder has held shares and whether such gains are received in cash or
reinvested in additional Retail A Shares. Such long-term capital gain will be
20% or 28% rate gain, depending upon the Fund's holding period for the assets
the sale of which generated the capital gain. Such distributions are not
eligible for the dividends received deduction.
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
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If you are considering buying shares of the Fund on or just before the
record date of a capital gain distribution, you should be aware that the amount
of the forthcoming distribution payment, although in effect a return of capital,
generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the Federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to contact their tax advisers concerning the
application of state and local taxes, which may have different consequences than
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients, and
manages the other investment portfolios of Galaxy.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Fund,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
an annual rate of .75% of the average daily net assets of the Fund.
Fleet may from time to time, in its discretion, waive advisory fees payable
by the Fund in order to help maintain a competitive expense ratio and may from
time to time allocate a portion of its advisory fees to Fleet Bank or other
subsidiaries of Fleet Financial Group, Inc., in consideration for administrative
and/or shareholder support services which they provide to beneficial
shareholders. Fleet is currently waiving a portion of the advisory fee payable
by the Fund such that it is entitled to receive advisory fees at the annual rate
of .55% of the Fund's average daily net assets. For the fiscal year ended
October 31, 1997, Fleet received advisory fees (after fee waivers) at the
effective annual rate of .55% of the Fund's average daily net assets.
The Fund's portfolio manager, David Lindsay, is primarily responsible for
the day-to-day management of the Fund's investment portfolio. Mr. Lindsay, a
Senior Vice President, has been with Fleet and its predecessors since 1986 and
has been the Fund's portfolio manager since its inception.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Retail A
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which have agreed to provide shareholder support services that are
banks or bank affiliates are subject to such banking laws and regulations.
Should legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services
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to the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Fund's method of
operation would not affect the Fund's net asset value per share or result in
financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5180, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For services provided to the Fund, Investor Services Group
is entitled to receive administration fees, computed daily and paid monthly, at
an annual rate of .09% of the first $2.5 billion of combined average daily net
assets of the Fund and the other portfolios offered by Galaxy (collectively the
"Portfolios"), .085% of the next $2.5 billion of combined average daily net
assets and .075% of combined average daily net assets over $5 billion. In
addition, Investor Services Group also receives a separate annual fee from each
Portfolio for certain fund accounting services. From time to time, Investor
Services Group may waive voluntarily all or a portion of the administration fee
payable to it by the Fund. For the fiscal year ended October 31, 1997, Investor
Services Group received administration fees at the effective annual rate of
.082% of the Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each of two series in the Fund as follows:
Class T--Series 1 shares (Trust Shares) and Class T--Series 2 shares (Retail A
Shares), both series representing interests in the Fund. The Fund is classified
as a diversified company under the 1940 Act. The Board of Trustees has also
authorized the issuance of additional classes and series of shares representing
interests in other portfolios of Galaxy. For information regarding the Fund's
Trust Shares and these other portfolios, which are offered through separate
prospectuses, contact FD Distributors at 1-800-628-0414.
Shares of each series in the Fund bear their pro rata portion of all
operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid under Galaxy's Shareholder Services
Plan described below. Currently, these payments are not made with respect to the
Fund's Trust Shares. In addition, shares of each series in the Fund bear
differing transfer agency expenses. Standardized yield and total return
quotations are computed separately for each series of shares. The differences in
the expenses paid by the respective series will affect their performance.
Retail A Shares of the Fund have certain exchange and other privileges which
are not available with respect to Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class (irrespective of series
designation), and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such investment portfolio as are
declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.30% of the average daily
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net asset value of Retail A Shares owned beneficially by Customers. Institutions
may receive up to one-half of this fee for providing one or more of the
following services to such Customers: aggregating and processing purchase and
redemption requests and placing net purchase and redemption orders with FD
Distributors; processing dividend payments from the Fund; providing
sub-accounting with respect to Retail A Shares or the information necessary for
sub-accounting; and providing periodic mailings to Customers. Institutions may
also receive up to one-half of this fee for providing one or more of these
additional services to such Customers: providing Customers with information as
to their positions in Retail A Shares; responding to Customer inquiries; and
providing a service to invest the assets of Customers in Retail A Shares. These
services are described more fully in the Statement of Additional Information
under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to not more
than .15% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Fund to Investor Services Group have
been increased by an amount equal to these fees. In substance, therefore, the
holders of Trust Shares of the Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Fund's assets. Chase
Manhattan may employ sub-custodians for the Fund, for the purpose of providing
custodial services for the Fund's foreign assets held outside the United States.
First Data Investor Services Group, Inc. ("Investor Services Group"), a
wholly-owned subsidiary of First Data Corporation, serves as the Fund's transfer
and dividend disbursing agent. Services performed by both entities for the Fund
are described in the Statement of Additional Information. Communications to
Investor Services Group should be directed to Investor Services Group at P.O.
Box 5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5180.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Fund. Galaxy bears
the expenses incurred in the Fund's operations. Such expenses include taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, fund accounting and custody fees; charges of the transfer agent and
dividend disbursing agent; certain insurance premiums; outside auditing and
legal expenses; costs of independent pricing services; costs of shareholder
reports and meetings; and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions in connection with the purchase of portfolio
securities.
23
<PAGE>
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant bond indices
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or publications of a local or regional nature, may also
be used in comparing the performance of the Fund. Performance data will be
calculated separately for Retail A Shares and Trust Shares of the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return reflect
the sales load charged by the Fund with respect to its Retail A Shares and
assume that dividend and capital gains distributions made by the Fund during the
period are reinvested in Fund shares.
The Fund may also advertise total return without reflecting the sales charge
imposed on the purchases of Retail A Shares in accordance with the rules of the
SEC. Quotations that do not reflect a sales charge will be higher than
quotations that do reflect sales charges.
The performance of the Fund will fluctuate and any quotation of performance
should not be considered as representative of future performance. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in the
Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance data are
generally functions of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
additional fees charged directly by Institutions to accounts of Customers that
have invested in Retail A Shares of the Fund will not be included in performance
calculations.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include, but are not limited to, the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval by an
investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HIGHLIGHTS................................................................ 1
EXPENSE SUMMARY........................................................... 2
FINANCIAL HIGHLIGHTS...................................................... 3
INVESTMENT OBJECTIVE AND POLICIES......................................... 5
In General.............................................................. 5
Special Risk Considerations............................................. 5
Other Investment Policies and Risk Considerations....................... 6
INVESTMENT LIMITATIONS.................................................... 11
PRICING OF SHARES......................................................... 12
HOW TO PURCHASE AND REDEEM SHARES......................................... 12
Distributor............................................................. 12
Purchase of Shares...................................................... 12
Public Offering Price................................................... 13
Quantity Discounts...................................................... 14
Purchase Procedures--Customers of Institutions.......................... 15
Purchase Procedures--Direct Investors................................... 15
Other Purchase Information.............................................. 16
Redemption Procedures--Customers of Institutions........................ 16
Redemption Procedures--Direct Investors................................. 16
Other Redemption Information............................................ 17
INVESTOR PROGRAMS......................................................... 17
Exchange Privilege...................................................... 17
Retirement Plans........................................................ 18
<CAPTION>
PAGE
----
<S> <C>
Automatic Investment Program and Systematic Withdrawal Plan............. 18
Payroll Deduction Program............................................... 19
College Investment Program.............................................. 19
Direct Deposit Program.................................................. 19
INFORMATION SERVICES...................................................... 19
Galaxy Information Center--24 Hour Information Service.................. 19
Voice Response System................................................... 20
Galaxy Shareholder Services............................................. 20
DIVIDENDS AND DISTRIBUTIONS............................................... 20
TAXES..................................................................... 20
Federal................................................................. 20
State and Local......................................................... 21
MANAGEMENT OF THE FUND.................................................... 21
Investment Adviser...................................................... 21
Authority to Act as Investment Adviser.................................. 21
Administrator........................................................... 22
DESCRIPTION OF GALAXY AND ITS SHARES...................................... 22
Shareholder Services Plan............................................... 22
Agreements for Sub-Account Services..................................... 23
CUSTODIAN AND TRANSFER AGENT.............................................. 23
EXPENSES.................................................................. 23
PERFORMANCE REPORTING..................................................... 24
MISCELLANEOUS............................................................. 24
</TABLE>
[LOGO]
50% Recycled Paper
10% Post-Consumer Waste
<PAGE>
TRUST
THE GALAXY FUND
TAX-EXEMPT BOND FUND
NEW JERSEY MUNICIPAL BOND FUND
NEW YORK MUNICIPAL BOND FUND
CONNECTICUT MUNICIPAL BOND FUND
MASSACHUSETTS MUNICIPAL BOND FUND
RHODE ISLAND MUNICIPAL BOND FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 5
INVESTMENT OBJECTIVES AND POLICIES.................................... 11
Tax-Exempt Bond Fund................................................ 11
New Jersey Municipal Bond Fund...................................... 11
New York Municipal Bond Fund........................................ 12
Connecticut Municipal Bond Fund..................................... 13
Massachusetts Municipal Bond Fund................................... 14
Rhode Island Municipal Bond Fund.................................... 15
Special Considerations and Risks.................................... 15
Other Investment Policies and Risk Considerations................... 19
INVESTMENT LIMITATIONS................................................ 27
PRICING OF SHARES..................................................... 28
HOW TO PURCHASE AND REDEEM SHARES..................................... 29
Distributor......................................................... 29
Purchase of Shares.................................................. 29
Redemption of Shares................................................ 30
<CAPTION>
PAGE
----
<S> <C>
DIVIDENDS AND DISTRIBUTIONS........................................... 30
TAXES................................................................. 31
Federal............................................................. 31
State and Local..................................................... 32
Miscellaneous....................................................... 34
MANAGEMENT OF THE FUNDS............................................... 34
Investment Adviser.................................................. 34
Authority to Act as Investment Adviser.............................. 35
Administrator....................................................... 35
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 36
Shareholder Services Plan........................................... 37
CUSTODIAN AND TRANSFER AGENT.......................................... 38
EXPENSES.............................................................. 38
PERFORMANCE REPORTING................................................. 38
MISCELLANEOUS......................................................... 39
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance, call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes six series of Galaxy's shares (collectively, the
"Trust Shares") which represent interests in six separate investment portfolios
(individually, a "Fund," collectively, the "Funds") offered to investors by
Galaxy, each having its own investment objective and policies:
The TAX-EXEMPT BOND FUND'S investment objective is to provide shareholders
with as high a level of current interest income free of federal income tax as is
consistent with preservation of capital. Under normal market and economic
conditions, the Fund will invest substantially all of its assets in bonds and
notes issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their respective authorities,
agencies, instrumentalities and political subdivisions the interest on which, in
the opinion of bond counsel to the issuer, is exempt from regular federal income
tax ("Municipal Securities").
The NEW JERSEY MUNICIPAL BOND FUND'S investment objective is to seek as high
a level of current interest income exempt from federal income tax and, to the
extent possible, from New Jersey personal income tax, as is consistent with
relative stability of principal. Under normal market and economic conditions,
the Fund will invest at least 65% of its total assets in New Jersey Municipal
Securities. The Fund is a non-diversified investment portfolio under the
Investment Company Act of 1940, as amended, (the "1940 Act").
The NEW YORK MUNICIPAL BOND FUND'S investment objective is to seek as high a
level of current interest income exempt from federal income tax and, to the
extent possible, from New York State and New York City personal income tax, as
is consistent with relative stability of principal. Under normal market and
economic conditions, the Fund will invest at least 65% of its total assets in
New York Municipal Securities. The Fund is a non-diversified investment
portfolio under the 1940 Act.
The CONNECTICUT MUNICIPAL BOND FUND'S investment objective is to seek as
high a level of current interest income exempt from federal income tax and, to
the extent possible, from Connecticut personal income tax, as is consistent with
relative stability of principal. Under normal market and economic conditions,
the Fund will invest at least 65% of its total assets in Connecticut Municipal
Securities. The Fund is a non-diversified investment portfolio under the 1940
Act.
The MASSACHUSETTS MUNICIPAL BOND FUND'S investment objective is to seek as
high a level of current interest income exempt from federal income tax and, to
the extent possible, from Massachusetts personal income tax as is consistent
with relative stability of principal. Under normal market and economic
conditions, the Fund will invest at least 65% of its total assets in
Massachusetts Municipal Securities. The Fund is a non-diversified investment
portfolio under the 1940 Act.
The RHODE ISLAND MUNICIPAL BOND FUND'S investment objective is to seek as
high a level of current interest income exempt from federal income tax and, to
the extent possible, from Rhode Island personal income tax, as is consistent
with relative stability of principal. Under normal market and economic
conditions, the Fund will invest at least 65% of its total assets in Rhode
Island Municipal Securities. The Fund is a non-diversified investment portfolio
under the 1940 Act.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
This Prospectus describes Trust Shares in each Fund. Trust Shares are
offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group, Inc.
Galaxy is also authorized to issue an additional series of shares, Retail A
Shares, in the New Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds, and two additional series of shares, Retail A Shares and Retail B Shares,
in the Tax-Exempt Bond Fund (Retail A Shares and Retail B Shares are referred to
herein collectively as "Retail Shares"). Retail Shares are offered under a
separate prospectus primarily to individuals, corporations or other entities
purchasing either for their own accounts or for the accounts of others and to
FIS Securities, Inc., Fleet Brokerage Securities, Inc., Fleet Securities, Inc.,
Fleet Enterprises, Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks and other qualified banks, savings and loans associations
and broker/dealers on behalf of their customers. Trust Shares, Retail A Shares
and Retail B Shares in a Fund represent equal pro rata interests in the Fund,
except they bear different expenses which reflect the difference in the range of
services provided to them. As of the date of this Prospectus, Trust Shares of
the Rhode Island Municipal Bond Fund were not being offered to investors. See
"Financial Highlights," "Management of the Funds" and "Description of Galaxy and
Its Shares" herein.
Each of the Funds is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Funds, contained in the Statement of Additional Information relating to the
Funds and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone numbers or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
--------------------------
FEBRUARY 28, 1998
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by each Fund with respect to its Trust Shares, and (ii) the operating
expenses for Trust Shares of each Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
RHODE
NEW JERSEY NEW YORK CONNECTICUT MASSACHUSETTS ISLAND
TAX-EXEMPT TAX-EXEMPT MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL BOND MUNICIPAL
SHAREHOLDER TRANSACTION EXPENSES BOND FUND BOND FUND BOND FUND BOND FUND FUND BOND FUND
- ---------------------------------------- ------------- ----------- ----------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales Load.............................. None None None None None None
Sales Load on Reinvested Dividends...... None None None None None None
Deferred Sales Load..................... None None None None None None
Redemption Fees......................... None None None None None None
Exchange Fees........................... None None None None None None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees (After Fee Waivers)....... .55% .25% .55% .35% .35% .35%
12b-1 Fees.............................. None None None None None None
Other Expenses (After Fee Waivers)...... .22% .67% .23% .40% .38% .60%
----- ----- ----- ----- ----- -----
Total Fund Operating Expenses (After Fee
Waivers)............................... .77% .92% .78% .75% .73% .95%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
- ---------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Tax-Exempt Bond Fund.................... $8 $24 $42 $93
New Jersey Municipal Bond Fund.......... $9 $29 N/A N/A
New York Municipal Bond Fund............ $8 $24 $42 $95
Connecticut Municipal Bond Fund......... $8 $23 $41 $91
Massachusetts Municipal Bond Fund....... $7 $23 $40 $89
Rhode Island Municipal Bond Fund........ $10 $30 $52 $114
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in Trust Shares of the
Funds will bear directly or indirectly. The information contained in the Expense
Summary and Example with respect to the Tax-Exempt Bond, New York Municipal
Bond, Connecticut Municipal Bond and Massachusetts Municipal Bond Funds is based
on expenses incurred by each Fund during the last fiscal year, restated to
reflect the expenses which each Fund expects to incur during the current fiscal
year on its Trust Shares. The information in the Expense Summary and Example
with respect to the New Jersey Municipal Bond and Rhode Island Municipal Bond
Funds is based on the expenses each Fund expects to incur during the current
fiscal year on its Trust Shares. Without voluntary fee waivers by Fleet and/or
the Fund's administrator, "Advisory Fees" would be
3
<PAGE>
.75%, .75%, .75%, .75%, .75% and .75%, Other Expenses would be .22%, .93%, .31%,
.40%, .38% and .60% and Total Fund Operating Expenses would be .97%, 1.68%,
1.06%, 1.15%, 1.13% and 1.35% for Trust Shares of the Tax-Exempt Bond Fund, New
Jersey Municipal Bond Fund, New York Municipal Bond Fund, Connecticut Municipal
Bond Fund, Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond
Fund, respectively. Fleet and/or the Funds' administrator is under no obligation
to waive fees and/or reimburse expenses but has advised Galaxy that it intends
to waive fees and/or reimburse expenses during the current year to the extent
necessary to maintain the Funds' operating expenses at the levels set forth in
the above table. For more complete descriptions of these costs and expenses, see
"Management of the Funds" and "Description of Galaxy and Its Shares" in this
Prospectus and the financial statements and notes incorporated by reference into
the Statement of Additional Information. Any fees that are charged by affiliates
of Fleet or other institutions directly to their customer accounts for services
related to an investment in Trust Shares of the Funds are in addition to and not
reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
4
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in each Fund. Galaxy is also
authorized to issue an additional series of shares, Retail A Shares, in the New
Jersey Municipal Bond Fund, New York Municipal Bond Fund, Connecticut Municipal
Bond Fund, Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond
Fund, and two additional series of shares, Retail A Shares and Retail B Shares,
in the Tax-Exempt Bond Fund. As described below under "Description of Galaxy and
Its Shares," Trust Shares, Retail A Shares and Retail B Shares represent equal
pro rata interests in a Fund except that (i) effective October 1, 1994 Retail A
Shares of the Funds bear the expenses incurred under Galaxy's Shareholder
Services Plan at an annual rate of up to .15% of the average daily net asset
value of each Fund's outstanding Retail A Shares, (ii) Retail B Shares of the
Tax-Exempt Bond Fund bear the expenses incurred under Galaxy's Distribution and
Services Plan for Retail B Shares at an annual rate of up to .80% of the average
daily net asset value of the Fund's outstanding Retail B Shares, and (iii) Trust
Shares, Retail A Shares and Retail B Shares bear differing transfer agency
expenses. Retail Shares are offered under a separate Prospectus.
The financial highlights presented below for the fiscal year ended October
31, 1997 have been audited by Coopers & Lybrand L.L.P., Galaxy's independent
accountants, whose report is contained in Galaxy's Annual Report to Shareholders
relating to the Funds dated October 31, 1997 (the "Annual Report"). Such
financial highlights should be read in conjunction with the financial statements
contained in the Annual Report and incorporated by reference into the Statement
of Additional Information. Information in the financial highlights for periods
prior to the fiscal year ended October 31, 1994 reflects the investment results
of both Trust Shares and Retail A Shares of the Funds. As of the date of this
Prospectus, the New Jersey Municipal Bond Fund had not commenced operations. In
addition, as of the date of this Prospectus, Trust Shares of the Rhode Island
Municipal Bond Fund had not yet been offered to investors. Information in the
financial highlights for the Rhode Island Municipal Bond Fund sets forth certain
historic investment results of Retail A Shares of the Fund and is intended to
provide investors with a perspective as to that Fund's financial history. More
information about the performance of the Funds is also contained in the Annual
Report, which may be obtained without charge by contacting Galaxy at its
telephone number or address provided above.
5
<PAGE>
TAX-EXEMPT BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------
1997 1996 1995 1994 YEAR ENDED PERIOD ENDED
----------------------------------------- OCTOBER 31, OCTOBER 31,
TRUST SHARES 1993(2) 1992(1,2)
----------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 10.78 $ 10.78 $ 9.99 $ 11.12 $ 10.11 $ 10.00
-------- -------- -------- -------- ------------ ------------
Income From Investment Operations:
Net investment income(3,4)...................... 0.53 0.53 0.54 0.53 0.54 0.34
Net realized and unrealized gain (loss) on
investments.................................... 0.29 -- 0.79 (1.04) 1.01 0.11
-------- -------- -------- -------- ------------ ------------
Total From Investment Operations.............. 0.82 0.53 1.33 (0.51) 1.55 0.45
-------- -------- -------- -------- ------------ ------------
Less Dividends:
Dividends from net investment income............ (0.53) (0.53) (0.54) (0.53) (0.54) (0.34)
Dividends from net realized capital gains....... (0.01) -- -- -- -- --
Dividends in excess of net realized capital
gains.......................................... -- -- -- (0.09) -- --
-------- -------- -------- -------- ------------ ------------
Total Dividends............................... (0.54) (0.53) (0.54) (0.62) (0.54) (0.34)
-------- -------- -------- -------- ------------ ------------
Net increase (decrease) in net asset value........ 0.28 -- 0.79 (1.13) 1.01 0.11
-------- -------- -------- -------- ------------ ------------
Net Asset Value, End of Period.................... $ 11.06 $ 10.78 $ 10.78 $ 9.99 $ 11.12 $ 10.11
-------- -------- -------- -------- ------------ ------------
-------- -------- -------- -------- ------------ ------------
Total Return...................................... 7.75% 5.03% 13.62% (4.75)% 15.63% 4.55%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............... $122,218 $103,163 $ 91,740 $ 91,647 $144,048 $15,891
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 4.85% 4.91% 5.18% 5.01% 5.00% 5.03%(6)
Operating expenses including
reimbursement/waiver........................... 0.70% 0.70% 0.72% 0.78% 0.64% 0.42%(6)
Operating expenses excluding
reimbursement/waiver........................... 0.96% 0.95% 0.97% 1.00% 1.08% 2.15%(6)
Portfolio Turnover Rate........................... 78% 15% 11% 17% 38% 11%(5)
</TABLE>
- ---------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996, 1995 and 1994 was $0.51, $0.51,
$0.51 and $0.50, respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the year ended October 31, 1993
and for the period ended October 31, 1992 was $0.49 and $0.23,
respectively.
(5) Not Annualized.
(6) Annualized.
6
<PAGE>
NEW YORK MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------
1997 1996 1995 1994 YEAR ENDED PERIOD ENDED
----------------------------------------- OCTOBER 31, OCTOBER 31,
TRUST SHARES 1993(2) 1992(1,2)
----------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.75 $ 10.78 $ 9.89 $ 11.04 $ 10.00 $ 10.00
-------- -------- -------- -------- ------------ ------------
Income From
Investment Operations:
Net investment income(3,4)............ 0.52 0.51 0.51 0.49 0.50 0.38
Net realized and unrealized gain
(loss) on investments................ 0.34 (0.03) 0.89 (1.15) 1.04 --
-------- -------- -------- -------- ------------ ------------
Total From Investment Operations.... 0.86 0.48 1.40 (0.66) 1.54 0.38
-------- -------- -------- -------- ------------ ------------
Less Dividends:
Dividends from net investment
income............................... (0.52) (0.51) (0.51) (0.49) (0.50) (0.38)
Dividends from net realized capital
gains................................ -- -- -- -- -- --
-------- -------- -------- -------- ------------ ------------
Total Dividends..................... (0.52) (0.51) (0.51) (0.49) (0.50) (0.38)
-------- -------- -------- -------- ------------ ------------
Net increase (decrease) in net asset
value.................................. 0.34 (0.03) 0.89 (1.15) 1.04 --
-------- -------- -------- -------- ------------ ------------
Net Asset Value, End of Period.......... $ 11.09 $ 10.75 $ 10.78 $ 9.89 $ 11.04 $ 10.00
-------- -------- -------- -------- ------------ ------------
-------- -------- -------- -------- ------------ ------------
Total Return............................ 8.17% 4.55% 14.23% (6.14)% 15.66% 3.83%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $ 27,562 $ 23,762 $ 23,077 $ 24,209 $70,242 $20,144
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 4.75% 4.75% 4.91% 4.64% 4.54% 5.22%(6)
Operating expenses including
reimbursement/ waiver................ 0.71% 0.70% 0.74% 0.87% 0.87% 0.65%(6)
Operating expenses excluding
reimbursement/ waiver................ 1.02% 1.10% 1.07% 1.08% 1.19% 1.70%(6)
Portfolio Turnover Rate................. 61% 12% 5% 18% 3% 19%(5)
</TABLE>
- ---------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996, 1995 and 1994 was $0.49, $0.47,
$0.48 and $0.47, respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the year ended October 31, 1993
and for the period ended October 31, 1992 was $0.47 and $0.30,
respectively.
(5) Not Annualized.
(6) Annualized.
7
<PAGE>
CONNECTICUT MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------- PERIOD
ENDED
1997 1996 1995 1994 OCTOBER
----------------------------------------- 31,
TRUST SHARES 1993(1,2)
----------------------------------------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 10.14 $ 10.13 $ 9.22 $ 10.32 $ 10.00
-------- -------- -------- -------- --------
Income From Investment Operations:
Net investment income(3,4)...................... 0.47 0.44 0.46 0.46 0.25
Net realized and unrealized gain (loss) on
investments.................................... 0.33 0.01 0.91 (1.10) 0.32
-------- -------- -------- -------- --------
Total From Investment Operations.............. 0.80 0.45 1.37 (0.64) 0.57
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net investment income............ (0.47) (0.44) (0.46) (0.46) (0.25)
Dividends from net realized capital gains....... -- -- -- -- --
-------- -------- -------- -------- --------
Total Dividends............................... (0.47) (0.44) (0.46) (0.46) (0.25)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value........ 0.33 0.01 0.91 (1.10) 0.32
-------- -------- -------- -------- --------
Net Asset Value, End of Period.................... $ 10.47 $ 10.14 $ 10.13 $ 9.22 $ 10.32
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return...................................... 8.06% 4.54% 15.21% (6.37)% 5.80%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............... $ 9,866 $ 6,348 $ 4,083 $ 4,419 $18,771
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 4.51% 4.34% 4.76% 4.66% 4.30%(6)
Operating expenses including
reimbursement/waiver........................... 0.49% 0.49% 0.45% 0.23% 0.00%(6)
Operating expenses excluding
reimbursement/waiver........................... 1.10% 1.17% 1.24% 1.41% 1.73%(6)
Portfolio Turnover Rate........................... 42% 3% 7% 4% 7%(5)
</TABLE>
- ---------
(1) The Fund commenced operations on March 16, 1993.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996, 1995 and 1994 were $0.41, $0.37,
$0.38 and $0.35, respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the period ended October 31, 1993
was $0.15.
(5) Not Annualized.
(6) Annualized.
8
<PAGE>
MASSACHUSETTS MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------- PERIOD
ENDED
1997 1996 1995 1994 OCTOBER
----------------------------------------- 31,
TRUST SHARES 1993(1,2)
----------------------------------------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 9.94 $ 9.98 $ 9.12 $ 10.24 $ 10.00
-------- -------- -------- -------- --------
Income From Investment
Operations:
Net investment
income(3,4)................ 0.46 0.46 0.45 0.48 0.29
Net realized and unrealized
gain (loss) on
investments................ 0.32 (0.04) 0.86 (1.12) 0.24
-------- -------- -------- -------- --------
Total From Investment
Operations............... 0.78 0.42 1.31 (0.64) 0.53
-------- -------- -------- -------- --------
Less Dividends:
Dividends from net
investment income.......... (0.47) (0.46) (0.45) (0.48) (0.29)
Dividends from net realized
capital gains.............. -- -- -- -- --
-------- -------- -------- -------- --------
Total Dividends........... (0.47) (0.46) (0.45) (0.48) (0.29)
-------- -------- -------- -------- --------
Net increase (decrease) in net
asset value.................. 0.31 (0.04) 0.86 (1.12) 0.24
-------- -------- -------- -------- --------
Net Asset Value, End of
Period....................... $ 10.25 $ 9.94 $ 9.98 $ 9.12 $ 10.24
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return.................. 8.06% 4.27% 14.72% (6.46)% 5.42%(5)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................... $ 13,986 $ 11,047 $ 7,607 $ 5,617 $20,121
Ratios to average net assets:
Net investment income
including
reimbursement/waiver....... 4.57% 4.60% 4.73% 4.89% 4.87%(6)
Operating expenses including
reimbursement/waiver....... 0.44% 0.48% 0.52% 0.33% 0.05%(6)
Operating expenses excluding
reimbursement/waiver....... 1.01% 1.14% 1.31% 1.41% 1.82%(6)
Portfolio Turnover Rate....... 48% 16% 19% 11% 0%(5)
</TABLE>
- ---------
(1) The Fund commenced operations on March 12, 1993.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Trust Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996, 1995 and 1994 were $0.40, $0.40,
$0.38 and $0.38, respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the period ended October 31, 1993
was $0.18.
(5) Not Annualized.
(6) Annualized.
9
<PAGE>
RHODE ISLAND MUNICIPAL BOND FUND(1)
(FOR A RETAIL SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
------------------- PERIOD
ENDED
1997 1996 OCTOBER
------------------- 31,
RETAIL A SHARES 1995(1,2)
------------------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 10.65 $ 10.67 $ 10.00
-------- -------- --------
Income From Investment
Operations:
Net investment income(3).... 0.48 0.51 0.44
Net realized and unrealized
gain (loss) on
investments................ 0.32 0.03 0.67
-------- -------- --------
Total From Investment
Operations............... 0.80 0.54 1.11
-------- -------- --------
Less Dividends:
Dividends from net
investment income.......... (0.50) (0.51) (0.44)
Dividends from net realized
capital gains.............. (0.04) (0.05) --
-------- -------- --------
Total Dividends........... (0.54) (0.56) (0.44)
-------- -------- --------
Net increase (decrease) in net
asset value.................. 0.26 (0.02) 0.67
-------- -------- --------
Net Asset Value, End of
Period....................... $ 10.91 $ 10.65 $ 10.67
-------- -------- --------
-------- -------- --------
Total Return.................. 7.78% 5.22% 11.29%(4)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................... $ 17,134 $ 14,900 $10,850
Ratios to average net assets:
Net investment income
including
reimbursement/waiver....... 4.50% 4.78% 5.13%(5)
Operating expenses including
reimbursement/waiver....... 0.83% 0.77% 0.40%(5)
Operating expenses excluding
reimbursement/waiver....... 1.34% 1.34% 2.25%(5)
Portfolio Turnover Rate....... 19% 13% 34%(4)
</TABLE>
- ---------
(1) The Fund commenced operations on December 30, 1994.
(2) On September 7, 1995, Retail Shares of the Fund were redesignated "Retail A
Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the fiscal years ended October
31, 1997 and 1996 and for the period ended October 31, 1995 were $0.43,
$0.45 and $0.28, respectively.
(4) Not Annualized.
(5) Annualized.
10
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Fleet Investment Advisors Inc., the Funds' investment adviser ("Fleet"),
will use its best efforts to achieve each Fund's investment objective, although
such achievement cannot be assured. The investment objective of a Fund may not
be changed without the approval of the holders of a majority of its outstanding
shares (as defined under "Miscellaneous"). Except as noted below under
"Investment Limitations," a Fund's investment policies may be changed without
shareholder approval. An investor should not consider an investment in the Funds
to be a complete investment program.
TAX-EXEMPT BOND FUND
The Tax-Exempt Bond Fund's investment objective is to provide shareholders
with as high a level of current interest income free of federal income tax as is
consistent with preservation of capital. To achieve this objective, the Fund
will invest substantially all of its assets in debt obligations issued by or on
behalf of states, territories and possessions of the United States, the District
of Columbia and their respective authorities, agencies, instrumentalities and
political subdivisions, the interest on which, in the opinion of bond counsel to
the issuer, is exempt from regular federal income tax ("Municipal Securities").
The Fund's average weighted maturity will vary in response to variations in
comparative yields of differing maturities of instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in
Municipal Securities, primarily bonds (at least 65% under normal market
conditions).
From time to time, during temporary defensive periods, the Fund may, without
limit, hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in the opinion of Fleet, prevailing market or economic
conditions warrant. Uninvested cash reserves will not earn income. Such taxable
instruments may include (i) obligations of the U.S. Treasury; (ii) obligations
of agencies or instrumentalities of the U.S. Government; (iii) "money market"
instruments such as certificates of deposit and bankers' acceptances of selected
banks and commercial paper rated within the two highest rating categories
assigned by any major rating service; (iv) repurchase agreements collateralized
by U.S. Government obligations or other "money market" instruments; or (v)
futures contracts; or (vi) securities issued by other investment companies that
invest in high quality short-term Municipal Securities. Under normal market
conditions, the Fund anticipates that not more than 5% of its net assets will be
invested in any one category of taxable securities and that not more than 20% of
its total assets will be invested in taxable securities in the aggregate. For
more information, see "Other Investment Policies and Risk Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Tax-Exempt Bond Fund.
NEW JERSEY MUNICIPAL BOND FUND
The New Jersey Municipal Bond Fund is a non-diversified investment
portfolio, the investment objective of which is to seek as high a level of
current interest income exempt from federal income tax and, to the extent
possible, from New Jersey personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will invest
primarily in New Jersey Municipal Securities as defined below. The Fund's
average portfolio maturity will vary in response to variations in the
comparative yields of differing maturities of instruments.
11
<PAGE>
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the State of New Jersey and other states,
territories and possessions of the United States, the District of Columbia and
their respective authorities, agencies, instrumentalities and political
subdivisions, the interest on which, in the opinion of bond counsel to the
issuer, is exempt from regular federal income tax ("Municipal Securities"). The
Fund expects that except during temporary defensive periods or when, in the
opinion of Fleet, suitable obligations are unavailable for investment, at least
65% of the Fund's total assets will be invested in Municipal Securities issued
by or on behalf of the State of New Jersey, its political subdivisions,
authorities, agencies, instrumentalities and corporations, and certain other
governmental issuers such as Puerto Rico, the interest on which, in the opinion
of bond counsel to the issuer, is exempt from federal and New Jersey personal
income taxes ("New Jersey Municipal Securities"). See "Special Considerations
and Risks--New Jersey Municipal Bond Fund" below for a discussion of certain
risks in investing in New Jersey Municipal Securities. Dividends derived from
interest on Municipal Securities other than New Jersey Municipal Securities will
generally be exempt from regular federal income tax but may be subject to New
Jersey personal income tax. See "Taxes" below.
From time to time, during temporary defensive periods, the Fund may, without
limit, hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in the opinion of Fleet, prevailing market or economic
conditions warrant. Uninvested cash reserves will not earn income. Such taxable
instruments may include (i) obligations of the U.S. Treasury; (ii) obligations
of agencies or instrumentalities of the U.S. Government; (iii) "money market"
instruments such as certificates of deposit and bankers' acceptances of selected
banks and commercial paper rated within the two highest rating categories
assigned by any major rating service; (iv) repurchase agreements collateralized
by U.S. Government obligations or other "money market" instruments; (v) futures
contracts; or (vi) securities issued by other investment companies that invest
in high quality, short-term securities. Under normal market conditions, the Fund
anticipates that not more than 5% of its net assets will be invested in any one
category of taxable securities and that not more than 20% of its total assets
will be invested in taxable securities in the aggregate. For more information,
see "Other Investment Policies and Risk Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the New Jersey Municipal Bond Fund.
NEW YORK MUNICIPAL BOND FUND
The New York Municipal Bond Fund is a non-diversified investment portfolio,
the investment objective of which is to seek as high a level of current interest
income exempt from federal income tax and, to the extent possible, from New York
State and New York City personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will invest
primarily in New York Municipal Securities as defined below. The Fund's average
portfolio maturity will vary in response to variations in the comparative yields
of differing maturities of instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the State of New York and other states,
territories and possessions of the United States, the District of Columbia and
their respective authorities, agencies, instrumentalities and political
sub-divisions, the interest on which, in the opinion of bond counsel to the
issuer, is exempt from regular federal income tax ("Municipal Securities"). The
Fund expects that except during temporary defensive periods or when, in the
opinion of Fleet, suitable obligations are unavailable
12
<PAGE>
for investment, at least 65% of the Fund's total assets will be invested in
Municipal Securities issued by or on behalf of the State of New York, its
political sub-divisions, authorities, agencies, instrumentalities and
corporations, and certain other governmental issuers such as Puerto Rico, the
interest on which, in the opinion of bond counsel to the issuer, is exempt from
federal, New York State and New York City personal income taxes ("New York
Municipal Securities"). See "Special Considerations and Risks--New York
Municipal Bond Fund" below for a discussion of certain risks in investing in New
York Municipal Securities. Dividends derived from interest on Municipal
Securities other than New York Municipal Securities will generally be exempt
from regular federal income tax but may be subject to New York State and New
York City personal income tax. See "Taxes" below.
From time to time, during temporary defensive periods, the Fund may, without
limit, hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in the opinion of Fleet, prevailing market or economic
conditions warrant. Uninvested cash reserves will not earn income. See
"Investment Objectives and Policies--New Jersey Municipal Bond Fund" above for a
description of the types of taxable obligations in which the Fund may invest.
Under normal market conditions, the Fund anticipates that not more than 5% of
its net assets will be invested in any one category of taxable securities and
that not more than 20% of its total assets will be invested in taxable
securities in the aggregate. For more information, see "Other Investment
Policies and Risk Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the New York Municipal Bond Fund.
CONNECTICUT MUNICIPAL BOND FUND
The Connecticut Municipal Bond Fund is a non-diversified investment
portfolio, the investment objective of which is to seek as high a level of
current interest income exempt from federal income tax and, to the extent
possible, from Connecticut personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will invest
primarily in Connecticut Municipal Securities as defined below. The Fund's
average portfolio maturity will vary in response to variations in the
comparative yields of differing maturities of instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the State of Connecticut and other states,
territories and possessions of the United States, the District of Columbia and
their respective authorities, agencies, instrumentalities and political
sub-divisions, the interest on which, in the opinion of bond counsel to the
issuer, is exempt from regular federal income tax ("Municipal Securities"). The
Fund expects that except during temporary defensive periods or when, in the
opinion of Fleet, suitable obligations are unavailable for investment, at least
65% of the Fund's total assets will be invested in Municipal Securities issued
by or on behalf of the State of Connecticut, its political sub-divisions, or any
public instrumentality, state or local authority, district or similar public
entity created under the laws of Connecticut, and certain other governmental
issuers such as Puerto Rico, the interest on which, in the opinion of qualified
legal counsel, is exempt from federal income tax and from Connecticut personal
income tax by virtue of federal law ("Connecticut Municipal Securities"). See
"Special Considerations and Risks--Connecticut Municipal Bond Fund" below, for a
discussion of certain risks in investing in Connecticut Municipal Securities.
Dividends derived from interest on Municipal Securities other than Connecticut
Municipal Securities will generally be exempt from regular federal income tax
but subject to Connecticut personal income tax. See "Taxes" below.
13
<PAGE>
From time to time, during temporary defensive periods, the Fund may, without
limit, hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in the opinion of Fleet, prevailing market or economic
conditions warrant. Uninvested cash reserves will not earn income. See
"Investment Objectives and Policies--New Jersey Municipal Bond Fund" above for a
description of the types of taxable obligations in which the Fund may invest.
Under normal market conditions, the Fund anticipates that not more than 5% of
its net assets will be invested in any one category of taxable securities and
that not more than 20% of its total assets will be invested in taxable
securities in the aggregate. For more information, see "Other Investment
Policies and Risk Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Connecticut Municipal Bond Fund.
MASSACHUSETTS MUNICIPAL BOND FUND
The Massachusetts Municipal Bond Fund is a non-diversified investment
portfolio, the investment objective of which is to seek as high a level of
current interest income exempt from federal income tax and, to the extent
possible, from Massachusetts personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will invest
primarily in Massachusetts Municipal Securities as defined below. The Fund's
average portfolio maturity will vary in response to variations in the
comparative yields of differing maturities of instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the Commonwealth of Massachusetts and
other states, territories and possessions of the United States, the District of
Columbia and their respective authorities, agencies, instrumentalities and
political sub-divisions, the interest on which, in the opinion of bond counsel
to the issuer, is exempt from regular federal income tax ("Municipal
Securities"). The Fund expects that except during temporary defensive periods or
when, in the opinion of Fleet, suitable obligations are unavailable for
investment, at least 65% of the Fund's total assets will be invested in
Municipal Securities issued by or on behalf of the Commonwealth of
Massachusetts, its political sub-divisions, authorities, agencies,
instrumentalities and corporations, and certain other governmental issuers such
as Puerto Rico, the interest on which, in the opinion of bond counsel to the
issuer, is exempt from federal and Massachusetts personal income taxes
("Massachusetts Municipal Securities"). See "Special Considerations and
Risks--Massachusetts Municipal Bond Fund" below for a discussion of certain
risks in investing in Massachusetts Municipal Securities. Dividends derived from
interest on Municipal Securities other than Massachusetts Municipal Securities
will generally be exempt from regular federal income tax but may be subject to
Massachusetts personal income tax. See "Taxes" below.
From time to time, during temporary defensive periods, the Fund may, without
limit, hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in the opinion of Fleet, prevailing market or economic
conditions warrant. Uninvested cash reserves will not earn income. See
"Investment Objectives and Policies--New Jersey Municipal Bond Fund" above for a
description of the types of taxable obligations in which the Fund may invest.
Under normal market conditions, the Fund anticipates that not more than 5% of
its net assets will be invested in any one category of taxable securities and
that not more than 20% of its total assets will be invested in taxable
securities in the aggregate. For more information, see "Other Investment
Policies and Risk Considerations" below.
14
<PAGE>
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Massachusetts Municipal Bond Fund.
RHODE ISLAND MUNICIPAL BOND FUND
The Rhode Island Municipal Bond Fund is a non-diversified investment
portfolio, the investment objective of which is to seek as high a level of
current interest income exempt from federal income tax and, to the extent
possible, from Rhode Island personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will invest
primarily in Rhode Island Municipal Securities as defined below. The Fund's
average portfolio maturity will vary in response to variations in the
comparative yields of differing maturities of instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the State of Rhode Island and other
states, territories and possessions of the United States, the District of
Columbia and their respective authorities, agencies, instrumentalities and
political subdivisions, the interest on which, in the opinion of bond counsel to
the issuer, is exempt from regular federal income tax ("Municipal Securities").
The Fund expects that except during temporary defensive periods or when, in the
opinion of Fleet, suitable obligations are unavailable for investment, at least
65% of the Fund's total assets will be invested in Municipal Securities issued
by or on behalf of the State of Rhode Island, its political subdivisions,
authorities, agencies, instrumentalities and corporations, and certain other
governmental issuers such as Puerto Rico, the interest on which, in the opinion
of bond counsel to the issuer, is exempt from federal and Rhode Island personal
income taxes ("Rhode Island Municipal Securities"). See "Special Considerations
and Risks--Rhode Island Municipal Bond Fund" below for a discussion of certain
risks in investing in Rhode Island Municipal Securities. Dividends derived from
interest on Municipal Securities other than Rhode Island Municipal Securities
will generally be exempt from regular federal income tax but may be subject to
Rhode Island personal income tax. See "Taxes" below.
From time to time, during temporary defensive periods, the Fund may, without
limit, hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in the opinion of Fleet, prevailing market or economic
conditions warrant. Uninvested cash reserves will not earn income. See
"Investment Objectives and Policies--New Jersey Municipal Bond Fund" above for a
description of the types of taxable obligations in which the Fund may invest.
Under normal market conditions, the Fund anticipates that not more than 5% of
its net assets will be invested in any one category of taxable securities and
that not more than 20% of its total assets will be invested in taxable
securities in the aggregate. For more information, see "Other Investment
Policies and Risk Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Rhode Island Municipal Bond Fund.
SPECIAL CONSIDERATIONS AND RISKS
INVESTMENT QUALITY
Municipal Securities purchased by the Funds will consist primarily of issues
which are rated at the time of purchase within the four highest rating
categories assigned by Standard & Poor's Ratings Group ("S&P") ("AAA," "AA," "A"
and "BBB") or Moody's Investors Service, Inc. ("Moody's") ("Aaa," "Aa,"
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and "A" and "Baa") or unrated instruments determined by Fleet to be of
comparable quality. Municipal Securities rated within the four highest rating
categories assigned by S&P or Moody's are considered to be investment grade.
Municipal Securities rated in the lowest of the four highest rating categories
assigned by S&P or Moody's are considered to have speculative characteristics,
even though they are of investment grade quality, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
Municipal Securities. Such Municipal Securities will be purchased (and retained)
only when Fleet believes the issuers have an adequate capacity to pay interest
and repay principal. If the ratings of a particular Municipal Security purchased
by a Fund are subsequently downgraded below the four highest rating categories
assigned by S&P or Moody's, such factor will be considered by Fleet in its
evaluation of the overall merits of that Municipal Security but such ratings
change will not necessarily result in an automatic sale of the Municipal
Security. Under normal market and economic conditions, at least 65% of each
Fund's total assets will be invested in Municipal Securities rated in the three
highest rating categories assigned by S&P or Moody's. See Appendix A to the
Statement of Additional Information for a description of S&P's and Moody's
rating categories.
GENERAL RISK CONSIDERATIONS
Generally, the market value of fixed income securities, such as Municipal
Securities, in the Funds can be expected to vary inversely to changes in
prevailing interest rates. During periods of declining interest rates, the
market value of investment portfolios comprised primarily of fixed income
securities, such as the Funds, will tend to increase, and during periods of
rising interest rates, the market value will tend to decrease. In addition,
during periods of declining interest rates, the yields of investment portfolios
comprised primarily of fixed income securities will tend to be higher than
prevailing market rates and, in periods of rising interest rates, yields will
tend to be somewhat lower. Fixed income securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities. Changes
in the financial strength of an issuer or changes in the ratings of any
particular security may also offset the value of these investments. Fluctuations
in the market value of fixed income securities subsequent to their acquisition
will not offset cash income from such securities but will be reflected in a
Fund's net asset value.
Although no Fund presently intends to do so on a regular basis, each Fund
may invest more than 25% of its assets in Municipal Securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by Fleet. To the extent that a Fund's assets are
concentrated in Municipal Securities payable from revenues of similar projects,
the Fund will be subject to the particular risks presented by such projects to a
greater extent than it would be if its assets were not so concentrated.
The New Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds are classified as non-diversified investment companies under the 1940 Act.
Investment return on a non-diversified portfolio typically is dependent upon the
performance of a smaller number of securities relative to the number held in a
diversified portfolio. Consequently, the change in value of any one security may
affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio, and thereby subject the market-based net asset value per
share of the non-diversified portfolio to greater fluctuations. In addition, a
non-diversified portfolio may be more susceptible to economic, political and
regulatory developments than a diversified investment portfolio with similar
objectives may be.
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NEW JERSEY MUNICIPAL BOND FUND
The New Jersey Municipal Bond Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New Jersey Municipal
Securities to meet their continuing obligations for the payment of principal and
interest. Since the Fund invests primarily in New Jersey Municipal Securities,
the value of the Fund's shares may be especially affected by factors pertaining
to the economy of New Jersey and other factors specifically affecting the
ability of issuers of New Jersey Municipal Securities to meet their obligations.
The State of New Jersey generally has a diversified economic base consisting
of, among others, commerce and service industries, selective commercial
agriculture, insurance, tourism, petroleum refining and manufacturing, although
New Jersey's manufacturing industry has experienced a downward trend in the last
few years. New Jersey is a major recipient of federal assistance and, of all the
states, is among the highest in the amount of federal aid received. Therefore, a
decrease in federal financial assistance may adversely affect the financial
condition of New Jersey and its political subdivisions and instrumentalities.
While New Jersey's economic base has become more diversified over time and thus
its economy appears to be less vulnerable during recessionary periods, a
recurrence of high levels of unemployment could adversely affect New Jersey's
overall economy and the ability of New Jersey and its political subdivisions and
instrumentalities to meet their financial obligations. In addition, New Jersey
maintains a balanced budget which restricts total appropriation increases to
only 5% annually with respect to any municipality or county. This balanced
budget plan may adversely affect a particular municipality's or county's ability
to repay its obligations.
NEW YORK MUNICIPAL BOND FUND
The New York Municipal Bond Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New York Municipal
Securities to meet their continuing obligations for the payment of principal and
interest. New York State and New York City face long-term economic problems that
could seriously affect their ability and that of other issuers of New York
Municipal Securities to meet their financial obligations.
Certain substantial issuers of New York Municipal Securities (including
issuers whose obligations may be acquired by the Fund) have experienced serious
financial difficulties in recent years. These difficulties have at times
jeopardized the credit standing and impaired the borrowing abilities of all New
York issuers and have generally contributed to higher interest costs for their
borrowings and fewer markets for their outstanding debt obligations. In recent
years, several different issues of Municipal Securities of New York State and
its agencies and instrumentalities and of New York City have been downgraded by
S&P and Moody's. On the other hand, strong demand for New York Municipal
Securities has at times had the effect of permitting New York Municipal
Securities to be issued with yields relatively lower, and after issuance, to
trade in the market at prices relatively higher, than comparably rated Municipal
Securities issued by other jurisdictions. A recurrence of the financial
difficulties previously experienced by certain issuers of New York Municipal
Securities could result in defaults or declines in the market values of those
issuers' existing obligations and, possibly, in the obligations of other issuers
of New York Municipal Securities. Although as of the date of this Prospectus no
issuers of New York Municipal Securities are in default with respect to the
payment of their Municipal Securities, the occurrence of any such default could
adversely affect the market values and marketability of all New York Municipal
Securities and, consequently, the net asset value of the Fund's portfolio.
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Other considerations affecting the Fund's investments in New York Municipal
Securities are summarized in the Statement of Additional Information.
CONNECTICUT MUNICIPAL BOND FUND
The Connecticut Municipal Bond Fund's ability to achieve its investment
objective depends on the ability of issuers of Connecticut Municipal Securities
to meet their continuing obligations to pay principal and interest. Since the
Fund invests primarily in Connecticut Municipal Securities, the value of the
Fund's shares may be especially affected by factors pertaining to the economy of
Connecticut and other factors specifically affecting the ability of issuers of
Connecticut Municipal Securities to meet their obligations.
Manufacturing has historically been of prime economic importance to
Connecticut. However, as a result of a rise in employment in service-related
industries and a decline in manufactuirng employment, manufacturing accounted
for only 17.39% of total non-agricultural employment in Connecticut in 1996. The
annual average unemployment rate in Connecticut was reported to be 5.8% in 1996,
and the average per capita personal income of Connecticut residents was reported
to be $33,875 in 1996. However, pockets of significant unemployment and poverty
exist in some Connecticut cities and towns.
For the four fiscal years ended June 30, 1991, the General Fund experienced
operating deficits but, for the six fiscal years ended June 30, 1997, the
General Fund recorded operating surpluses, based on Connecticut's budgetary
method of accounting. General Fund expenditures and revenues are budgeted to be
approximately $9,550,000,000 and $9,700,000,000 for the 1997-98 and 1998-99
fiscal years, respectively, an increase of more than 35% from the budgeted
expenditures of approximately $7,008,000,000 for the 1991-92 fiscal year. In
1991, legislation was enacted by the State authorizing the State Treasurer to
issue Economic Recovery Notes to fund the General Fund's accumulated deficit.
The notes were to be payable no later than June 30, 1996, but payment of the
notes scheduled to be paid during the 1995-96 fiscal year was rescheduled to be
made over the four fiscal years ending June 30, 1999. Connecticut's general
obligation bonds are rated AA- by S&P and Aa3 by Moody's. On March 17, 1995,
Fitch reduced its ratings of Connecticut's general obligations bonds from AA+ to
AA.
Certain Connecticut municipalities have experienced severe fiscal
difficulties and have reported operating and accumulated deficits in recent
years. The most notable of them is the City of Bridgeport, which filed a
bankruptcy petition on June 7, 1991. The State opposed the petition. The United
States Bankruptcy Court for the District of Connecticut held that Bridgeport had
authority to file such a petition but that its petition should be dismissed on
the grounds that Bridgeport was not insolvent when the petition was filed. State
legislation enacted in 1993 prohibits municipal bankruptcy filings without the
prior written consent of the Governor. Regional economic difficulties,
reductions in revenues, and increased expenses could lead to further fiscal
problems for the State and its political subdivisions, authorities, and
agencies. This could result in declines in the value of their outstanding
obligations, increases in their future borrowings, costs, and impairment of
their ability to pay debt service on their obligations.
Other considerations affecting the Fund's investments in Connecticut
Municipal Securities are summarized in the Statement of Additional Information.
MASSACHUSETTS MUNICIPAL BOND FUND
The Massachusetts Municipal Bond Fund's ability to achieve its investment
objective depends on the ability of issuers of Massachusetts Municipal
Securities to meet their continuing obligations to pay principal and interest.
Since the Fund invests primarily in Massachusetts Municipal Securities, the
value of
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the Fund's shares may be especially affected by factors pertaining to the
economy of Massachusetts and other factors specifically affecting the ability of
issuers of Massachusetts Municipal Securities to meet their obligations. As a
result, the value of the Fund's shares may fluctuate more widely than the value
of shares of a portfolio investing in securities of issuers in a number of
different states. The ability of Massachusetts and its political subdivisions to
meet their obligations will depend primarily on the availability of tax and
other revenues to those governments and on their fiscal conditions generally.
The amount of tax and other revenues available to governmental issuers of
Massachusetts Municipal Securities may be affected from time to time by
economic, political and demographic conditions within Massachusetts. In
addition, constitutional or statutory restrictions may limit a government's
power to raise revenues or increase taxes. The availability of federal, state
and local aid to an issuer of Massachusetts Municipal Securities may also affect
that issuer's ability to meet its obligations. Payments of principal and
interest on limited obligation bonds will depend on the economic condition of
the facility or specific revenue source from whose revenues the payments will be
made, which in turn could be affected by economic, political and demographic
conditions in Massachusetts or a particular locality. Any reduction in the
actual or perceived ability of an issuer of Massachusetts Municipal Securities
to meet its obligations (including a reduction in the rating of its outstanding
securities) would likely affect adversely the market value and marketability of
its obligations and could affect adversely the values of other Massachusetts
Municipal Securities as well.
RHODE ISLAND MUNICIPAL BOND FUND
The Rhode Island Municipal Bond Fund's ability to achieve its investment
objective depends on the ability of issuers of Rhode Island Municipal Securities
to meet their continuing obligations to pay principal and interest. Since the
Fund invests primarily in Rhode Island Municipal Securities, the value of the
Fund's shares may be especially affected by factors pertaining to the economy of
Rhode Island and other factors specifically affecting the ability of issuers of
Rhode Island Municipal Securities to meet their obligations. As a result, the
value of the Fund's shares may fluctuate more widely than the value of shares of
a portfolio investing in securities of issuers in a number of different states.
The ability of Rhode Island and its political subdivisions to meet their
obligations will depend primarily on the availability of tax and other revenues
to those governments and on their fiscal conditions generally. The amount of tax
and other revenues available to governmental issuers of Rhode Island Municipal
Securities may be affected from time to time by economic, political and
demographic conditions within Rhode Island. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state and local aid to an issuer of
Rhode Island Municipal Securities may also affect that issuer's ability to meet
its obligations. Payments of principal and interest on limited obligation bonds
will depend on the economic condition of the facility or specific revenue source
from whose revenues the payments will be made, which in turn could be affected
by economic, political and demographic conditions in Rhode Island or a
particular locality. Any reduction in the actual or perceived ability of an
issuer of Rhode Island Municipal Securities to meet its obligations (including a
reduction in the rating of its outstanding securities) would likely affect
adversely the market value and marketability of its obligations and could affect
adversely the value of other Rhode Island Municipal Securities as well.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which one or
more of the Funds have the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
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U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Funds may, in accordance with their investment policies, invest from
time to time in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
deposits, the possible establishment of exchange controls, or the adoption of
other foreign governmental restrictions which might adversely affect the payment
of principal and interest on such obligations. In addition, foreign branches of
U.S. banks and U.S. branches of foreign banks may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Funds will invest in the obligations of U.S. branches of foreign
banks or foreign branches of U.S. banks only when Fleet believes that the credit
risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest
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rate whenever some other specified interest rate changes. Some variable and
floating rate obligations are direct lending arrangements between the purchaser
and the issuer and there may be no active secondary market. However, in the case
of variable and floating rate obligations with a demand feature, a Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, a Fund might be unable to dispose of the note because of the absence
of a secondary market and could, for this or other reasons, suffer a loss to the
extent of the default.
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities which may be held
by the Funds are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities, or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed.
Each Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor Fleet will review the proceedings relating to the issuance of
Municipal Securities or the bases for such opinions.
VARIABLE AND FLOATING RATE MUNICIPAL SECURITIES
Municipal Securities purchased by the Funds may include rated and unrated
variable and floating rate tax-exempt instruments. There may be no active
secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to a Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days' notice and do not have an active trading market) that
are acquired by the Funds are subject to the 10% (15% with respect to the New
Jersey Municipal Bond Fund) limit described in Investment Limitation No. 3 under
"Investment Limitations" in this Prospectus.
PRIVATE ACTIVITY BONDS
Each Fund may invest in "private activity bonds" the interest on which,
although exempt from regular federal income tax, may constitute an item of tax
preference for purposes of the federal alternative minimum tax. Investments in
such securities, however, will not be treated as investments in Municipal
Securities for purposes of the 80% requirement mentioned above and, under normal
market conditions, will not exceed 20% of a Fund's total assets when added
together with any taxable investments held by the Fund.
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Private activity bonds held by the Funds are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of such private activity bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
No Fund will enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand by notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 10% (15% with respect to the New Jersey Municipal Bond Fund) limit
described in Investment Limitation No. 3 under "Investment Limitations" in this
Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
Each Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. A Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions such
as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by Fleet to be of good standing and only when, in Fleet's
judgment, the income to be earned from the loan justifies the attendant risks.
The Funds currently intend to limit the lending of their portfolio securities so
that, at any given time, securities loaned by a Fund represent not more than
one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Funds may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method, provided, however, that the Tax-Exempt Bond Fund may only invest in
securities of other investment companies which invest in high quality short-term
Municipal Securities and
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which determine their net asset value per share based on the amortized cost or
penny-rounding method. Investments in other investment companies will cause a
Fund (and, indirectly, the Fund's shareholders) to bear proportionately the
costs incurred in connection with the investment companies' operations.
Securities of other investment companies will be acquired by a Fund within the
limits prescribed by the 1940 Act. Each Fund currently intends to limit its
investments so that, as determined immediately after a securities purchase is
made: (a) not more than 5% of the value of its total assets will be invested in
the securities of any one investment company; (b) not more than 10% of the value
of its total assets will be invested in the aggregate in securities of other
investment companies as a group; (c) not more than 3% of the outstanding voting
stock of any one investment company will be owned by the Fund; and (d) not more
than 10% of the outstanding voting stock of any one closed-end investment
company will be owned in the aggregate by the Fund, other investment portfolios
of Galaxy, or any other investment companies advised by Fleet.
CUSTODIAL RECEIPTS AND CERTIFICATES OF PARTICIPATION
Securities acquired by the Funds may be in the form of custodial receipts
evidencing rights to receive a specific future interest payment, principal
payment or both on certain Municipal Securities. Such obligations are held in
custody by a bank on behalf of holders of the receipts. These custodial receipts
are known by various names, including "Municipal Receipts," "Municipal
Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and "Municipal Zero
Coupon Receipts." The Funds may also purchase from time to time certificates of
participation that, in the opinion of counsel to the issuer, are exempt from
federal income tax. A certificate of participation gives a Fund an undivided
interest in a pool of Municipal Securities held by a bank. Certificates of
participation may have fixed, floating or variable rates of interest. If a
certificate of participation is unrated, Fleet will have determined that the
instrument is of comparable quality to those instruments in which the Fund may
invest pursuant to guidelines approved by Galaxy's Board of Trustees. For
certain certificates of participation, a Fund will have the right to demand
payment, on not more than 30 days' notice, for all or any part of the Fund's
participation interest, plus accrued interest. As to these instruments, each
Fund intends to exercise its right to demand payment as needed to provide
liquidity, to maintain or improve the quality of its investment portfolio or
upon a default (if permitted under the terms of the instrument).
FUTURES CONTRACTS
Each Fund may purchase and sell municipal bond index futures contracts as a
hedge against changes in market conditions. A municipal bond index assigns
values daily to the municipal bonds included in the index based on the
independent assessment of dealer-to-dealer municipal bond brokers. A municipal
bond index futures contract represents a firm commitment by which two parties
agree to take or make delivery of an amount equal to a specified dollar amount
multiplied by the difference between the municipal bond index value on the last
trading date of the contract and the price at which the futures contract is
originally struck. No physical delivery of the underlying securities in the
index is made.
Each Fund may also enter into contracts for the future delivery of
fixed-income securities commonly known as interest rate futures contracts.
Interest rate futures contracts are similar to municipal bond index futures
contracts except that, instead of a municipal bond index, the "underlying
commodity" is represented by various types of fixed-income securities.
The Funds will not engage in futures transactions for speculation, but only
to hedge against changes in the market values of securities which the Funds hold
or intend to purchase. The Funds will engage in
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futures transactions only to the extent permitted by the Commodity Futures
Trading Commission ("CFTC") and the Securities and Exchange Commission ("SEC").
The purchase of futures instruments in connection with securities which the
Funds intend to purchase will require an amount of cash or other liquid assets,
equal to the market value of the outstanding futures contracts, to be deposited
in a segregated account to collateralize the position and thereby insure that
the use of such futures is unleveraged. Each Fund will limit its hedging
transactions in futures contracts so that, immediately after any such
transaction, the aggregate initial margin that is required to be posted by the
Fund under the rules of the exchange on which the futures contract is traded
does not exceed 5% of the Fund's total assets after taking into account any
unrealized profits and unrealized losses on the Fund's open contracts. In
addition, no more than one-third of each Fund's total assets may be covered by
such contracts.
Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by the Funds is subject to the
ability of Fleet to predict correctly movements in the direction of the market.
In addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market will
exist for any particular futures contract at any particular time. Consequently,
a Fund may realize a loss on a futures transaction that is not offset by a
favorable movement in the price of securities which it holds or intends to
purchase or may be unable to close a futures position in the event of adverse
price movements. Any income from investments in futures contracts will be
taxable. Additional information concerning futures transactions, including
special rules regarding the taxation of such transactions, is contained in the
Statement of Additional Information and in Appendix B thereto.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. Each Fund may also
purchase or sell eligible securities on a "delayed settlement" basis.
When-issued and forward commitment transactions, which involve a commitment by a
Fund to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later), permit the Fund to
lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
some time in the future. When-issued, forward commitment and delayed settlement
transactions involve the risk, however, that the yield or price obtained in a
transaction may be less favorable than the yield or price available in the
market when the securities delivery takes place. It is expected that forward
commitments, when-issued purchases and delayed settlements will not exceed 25%
of the value of a Fund's total assets absent unusual market conditions. In the
event a Fund's forward commitments, when-issued purchases and delayed
settlements ever exceeded 25% of the value of its assets, the Fund's liquidity
and the ability of Fleet to manage the Fund may be adversely affected. The Funds
do not intend to engage in when-issued purchases, forward commitments and
delayed settlements for speculative purposes, but only in furtherance of their
investment objectives.
STAND-BY COMMITMENTS
The Funds may acquire "stand-by commitments" with respect to Municipal
Securities held by them. Under a stand-by commitment, a dealer agrees to
purchase, at a Fund's option, specified Municipal Securities at a specified
price. The Funds will acquire stand-by commitments solely to facilitate
portfolio
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liquidity and do not intend to exercise their rights thereunder for trading
purposes. The Funds expect that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield otherwise
available for the same securities). Stand-by commitments acquired by a Fund
would be valued at zero in determining the Fund's net asset value.
ASSET-BACKED SECURITIES
Each Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to a
certain amount and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. A Fund will not invest more than 10% of its total assets in
asset-backed securities. See "Asset-Backed Securities" in the Statement of
Additional Information.
MORTGAGE-BACKED SECURITIES
Each Fund may invest in mortgage-backed securities (including collateralized
mortgage obligations) that represent pools of mortgage loans assembled for sale
to investors by various governmental agencies and government-related
organizations, such as the Government National Mortgage Association, the Federal
National Mortgage Association, and the Federal Home Loan Mortgage Corporation.
Mortgage-backed securities provide a monthly payment consisting of interest and
principal payments. Additional payment may be made out of unscheduled repayments
of principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-backed securities may tend to increase due
to refinancing of mortgages as interest rates decline. To the extent that the
Fund purchases mortgage-backed securities at a premium, mortgage foreclosures
and prepayments of principal by mortgagors (which may be made at any time
without penalty) may result in some loss of the Fund's principal investment to
the extent of the premium paid. The yield of a Fund that invests in
mortgaged-backed securities may be affected by reinvestment of prepayments at
higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
interest rates decline. As a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the values of mortgage-related securities, including
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government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
GUARANTEED INVESTMENT CONTRACTS
Each Fund may invest in guaranteed investment contracts ("GICs") issued by
United States and Canadian insurance companies. Pursuant to GICs, a Fund makes
cash contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the Fund payments at negotiated, floating
or fixed interest rates. A GIC is a general obligation of the issuing insurance
company and not a separate account. The purchase price paid for a GIC becomes
part of the general assets of the insurance company, and the contract is paid
from the company's general assets. The Funds will only purchase GICs that are
issued or guaranteed by insurance companies that at the time of purchase are
rated at least AA by S&P or receive a similar high quality rating from a
nationally recognized service which provides ratings of insurance companies.
GICs are considered illiquid securities and will be subject to the Funds' 10%
(15% with respect to the New Jersey Municipal Bond Fund) limitation on such
investments, unless there is an active and substantial secondary market for the
particular instrument and market quotations are readily available.
BANK INVESTMENT CONTRACTS
Each Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and will
be subject to the Funds' 10% (15% with respect to the New Jersey Municipal Bond
Fund) limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest rates, or indices, and include, but are limited to,
municipal bond index and interest rate futures and certain asset-backed and
mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest rates
change adversely, the value of the derivative security will decline more than
the assets, rates or indices on which it is based; liquidity risk that the Funds
will be unable to sell a derivative security when it wants because of lack of
market depth or market disruption; pricing risk that the value of a derivative
security will not correlate exactly to the value of the underlying assets, rates
or indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
derivative securities are more complex than others, and for those instruments
that have been developed recently, data are lacking regarding their actual
performance over complete market cycles.
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Fleet will evaluate the risks presented by the derivative securities
purchased by the Funds, and will determine, in connection with its day-to-day
management of the Funds, how they will be used in furtherance of each Fund's
investment objective. It is possible, however, that Fleet's evaluations will
prove to be inaccurate or incomplete and, even when accurate and complete, it is
possible that the Funds will, because of the risks discussed above, incur loss
as a result of their investments in derivative securities. See "Investment
Objectives and Policies--Derivative Securities" in the Statement of Additional
Information relating to the Funds for additional information.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover may result in the realization of substantial capital gains and involves
correspondingly greater transaction costs. To the extent that net capital gains
are realized, distributions derived from such gains are treated as ordinary
income for federal income tax purposes. See "Financial Highlights" and
"Taxes--Federal." Although the New Jersey Municipal Bond Fund cannot accurately
predict its annual portfolio turnover rate, it is not expected to exceed 100%.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to any Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
No Fund may:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) each Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10% of the value of its total assets at the time of such borrowing
(provided that each Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in amounts not in
excess of 10% of the value of its total assets at the time of such
borrowing); or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of its total
assets at the time of such borrowing. No Fund will purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding.
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3. Invest more than 10% (15% with respect to the New Jersey Municipal
Bond Fund) of the value of its net assets in illiquid securities, including
repurchase agreements with remaining maturities in excess of seven days,
time deposits with maturities in excess of seven days, restricted
securities, non-negotiable time deposits and other securities which are not
readily marketable.
4. Purchase any securities which would cause 25% or more of the value
of its total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry; provided, however, that there is no limitation with respect
to securities issued or guaranteed by the U.S. Government, any state,
territory or possession of the U.S. Government, the District of Columbia, or
any of their authorities, agencies, instrumentalities or political
subdivisions.
In addition, the Tax-Exempt Bond Fund may not:
5. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total
assets would be invested in the securities of such issuer, except that up to
25% of the value of its total assets may be invested without regard to this
limitation.
In addition, the New Jersey Municipal Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds may not:
6. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total
assets would be invested in the securities of such issuer, except that up to
50% of the value of a Fund's total assets may be invested without regard to
this 5% limitation, provided that no more than 25% of the value of a Fund's
total assets are invested in the securities of any one issuer.
With respect to Investment Limitation No. 2 above, each Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of a Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Funds is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). The net asset value per share is determined on each
day on which the Exchange is open for trading. Currently, the holidays which
Galaxy observes are New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value per share of a Fund for purposes of pricing
sales and redemptions is calculated separately for each series of shares by
dividing the value of all securities and other assets attributable to a
particular series of shares of a Fund, less the liabilities attributable to
shares of that series of the Fund, by the number of outstanding shares of that
series of the Fund.
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The Funds' assets are valued for purposes of pricing sales and redemptions
by an independent pricing service ("Service") approved by Galaxy's Board of
Trustees. When, in the judgment of the Service, quoted bid prices for portfolio
securities are readily available and are representative of the bid side of the
market, these investments are valued at the mean between quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments are carried at fair value as determined by the
Service, based on methods which include consideration of yields or prices of
bonds of comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc. ("Institutions"). Trust Shares sold
to such investors ("Customers") will be held of record by Institutions. The
Institution is responsible for transmitting to FD Distributors orders for
purchases of Trust Shares and for wiring required funds in payment to Galaxy's
custodian on a timely basis. FD Distributors is responsible for transmitting
such orders to Galaxy's transfer agent for execution. Beneficial ownership of
Trust Shares will be recorded by the Institution and reflected in the account
statements it provides to its Customers. Confirmations of purchases and
redemptions of Trust Shares will be sent to the appropriate Institution.
Purchases of Trust Shares will be effected only on days on which FD
Distributors, Galaxy's custodian and the purchasing Institution are open for
business ("Business Days"). As of the date of this Prospectus, Trust Shares of
the Rhode Island Municipal Bond Fund were not being offered to investors.
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per Share determined on
that day, provided that Galaxy's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If an Institution accepts a purchase
order from its Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with the foregoing procedures.
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Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Funds and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Investors should contact their Institution for further information
concerning the types of eligible Customer accounts and the related purchase and
redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirement with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by its Customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the times at which purchase orders must be
received in order to be processed on that Business Day.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of the Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per Share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day will normally be wired the following Business Day
to the Institution. Payment for redemption orders which are received on a
non-Business Day will normally be wired to the Institution on the next Business
Day. However, in both cases Galaxy reserves the right to wire redemption
proceeds within seven days after receiving the redemption order if, in its
judgment, an earlier payment could adversely affect a Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. Each Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon sixty days
written notice if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Funds are declared daily and
paid monthly. Dividends on each share of the Funds are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
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Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of a Fund at the net
asset value of such Shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of Customers to Galaxy's transfer agent and will become effective with respect
to dividends paid after its receipt. The crediting and payment of dividends to
Customers will be in accordance with the procedures governing such Customers'
accounts at their respective Institutions.
TAXES
FEDERAL
The Tax-Exempt Bond Fund, New York Municipal Bond Fund, Connecticut
Municipal Bond Fund, Massachusetts Municipal Bond Fund and Rhode Island
Municipal Bond Fund each qualified during its last taxable year and intends to
continue to qualify, and the New Jersey Municipal Bond Fund intends to qualify,
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended, (the "Code"). Such qualification relieves a Fund of liability for
federal income taxes to the extent the Fund's earnings are distributed in
accordance with the Code.
The policy of each Fund is to pay dividends with respect to each taxable
year equal to at least the sum of 90% of its net exempt interest income and 90%
of its net investment company taxable income, if any. Dividends derived from
interest on Municipal Securities (known as exempt interest dividends) may be
treated by the Funds' shareholders as items of interest excludable from their
gross income under Section 103(a) of the Code, unless under the circumstances
applicable to a particular shareholder, exclusion would be disallowed. (See the
Statement of Additional Information under "Additional Information Concerning
Taxes.")
If a Fund should hold certain "private activity bonds" issued after August
7, 1986, shareholders must include, as an item of tax preference, the portion of
dividends paid by the Fund that is attributable to interest on such bonds in
their federal alternative minimum taxable income for purposes of determining
liability, if any, for the 26% to 28% alternative minimum tax for individuals
and the 20% alternative minimum tax applicable to corporations. Corporate
shareholders must also take all exempt interest dividends into account in
determining certain adjustments for federal alternative minimum tax purposes.
Shareholders receiving Social Security benefits should note that all exempt
interest dividends will be taken into account in determining the taxability of
such benefits. Interest on indebtedness incurred by a shareholder to purchase or
carry Fund shares generally is not deductible for federal income tax purposes.
Dividends from a Fund which are derived from taxable income or from
long-term or short-term capital gains will be subject to federal income tax,
whether such dividends are paid in the form of cash or additional Trust Shares
of the Funds.
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
Investors considering buying shares of a Fund on or just before the record
date of a capital gain distribution should be aware that the amount of the
forthcoming distribution payment, although in effect a return of capital,
generally will be subject to tax.
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A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of a Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Funds may be
taxable to shareholders under state or local law as dividend income, even though
all or a portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.
It is anticipated that substantially all dividends paid by the New Jersey
Municipal Bond Fund will not be subject to New Jersey personal income tax. In
accordance with the provisions of New Jersey law as currently in effect,
distributions paid by a "qualified investment fund" will not be subject to the
New Jersey personal Income Tax to the extent that the distributions are
attributable to income received as interest or gain from New Jersey Municipal
Securities (as defined above), or as interest or gain from direct U.S.
Government obligations. Distributions by a "qualified investment fund" that are
attributable to most other sources will be subject to the New Jersey personal
income tax. Shares of the Fund are not subject to property taxation by New
Jersey or its political subdivisions.
The New Jersey personal Income Tax is not applicable to corporations. For
all corporations subject to the New Jersey Corporation Business Tax, dividends
and distributions from a "qualified investment fund" are included in the net
income tax base for purposes of computing the Corporation Business Tax.
Furthermore, any gain upon the redemption or sale of shares by a corporate
shareholder is also included in the net income tax base for purposes of
computing the Corporation Business Tax.
With respect to the New York Municipal Bond Fund, exempt-interest dividends
(as defined for federal income tax purposes) derived from interest on New York
Municipal Securities (as defined above) will be exempt from New York State and
New York City personal income taxes (but not corporate franchise taxes),
provided the interest on such obligations is and continues to be exempt from
applicable federal, New York State and New York City income taxes. To the extent
that investors are subject to state and local taxes outside of New York State
and New York City, dividends by the Fund may be taxable income for purposes
thereof. Dividends and distributions derived from income (including capital
gains on all New York Municipal Securities) other than interest on New York
Municipal Securities described above are not exempt from New York State and New
York City taxes. Interest or indebtedness incurred or continued by a shareholder
to purchase or carry shares of the Fund is not deductible for New York State or
New York City personal income tax purposes.
Dividends paid by the Connecticut Municipal Bond Fund that qualify as
exempt-interest dividends for federal income tax purposes are not subject to the
Connecticut personal income tax, imposed on resident and non-resident
individuals, trusts and estates, to the extent that they are derived from
Connecticut Municipal Securities (as defined above). Other Fund dividends and
distributions, whether received in cash or additional Trust Shares, are subject
to this tax, except that distributions treated as capital gain dividends for
federal income tax purposes are not subject to the tax to the extent that they
are derived from obligations issued by or on behalf of the State of Connecticut,
its political subdivisions, or public instrumentalities, state or local
authorities, districts or similar public entities created under Connecticut law.
Dividends and distributions paid by the Fund that constitute items of tax
preference for purposes of the federal alternative minimum tax, other than any
derived from Connecticut Municipal Securities, could
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cause liability for the net Connecticut minimum tax, applicable to investors
subject to the Connecticut personal income tax who are required to pay the
federal alternative minimum tax. Dividends paid by the Fund, including those
that qualify as exempt-interest dividends for federal income tax purposes, are
taxable for purposes of the Connecticut Corporation Business Tax; however, 70%
(100% if the investor owns at least 20% of the total voting power and value of
the Fund's shares) of amounts that are treated as dividends and not as
exempt-interest dividends or capital gain dividends for federal income tax
purposes are deductible for purposes of this tax, but no deduction is allowed
for expenses related thereto. Shares of the Fund are not subject to property tax
within the State of Connecticut or its political subdivisions.
Distributions by the Massachusetts Municipal Bond Fund to its shareholders
are exempt from Massachusetts personal income taxation to the extent they are
derived from (and designated by the Fund as being derived from) (i) interest on
Massachusetts Municipal Securities (as defined above), (ii) capital gains
realized by the Fund from the sale of certain Massachusetts Municipal
Securities, or (iii) interest on U.S. Government Obligations exempt from state
income taxation. Distributions from the Fund's other net investment income and
short-term capital gains will be taxable as ordinary income. Distributions from
the Fund's net long-term capital gains will be taxable as long-term capital
gains regardless of how long the shareholder has owned Fund shares. The tax
treatment of distributions is the same whether distributions are paid in cash or
in additional Trust Shares of the Fund. In 1994, the Massachusetts personal
income tax statute was modified to provide for graduated rates of tax (with some
exceptions) on gains from the sale or exchange of capital assets held for more
than one year based on the length of time the asset has been held since January
1, 1995. The Massachusetts Department of Revenue has released proposed
regulations providing that the holding period of the mutual fund (rather than
that of its shareholders) will be determinative for purposes of applying the
revised statute to shareholders that receive capital gain distributions (other
than exempt capital gain distributions, as discussed above), so long as the
mutual fund separately designates the amount of such distributions attributable
to each of six classes of gains from the sale or exchange of capital assets held
for more than one year in a notice provided to shareholders and the Commissioner
of Revenue on or before March 1 of the calendar year after the calendar year of
such distributions. In the absence of such notice, the holding period of the
assets giving rise to such gain is deemed to be more than one but not more than
two years. Shareholders should consult their tax advisers with respect to the
Massachusetts tax treatment of capital gain distributions from the Fund.
Distributions by the Massachusetts Municipal Bond Fund to corporate
shareholders, including exempt-interest dividends, may be subject to
Massachusetts corporate excise tax. Fund shares are not, however, subject to
property taxation by Massachusetts or its political subdivisions.
The Rhode Island Municipal Bond Fund has received a ruling from the Rhode
Island Division of Taxation to the effect that distributions by it to its
shareholders are exempt from Rhode Island personal income taxation and the Rhode
Island business corporation tax to the extent they are derived from (and
designated by the Fund as being derived from) interest earned on Rhode Island
Municipal Securities (as defined above) or obligations of the United States.
Distributions from the Fund's other net investment income and short-term capital
gains will be taxable as ordinary income. Distributions from the Fund's net
long-term capital gains will be taxable as long-term capital gains regardless of
how long the shareholder has owned Fund shares. The tax treatment of
distributions is the same whether distributions are paid in cash or in
additional Trust Shares of the Fund.
The Rhode Island Municipal Bond Fund will be subject to the Rhode Island
business corporation tax on its "gross income" apportioned to the State of Rhode
Island. For this purpose, gross income does not
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include interest income earned by the Fund on Rhode Island Municipal Securities
and obligations of the United States, capital gains realized by the Fund on the
sale of certain Rhode Island Municipal Securities, and 50 percent of the Fund's
other net capital gains.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situation.
Shareholders will be advised annually as to the federal income tax consequences,
and with respect to shareholders of the New Jersey Municipal Bond, New York
Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds, the New Jersey Gross Income Tax, New York
State and New York City personal income tax, Connecticut personal income tax,
Massachusetts personal income tax, and Rhode Island personal income tax
consequences, respectively, of distributions made each year.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Funds. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients, and
manages the other investment portfolios of Galaxy: the Money Market, Government,
U.S. Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Institutional Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Small Company Equity, MidCap
Equity, Asset Allocation, Growth and Income, Small Cap Value, Strategic Equity,
Short-Term Bond, Intermediate Government Income, High Quality Bond and Corporate
Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with each Fund's investment policies, Fleet manages each Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Funds,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
an annual rate of .75% of the average daily net assets of each Fund.
Fleet may from time to time, in its discretion, waive advisory fees payable
by the Funds in order to help maintain a competitive expense ratio and may from
time to time allocate a portion of its advisory fees to Fleet Bank or other
subsidiaries of Fleet Financial Group, Inc. in consideration for administrative
and/or shareholder support services which they provide to beneficial
shareholders. Fleet is currently waiving a portion of the advisory fees payable
to it by the Funds so that it is entitled to receive advisory fees
34
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at the annual rate of .55% of each Fund's average daily net assets, but Fleet
may in its discretion revise or discontinue this waiver at any time. For the
fiscal year ended October 31, 1997, Fleet received advisory fees (after fee
waivers) at the effective annual rates of .55%, .55%, .25%, .25% and .25%,
respectively, of the Tax-Exempt Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds' average daily net assets. In addition to fee waivers, during the fiscal
year ended October 31, 1997, Fleet also reimbursed the Tax-Exempt Bond, New York
Municipal Bond and Rhode Island Municipal Bond Funds for certain operating
expenses, which reimbursement may be revised or discontinued at any time. The
New Jersey Municipal Bond Fund did not conduct investment operations during the
fiscal year ended October 31, 1997.
The organizational arrangements of Fleet require that all investment
decisions with respect to the Funds be made by Fleet's Tax-Exempt Investment
Policy Committee and no one person is primarily responsible for making
recommendations to that Committee.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Funds, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which have agreed to provide shareholder support services that are
banks or bank affiliates are subject to such banking laws and regulations.
Should legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Funds,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Funds' method of operation would not
affect a Fund's net asset value per share or result in financial loss to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Funds' administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Funds in their administration
and operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Funds, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of combined
average daily net assets of the Funds and the other portfolios offered by Galaxy
(collectively the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets
35
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and .075% of combined average daily net assets over $5 billion. In addition,
Investor Services Group also receives a separate annual fee from each Portfolio
for certain fund accounting services. From time to time, Investor Services Group
may waive voluntarily all or a portion of the administration fee payable to it
by the Funds. For the fiscal year ended October 31, 1997, Investor Services
Group received administration fees at the effective annual rate of .082% of the
average daily net assets of each of the Tax-Exempt Bond, New York Municipal
Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds. The New Jersey Municipal Bond Fund did not conduct
investment operations during the fiscal year ended October 31, 1997.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each series in the Funds as follows: Class
M--Series 1 shares (Trust Shares), Class M--Series 2 shares (Retail A Shares)
and Class M--Series 3 shares (Retail B Shares), each series representing
interests in the Tax-Exempt Bond Fund; Class O--Series 1 shares (Trust Shares)
and Class O--Series 2 shares (Retail A Shares), each series representing
interests in the New York Municipal Bond Fund; Class P--Series 1 shares (Trust
Shares) and Class P--Series 2 shares (Retail A Shares), each series representing
interests in the Connecticut Municipal Bond Fund; Class Q--Series 1 shares
(Trust Shares) and Class Q--Series 2 shares (Retail A Shares), each series
representing interests in the Massachusetts Municipal Bond Fund; Class R--Series
1 shares (Trust Shares) and Class R--Series 2 shares (Retail A Shares), each
series representing interests in the Rhode Island Municipal Bond Fund; and Class
Y--Series 1 shares (Trust Shares) and Class Y--Series 2 shares (Retail A
Shares), each series representing interests in the New Jersey Municipal Bond
Fund. The Tax-Exempt Bond Fund is classified as a diversified company and the
New Jersey Municipal Bond, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds are
classified as non-diversified companies under the 1940 Act. The Board of
Trustees has also authorized the issuance of additional classes and series of
shares representing interests in other portfolios of Galaxy. For information
regarding the Funds' Retail Shares and these other portfolios, which are offered
through separate prospectuses, contact FD Distributors at 1-800-628-0414.
Shares of each series in a Fund bear their pro rata portion of all operating
expenses paid by that Fund except as follows. Holders of a Fund's Retail A
Shares bear the fees that are paid under Galaxy's Shareholder Services Plan
described below and holders of Retail B Shares of the Tax-Exempt Bond Fund bear
the fees described in the prospectus for such shares that are paid under
Galaxy's Distribution and Services Plan at an annual rate not to exceed .80% of
the average daily net asset value of the Fund's outstanding Retail B Shares.
Currently, these payments are not made with respect to a Fund's Trust Shares. In
addition, shares of each series in a Fund bear differing transfer agency
expenses. Standardized yield and total return quotations are computed separately
for each series of shares. The difference in the expenses paid by the respective
series will affect their performance.
Retail A Shares of the Funds are sold with a maximum front-end sales charge
of 3.75%. Retail B Shares of the Tax-Exempt Bond Fund are sold with a maximum
contingent deferred sales charge of 5.0% and automatically convert to Retail A
Shares of the Fund six years after the date of purchase. Retail A and Retail B
Shares have certain exchange and other privileges which are not available to
Trust Shares.
36
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Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class, and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to such investment portfolio as are declared in the discretion of
Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.30% of the average daily net asset value of Retail A Shares owned beneficially
by their Customers. Institutions may receive up to one-half of this fee for
providing one or more of the following services to such Customers: aggregating
and processing purchase and redemption requests and placing net purchase and
redemption orders with FD Distributors; processing dividend payments from a
Fund; providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and providing periodic mailings to
Customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such Customers: providing
Customers with information as to their positions in Retail A Shares; responding
to Customer inquiries; and providing a service to invest the assets of Customers
in Retail A Shares. These services are described more fully in the Statement of
Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of each Fund, and
to limit the payment under these servicing agreements for each Fund to an
aggregate fee of not more than .15% (on an annualized basis) of the average
daily net asset value of the Retail A Shares of the Fund beneficially owned by
Customers of Institutions. Galaxy understands that Institutions may charge fees
to their Customers who are the beneficial owners of Retail A Shares in
connection with their accounts with such Institutions. Any such fees would be in
addition to any amounts which may be received by an Institution under the
Shareholder Services Plan. Under the terms of each servicing agreement entered
into with Galaxy, Institutions are required to provide to their Customers a
schedule of any fees that they may charge in connection with Customer
investments in Retail A Shares.
37
<PAGE>
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at One Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as the custodian of the Funds' assets, and First Data Investor Services
Group, Inc. ("Investor Services Group"), a wholly-owned subsidiary of First Data
Corporation, serves as the Funds' transfer and dividend disbursing agent.
Services performed by both entities for the Funds are described in the Statement
of Additional Information. Communications to Investor Services Group should be
directed to Investor Services Group at P.O. Box 5108, 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Funds. Galaxy bears
the expenses incurred in the Funds' operations, including taxes; interest; fees
(including fees paid to its trustees and officers who are not affiliated with
Investor Services Group); SEC fees; state securities fees; costs of preparing
and printing prospectuses for regulatory purposes and for distribution to
existing shareholders; advisory, administration, distribution, shareholder
servicing, Rule 12b-1 distribution (if applicable), fund accounting and custody
fees; charges of the transfer agent and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; costs of independent
pricing services; costs of shareholders' reports and meetings; and any
extraordinary expenses. The Funds also pay for brokerage fees and commissions in
connection with the purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant bond
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance of the Funds may be compared to data prepared by LIPPER
ANALYTICAL SERVICES, INC., a widely recognized independent service which
monitors the performance of mutual funds.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL,
and THE NEW YORK TIMES, or publications of a local or regional nature, may also
be used in comparing the performance of the Funds. Performance data will be
calculated separately for Trust Shares, Retail A Shares and/or Retail B Shares
of the Funds.
The standard yield is computed by dividing a Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and analyzing the result on a semi-annual basis. A Fund may also
advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in a Fund is assumed to be
reinvested. Each Fund may also quote its "tax equivalent yield" which
demonstrates the level of taxable yield necessary to produce an after-tax
equivalent yield to a Fund's tax-free yield. It is calculated by increasing a
Fund's yield (calculated as above) by the amount necessary to reflect the
payment of income taxes at stated tax rates. A Fund's tax-equivalent yield will
always be higher than its yield.
38
<PAGE>
The Funds may also advertise their performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of a Fund's operations, or on a year-by-year
basis. Each Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividend and capital gain distributions made by a Fund during the period
are reinvested in Fund shares.
The performance of the Funds will fluctuate and any quotation of performance
should not be considered as representative of future performance. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in a
Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance data are
generally functions of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions.
Any additional fees charged directly by Institutions to accounts of
Customers that have invested in Trust Shares of a Fund will not be included in
performance calculations.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of a particular Fund means, with respect to the approval of
an investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of such Fund, or (b) 67% or more
of the shares of such Fund present at a meeting if more than 50% of the
outstanding shares of such Fund are represented at the meeting in person or by
proxy.
39
<PAGE>
GALAXY
FUNDS
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
[logo]
February 28, 1998
FN-170 15040 (3/98)
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information regarding
Westboro, Massachusetts purchases, redemptions, exchanges and other
01581-5108 shareholder services or for current performance,
call 1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus relates to six separate investment portfolios (individually, a
"Fund," collectively, the "Funds") offered to investors by Galaxy. Each Fund has
its own investment objective and policies:
The TAX-EXEMPT BOND FUND'S investment objective is to provide shareholders
with as high a level of current interest income free of federal income tax as is
consistent with preservation of capital. Under normal market and economic
conditions, the Fund will invest substantially all of its assets in bonds and
notes issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their respective authorities,
agencies, instrumentalities and political subdivisions the interest on which, in
the opinion of bond counsel to the issuer, is exempt from regular federal income
tax ("Municipal Securities").
The NEW JERSEY MUNICIPAL BOND FUND'S investment objective is to seek as high
a level of current interest income exempt from federal income tax and, to the
extent possible, from New Jersey personal income tax, as is consistent with
relative stability of principal. Under normal market and economic conditions,
the Fund will invest at least 65% of its total assets in New Jersey Municipal
Securities. The Fund is a non-diversified investment portfolio under the
Investment Company Act of 1940, as amended, (the "1940 Act").
The NEW YORK MUNICIPAL BOND FUND'S investment objective is to seek as high a
level of current interest income exempt from federal income tax and, to the
extent possible, from New York State and New York City personal income tax, as
is consistent with relative stability of principal. Under normal market and
economic conditions, the Fund will invest at least 65% of its total assets in
New York Municipal Securities. The Fund is a non-diversified investment
portfolio under the 1940 Act.
The CONNECTICUT MUNICIPAL BOND FUND'S investment objective is to seek as
high a level of current interest income exempt from federal income tax and, to
the extent possible, from Connecticut personal income tax, as is consistent with
relative stability of principal. Under normal market and economic conditions,
the Fund will invest at least 65% of its total assets in Connecticut Municipal
Securities. The Fund is a non-diversified investment portfolio under the 1940
Act.
The MASSACHUSETTS MUNICIPAL BOND FUND'S investment objective is to seek as
high a level of current interest income exempt from federal income tax and, to
the extent possible, from Massachusetts personal income tax as is consistent
with relative stability of principal. Under normal market and economic
conditions, the Fund will invest at least 65% of its total assets in
Massachusetts Municipal Securities. The Fund is a non-diversified investment
portfolio under the 1940 Act.
The RHODE ISLAND MUNICIPAL BOND FUND'S investment objective is to seek as
high a level of current interest income exempt from federal income tax and, to
the extent possible, from Rhode Island personal income tax, as is consistent
with relative stability of principal. Under normal market and economic
conditions, the Fund will invest at least 65% of its total assets in Rhode
Island Municipal Securities. The Fund is a non-diversified investment portfolio
under the 1940 Act.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
This Prospectus describes the Retail A Shares representing interests in each
Fund and the Retail B Shares representing interests in the Tax-Exempt Bond Fund
(Retail A Shares and Retail B Shares are referred to collectively as "Retail
Shares"). Retail A Shares are sold with a front-end sales charge. Retail B
Shares are sold with a contingent deferred sales charge. Retail Shares are
offered to customers ("Customers") of FIS Securities, Inc., Fleet Brokerage
Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet
Financial Group, Inc., its affiliates, their correspondent banks, and other
qualified banks, savings and loan associations and broker/dealers
("Institutions"). Retail Shares may also be purchased directly by individuals,
corporations or other entities, who submit a purchase application to Galaxy,
purchasing either for their own accounts or for the accounts of others ("Direct
Investors"). Galaxy is also authorized to issue an additional series of shares
in each Fund ("Trust Shares"), which are offered under a separate prospectus
primarily to investors maintaining qualified accounts at bank
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
and trust institutions, including institutions affiliated with Fleet Financial
Group, Inc. Retail A Shares, Retail B Shares and Trust Shares in a Fund
represent equal pro rata interests in the Fund, except they bear different
expenses which reflect the difference in the range of services provided to them.
As of the date of this Prospectus, Trust Shares of the Rhode Island Municipal
Bond Fund were not being offered to investors. See "Financial Highlights,"
"Management of the Funds" and "Description of Galaxy and Its Shares" herein.
Each of the Funds is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Funds, contained in the Statement of Additional Information relating to the
Funds and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone numbers or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
FEBRUARY 28, 1998
<PAGE>
HIGHLIGHTS
Q: WHAT IS THE GALAXY FUND?
A: Galaxy is an open-end management investment company (commonly known as a
mutual fund) that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives and policies.
This Prospectus describes Galaxy's TAX-EXEMPT BOND, NEW JERSEY MUNICIPAL BOND,
NEW YORK MUNICIPAL BOND, CONNECTICUT MUNICIPAL BOND, MASSACHUSETTS MUNICIPAL
BOND and RHODE ISLAND MUNICIPAL BOND FUNDS. Prospectuses for Galaxy's MONEY
MARKET, GOVERNMENT, U.S. TREASURY, TAX-EXEMPT, CONNECTICUT MUNICIPAL MONEY
MARKET, MASSACHUSETTS MUNICIPAL MONEY MARKET, INSTITUTIONAL GOVERNMENT MONEY
MARKET, EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME, INTERNATIONAL EQUITY, SMALL
COMPANY EQUITY, MIDCAP EQUITY, ASSET ALLOCATION, SMALL CAP VALUE, GROWTH AND
INCOME, STRATEGIC EQUITY, SHORT-TERM BOND, INTERMEDIATE GOVERNMENT INCOME, HIGH
QUALITY BOND and CORPORATE BOND FUNDS may be obtained by calling 1-800-628-0414.
Q: WHO ADVISES THE FUNDS?
A: The Funds are managed by Fleet Investment Advisors Inc. ("Fleet"), an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc. Fleet Financial
Group, Inc. is a financial services company with total assets as of December 31,
1997 of approximately $85.5 billion. See "Management of the Funds--Investment
Adviser."
Q: WHAT ADVANTAGES DO THE FUNDS OFFER?
A: The Funds offer investors the opportunity to invest in a variety of
professionally managed investment portfolios without having to become involved
with the detailed accounting and safekeeping procedures normally associated with
direct investments in securities. The Funds also offer the economic advantages
of block trading in portfolio securities and the availability of a family of
twenty-seven mutual funds should your investment goals change.
Q: HOW CAN I BUY AND REDEEM SHARES?
A: The Funds are distributed by First Data Distributors, Inc. Retail Shares
of the Funds are sold to individuals, corporations or other entities, who submit
a purchase application to Galaxy, purchasing either for their own accounts or
for the accounts of others ("Direct Investors"). Retail Shares may also be
purchased on behalf of Customers of FIS Securities, Inc., Fleet Brokerage
Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet
Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers
("Institutions"). Retail A Shares of the Funds may be purchased at their net
asset value plus a maximum initial sales charge of 3.75%. Retail A Shares are
currently subject to a shareholder servicing fee of up to .15% of the average
daily net asset value of such Shares. Retail B Shares of the Tax-Exempt Bond
Fund may be purchased at their net asset value subject to a contingent deferred
sales charge ("CDSC"). The CDSC is paid on certain share redemptions made within
six years of the purchase date at the maximum rate of 5.00% of the lower of (i)
the net asset value of the redeemed shares or (ii) the original purchase price
of the redeemed shares. Retail B Shares are currently subject to shareholder
servicing and distribution fees of up to .80% of the average daily net asset
value of such Shares. Share purchase and redemption information for both Direct
Investors and Customers of Institutions is provided below under "How to Purchase
Shares" and "How to Redeem Shares." Except as provided below under "Investor
Programs," the minimum initial investment for Direct Investors and the minimum
initial aggregate investment for Institutions purchasing on behalf of their
Customers is $2,500. The minimum investment for subsequent purchases is $100.
There are no minimum investment requirements for investors participating in the
Automatic Investment Program described below. Institutions may require Customers
to maintain certain minimum investments in Retail Shares. See "How to Purchase
Shares" below.
Q: WHEN ARE DIVIDENDS PAID?
A: Dividends from net investment income of the Funds are declared daily and
paid monthly. Net realized capital gains of the Funds are distributed at least
annually. Dividends and distributions are paid in cash, although shareholders
may choose to have dividends and distributions automatically reinvested in
additional shares of the same series of shares with respect to which the
dividend or distribution was declared without sales or CDSC charges. See
"Dividends and Distributions."
Q: WHAT POTENTIAL RISKS ARE PRESENTED BY THE FUNDS' INVESTMENT PRACTICES?
A: The Tax-Exempt Bond Fund invests primarily in Municipal Securities rated
within the four highest rating categories assigned by Standard & Poor's Ratings
Group ("S&P") or Moody's Investors Service, Inc. ("Moody's") and the New Jersey
Municipal Bond Fund, New York Municipal Bond Fund, Connecticut Municipal Bond
Fund, Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond Fund
invest primarily in New Jersey Municipal Securities, New York Municipal
Securities, Connecticut Municipal Securities, Massachusetts Municipal Securities
and Rhode Island Municipal Securities, respectively, rated within the four
highest rating categories assigned by S&P or Moody's. Municipal Securities rated
in the lowest of the four highest rating categories assigned by Moody's or S&P
are considered to have speculative characteristics, even though they are of
investment grade quality. Because the New Jersey Municipal Bond, New York
Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds invest primarily in New Jersey Municipal
Securities, New York Municipal Securities, Connecticut Municipal Securities,
Massachusetts Municipal Securities and Rhode Island Municipal Securities,
respectively, the achievement of their investment objectives is dependent upon
the ability of the issuers of such Municipal Securities to meet their continuing
obligations for the payment of principal and interest. In addition, because the
New Jersey Municipal Bond, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond and Rhode Island
1
<PAGE>
Municipal Bond Funds are non-diversified, their investment return may be
dependent upon the performance of a smaller number of securities relative to the
number of securities held in a diversified portfolio. The Funds may lend their
securities and enter into repurchase agreements and reverse repurchase
agreements with qualifying banks and broker/dealers. In addition, each Fund may
enter into interest rate futures contracts and municipal bond index futures
contracts. The Funds may purchase eligible securities on a "when-issued" basis
and may purchase or sell securities on a "forward commitment" or "delayed
settlement" basis. In addition, the Funds may acquire "stand-by commitments"
with respect to Municipal Securities held in their respective portfolios. The
value of the Funds' portfolio securities will generally vary inversely with
changes in prevailing interest rates. See "Investment Objectives and Policies."
Q: WHAT SHAREHOLDER PRIVILEGES ARE OFFERED BY THE FUNDS?
A: Retail A Shares of a Fund may be exchanged for Retail A Shares of any
other Galaxy portfolio which offers Retail A Shares and for shares of any other
investment portfolio otherwise advised by Fleet or its affiliates. Retail B
Shares of the Tax-Exempt Bond Fund may be exchanged for Retail B Shares of any
other Galaxy portfolio which offers Retail B Shares. In either case, exchanges
are not subject to additional sales or CDSC charges. Galaxy offers an Automatic
Investment Program which allows investors to automatically invest in Retail
Shares on a monthly or quarterly basis, as well as other shareholder privileges.
See "Investor Programs."
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by each Fund with respect to its Retail A Shares and/or Retail B Shares,
and (ii) the operating expenses for Retail A Shares and/or Retail B Shares of
each Fund. Shareholder Transaction Expenses are charges you pay when buying or
selling shares of a Fund. Annual Fund Operating Expenses are paid out of each
Fund's assets and include fees for portfolio management, maintenance of
shareholder accounts, general Fund administration, accounting and other
services. Examples based on the summary are also shown.
<TABLE>
<CAPTION>
NEW JERSEY NEW YORK CONNECTICUT MASSACHUSETTS
TAX-EXEMPT MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
BOND FUND BOND FUND BOND FUND BOND FUND BOND FUND
---------------------- ----------- ---------- ------------ --------------
RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL
A SHARES B SHARES A SHARES A SHARES A SHARES A SHARES
--------- --------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
- ------------------------------
Maximum Front End Sales Charge
Imposed on Purchases (as a
percentage of offering
price)....................... 3.75%(1) None 3.75%(1) 3.75%(1) 3.75%(1) 3.75%(1)
Maximum Deferred Sales Charge
(as a percentage of offering
price)....................... None 5.00%(2) None None None None
Sales Charge Imposed on
Reinvested Dividends......... None None None None None None
Redemption Fees(3)............ None None None None None None
Exchange Fees................. None None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
- ------------------------------
Advisory Fees (After Fee
Waivers)..................... .55% .55% .25% .55% .35% .35%
12b-1 Fees(4)................. None .80% None None None None
Other Expenses (After Fee
Waivers)..................... .44% .29% .86% .44% .60% .58%
--------- --------- ----------- ---------- ------------ -------
Total Fund Operating Expenses
(After Fee Waivers).......... .99% 1.64% 1.11% .99% .95% .93%
--------- --------- ----------- ---------- ------------ -------
--------- --------- ----------- ---------- ------------ -------
<CAPTION>
RHODE ISLAND
MUNICIPAL
BOND FUND
-------------
RETAIL
A SHARES
-------------
<S> <C>
SHAREHOLDER TRANSACTION
EXPENSES
- ------------------------------
Maximum Front End Sales Charge
Imposed on Purchases (as a
percentage of offering
price)....................... 3.75%(1)
Maximum Deferred Sales Charge
(as a percentage of offering
price)....................... None
Sales Charge Imposed on
Reinvested Dividends......... None
Redemption Fees(3)............ None
Exchange Fees................. None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
- ------------------------------
Advisory Fees (After Fee
Waivers)..................... .35%
12b-1 Fees(4)................. None
Other Expenses (After Fee
Waivers)..................... .60%
-------------
Total Fund Operating Expenses
(After Fee Waivers).......... .95%
-------------
-------------
</TABLE>
- --------------------------
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Retail A Shares that
are purchased with no initial sales charge as part of an investment of
$500,000 or more. See "How to Purchase Shares-- Applicable Sales
Charges--Retail A Shares."
(2) This amount applies to redemptions made during the first year. The charge
decreases to 4.00%, 3.00%, 3.00%, 2.00% and 1.00% for redemptions made
during the second through sixth years, respectively. Retail B Shares
automatically convert to Retail A Shares after six years. See "How to
Purchase Shares--Applicable Sales Charges--Retail B Shares."
(3) Direct Investors are charged a $5.00 fee if redemption proceeds are paid by
wire.
(4) Long-term investors in Retail B Shares may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the rules of
the National Association of Securities Dealers, Inc.
3
<PAGE>
- -----------------------------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- --------
<S> <C> <C> <C> <C>
Tax-Exempt Bond Fund (Retail A Shares)(1)......... $47 $68 $ 90 $152
Tax-Exempt Bond Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)........................................ $66 $81 $108 $158(3)
Assuming no redemption(1)........................ $16 $51 $ 88 $158(3)
New Jersey Municipal Bond Fund (Retail A
Shares)(1)....................................... $49 $71 N/A N/A
New York Municipal Bond Fund (Retail A
Shares)(1)....................................... $47 $68 $ 90 $152
Connecticut Municipal Bond Fund (Retail A
Shares)(1)....................................... $47 $66 $ 87 $148
Massachusetts Municipal Bond Fund (Retail A
Shares)(1)....................................... $47 $66 $ 86 $146
Rhode Island Municipal Bond Fund (Retail A
Shares)(1)....................................... $47 $66 $ 87 $148
</TABLE>
- --------------------------
(1) Assumes deduction at time of purchase of maximum applicable front-end sales
charge.
(2) Assumes deduction of maximum applicable contingent deferred sales charge.
(3) Based on conversion of Retail B Shares to Retail A Shares after six years.
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in Retail A Shares and/or
Retail B Shares of the Funds will bear directly or indirectly. The information
contained in the Expense Summary and Example with respect to the Tax-Exempt
Bond, New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond and Rhode Island Municipal Bond Funds is based on expenses
incurred by each Fund during the last fiscal year, restated to reflect the
expenses which each Fund expects to incur during the current fiscal year on its
Retail A and/or Retail B Shares. The information contained in the Expense
Summary and Example with respect to the New Jersey Municipal Bond Fund is based
on expenses which the Fund expects to incur during the current fiscal year on
its Retail A Shares. Without voluntary fee waivers by Fleet and/or the Fund's
administrator, Advisory Fees would be .75%, .75%, .75%, .75%, .75% and .75%,
Other Expenses would be .44%, 1.20%, .58%, .60%, .58% and .60% and Total Fund
Operating Expenses would be 1.19%, 1.95%, 1.33%, 1.35%, 1.33% and 1.35% for
Retail A Shares of the Tax-Exempt Bond Fund, New Jersey Municipal Bond Fund, New
York Municipal Bond Fund, Connecticut Municipal Bond Fund, Massachusetts
Municipal Bond Fund and Rhode Island Municipal Bond Fund, respectively, and
Advisory Fees would be .75%, Other Expenses would be .29% and Total Fund
Operating Expenses would be 1.84% for Retail B Shares of the Tax-Exempt Bond
Fund. Fleet and/or the Funds' administrator is under no obligation to waive fees
and/or reimburse expenses but has advised Galaxy that it intends to waive fees
and/or reimburse expenses during the current year to the extent necessary to
maintain the Funds' operating expenses at the levels set forth in the above
table. For more complete descriptions of these costs and expenses, see "How to
Purchase Shares," "How to Redeem Shares," "Management of the Funds" and
"Description of Galaxy and Its Shares" in this Prospectus and the financial
statements and notes incorporated by reference into the Statement of Additional
Information. Any fees that are charged by affiliates of Fleet or other
Institutions directly to their Customer accounts for services related to an
investment in Retail Shares of the Funds are in addition to and not reflected in
the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
4
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Retail A Shares in each Fund and the Retail B
Shares in the Tax-Exempt Bond Fund. Galaxy is also authorized to issue an
additional series of shares in each Fund ("Trust Shares"), which are offered
under a separate prospectus. As described below under "Description of Galaxy and
Its Shares," Retail A Shares, Retail B Shares and Trust Shares represent equal
pro rata interests in a Fund, except that (i) Retail A Shares of the Funds bear
the expenses incurred under Galaxy's Shareholder Services Plan at an annual rate
of up to .15% of the average daily net asset value of each Fund's outstanding
Retail A Shares, (ii) Retail B Shares of the Tax-Exempt Bond Fund bear the
expenses incurred under Galaxy's Distribution and Services Plan at an annual
rate of up to .80% of the average daily net asset value of the Fund's
outstanding Retail B Shares, and (iii) Retail A Shares, Retail B Shares and
Trust Shares bear differing transfer agency expenses.
The financial highlights presented below have been audited by Coopers &
Lybrand L.L.P., Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Funds for the fiscal year
ended October 31, 1997 (the "Annual Report"). Such financial highlights should
be read in conjunction with the financial statements contained in Galaxy's
Annual Report and incorporated by reference into the Statement of Additional
Information. Information in the financial highlights for periods prior to the
fiscal year ended October 31, 1994 reflect the investment results of both Retail
A Shares and Trust Shares of the Funds. As of the date of this Prospectus, the
New Jersey Municipal Bond Fund had not commenced operations. More information
about the performance of the Funds is also contained in the Annual Report, which
may be obtained without charge by contacting Galaxy at its telephone numbers or
address provided above.
5
<PAGE>
TAX-EXEMPT BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------------------------
1997 1996 1995 1994
--------------------- ----------------------- --------- --------- PERIOD ENDED
RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL OCTOBER 31,
A SHARES B SHARES A SHARES B SHARES(3) SHARES SHARES 1993(2) 1992(1,2)
--------- --------- --------- ----------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $ 10.78 $ 10.78 $ 10.78 $ 10.94 $ 9.99 $ 11.12 $ 10.11 $ 10.00
--------- --------- --------- ----------- --------- --------- --------- ------------
Income From Investment
Operations:
Net investment
income(4,5)............ 0.50 0.43 0.50 0.27 0.52 0.53 0.54 0.34
Net realized and
unrealized gain (loss)
on investments......... 0.29 0.29 -- (0.16) 0.79 (1.04) 1.01 0.11
--------- --------- --------- ----------- --------- --------- --------- ------------
Total From
Investment
Operations......... 0.79 0.72 0.50 0.11 1.31 (0.51) 1.55 0.45
--------- --------- --------- ----------- --------- --------- --------- ------------
Less Dividends:
Dividends from net
investment income...... (0.50) (0.43) (0.50) (0.27) (0.52) (0.53) (0.54) (0.34)
Dividends from net
realized capital
gains.................. (0.01) (0.01) -- -- -- -- -- --
Dividends in excess of
net realized capital
gains.................. -- -- -- -- -- (0.09) -- --
--------- --------- --------- ----------- --------- --------- --------- ------------
Total Dividends:.... (0.51) (0.44) (0.50) (0.27) (0.52) (0.62) (0.54) (0.34)
--------- --------- --------- ----------- --------- --------- --------- ------------
Net increase (decrease) in
net asset value.......... 0.28 0.28 -- (0.16) 0.79 (1.13) 1.01 0.11
--------- --------- --------- ----------- --------- --------- --------- ------------
Net Asset Value, End of
Period................... $ 11.06 $ 11.06 $ 10.78 $ 10.78 $ 10.78 $ 9.99 $ 11.12 $ 10.11
--------- --------- --------- ----------- --------- --------- --------- ------------
--------- --------- --------- ----------- --------- --------- --------- ------------
Total Return(6)........... 7.49% 6.83% 4.77% 1.08%(7) 13.40% (4.75)% 15.63% 4.55%(7)
Ratios/Supplemental Data:
Net Assets, End of
Period (000's)......... $ 25,465 $ 1,690 $ 28,339 $ 787 $ 31,609 $ 35,911 $ 144,048 $ 15,891
Ratio to average net
assets:
Net investment income
including
reimbursement/waiver... 4.60% 3.95% 4.68% 4.08%(8) 4.99% 5.01% 5.00% 5.03%(8)
Operating expenses
including
reimbursement/waiver... 0.95% 1.60% 0.93% 1.57%(8) 0.91% 0.80% 0.64% 0.42%(8)
Operating expenses
excluding
reimbursement/waiver... 1.18% 1.83% 1.18% 1.77%(8) 1.24% 1.03% 1.08% 2.15%(8)
Portfolio Turnover Rate... 78% 78% 15% 15% 11% 17% 38% 11%(7)
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) The Fund began offering Retail B Shares on March 4, 1996.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator (i) for Retail A Shares for the years
ended October 31, 1997, 1996, 1995 and 1994 was $0.47, $0.48, $0.48 and
$0.50, respectively, and (ii) for Retail B Shares for the year ended
October 31, 1997 and the period ended October 31, 1996 was $0.40 and $0.25,
respectively.
(5) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the year ended October 31, 1993
and for the period ended October 31, 1992 was $0.49 and $0.23,
respectively.
(6) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(7) Not Annualized.
(8) Annualized.
6
<PAGE>
NEW YORK MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
1997 1996 1995 1994
-------- -------- -------- -------- PERIOD ENDED
RETAIL RETAIL RETAIL RETAIL OCTOBER 31,
A SHARES A SHARES SHARES SHARES 1993(2) 1992(1,2)
-------- -------- -------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.75 $ 10.78 $ 9.89 $ 11.04 $ 10.00 $ 10.00
-------- -------- -------- -------- --------- -------------
Income From Investment Operations:
Net investment income(3,4)............ 0.49 0.48 0.49 0.49 0.50 0.38
Net realized and unrealized gain
(loss) on investments................ 0.34 (0.03) 0.89 (1.15) 1.04 --
-------- -------- -------- -------- --------- -------------
Total From Investment
Operations:...................... 0.83 0.45 1.38 (0.66) 1.54 0.38
-------- -------- -------- -------- --------- -------------
Less Dividends:
Dividends from net investment
income............................... (0.49) (0.48) (0.49) (0.49) (0.50) (0.38)
Dividends from net realized capital
gains................................ -- -- -- -- -- --
-------- -------- -------- -------- --------- -------------
Total Dividends:.................. (0.49) (0.48) (0.49) (0.49) (0.50) (0.38)
-------- -------- -------- -------- --------- -------------
Net increase (decrease) in net asset
value.................................. 0.34 (0.03) 0.89 (1.15) 1.04 --
-------- -------- -------- -------- --------- -------------
Net Asset Value, End of Period.......... $ 11.09 $ 10.75 $ 10.78 $ 9.89 $ 11.04 $ 10.00
-------- -------- -------- -------- --------- -------------
-------- -------- -------- -------- --------- -------------
Total Return(5)......................... 7.93% 4.31% 14.03% (6.14)% 15.66% 3.83%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $ 38,434 $ 40,154 $ 42,870 $ 42,451 $ 70,242 $ 20,144
Ratio to average net assets:
Net investment income including
reimbursement/waiver................. 4.52% 4.50% 4.73% 4.64% 4.54% 5.22%(7)
Operating expenses including
reimbursement/waiver................. 0.94% 0.95% 0.92% 0.87% 0.87% 0.65%(7)
Operating expenses excluding
reimbursement/waiver................. 1.26% 1.35% 1.31% 1.10% 1.19% 1.70%(7)
Portfolio Turnover Rate................. 61% 12% 5% 18% 3% 19%(6)
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 31, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996, 1995 and 1994 was $0.45, $0.44,
$0.44 and $0.46, respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the year ended October 31, 1993
and for the period ended October 31, 1992 was $0.47 and $0.30,
respectively.
(5) Calculation does not include the effect of any sales charge for Retail A
Shares.
(6) Not Annualized.
(7) Annualized.
7
<PAGE>
CONNECTICUT MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------
1997 1996 1995 1994
-------- -------- --------- ---------
RETAIL RETAIL RETAIL RETAIL PERIOD ENDED
A SHARES A SHARES SHARES SHARES 1993(1,2)
-------- -------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.14 $ 10.13 $ 9.22 $ 10.32 $ 10.00
-------- -------- --------- --------- -------------
Income From Investment Operations:
Net investment income(3,4)............ 0.45 0.42 0.44 0.46 0.25
Net realized and unrealized gain
(loss) on investments................ 0.33 0.01 0.91 (1.10) 0.32
-------- -------- --------- --------- -------------
Total From Investment
Operations:...................... 0.78 0.43 1.35 (0.64) 0.57
-------- -------- --------- --------- -------------
Less Dividends:
Dividends from net investment
income............................... (0.45) (0.42) (0.44) (0.46) (0.25)
Dividends from net realized capital
gains................................ -- -- -- -- --
-------- -------- --------- --------- -------------
Total Dividends:.................. (0.45) (0.42) (0.44) (0.46) (0.25)
-------- -------- --------- --------- -------------
Net increase (decrease) in net asset
value.................................. 0.33 0.01 0.91 (1.10) 0.32
-------- -------- --------- --------- -------------
Net Asset Value, End of Period.......... $ 10.47 $ 10.14 $ 10.13 $ 9.22 $ 10.32
-------- -------- --------- --------- -------------
-------- -------- --------- --------- -------------
Total Return(5)......................... 7.86% 4.32% 14.94% (6.39)% 5.80%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $23,355 $23,244 $ 18,066 $ 18,229 $ 18,771
Ratio to average net assets:
Net investment income including
reimbursement/waivers................ 4.30% 4.13% 4.53% 4.66% 4.30%(7)
Operating expenses including
reimbursement/waivers................ 0.70% 0.70% 0.68% 0.25% 0.00%(7)
Operating expenses excluding
reimbursement/waiver................. 1.31% 1.38% 1.48% 1.42% 1.73%(7)
Portfolio Turnover Rate................. 42% 3% 7% 4% 7%(6)
</TABLE>
- --------------------------
(1) The Fund commenced operations on March 16, 1993.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996, 1995 and 1994 was $0.38, $0.35,
$0.37 and $0.34, respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the period ended October 31, 1993
was $0.15.
(5) Calculation does not include the effect of any sales charge for Retail A
Shares.
(6) Not Annualized.
(7) Annualized.
8
<PAGE>
MASSACHUSETTS MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------
1997 1996 1995 1994 PERIOD
---------- ----------- --------- ------- ENDED
RETAIL RETAIL RETAIL RETAIL OCTOBER 31,
A SHARES A SHARES SHARES SHARES 1993(1,2)
---------- ----------- --------- ------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 9.94 $ 9.98 $ 9.12 $ 10.24 $ 10.00
---------- ----------- --------- ------- -----------
Income From Investment Operations:
Net investment income(3,4)............ 0.45 0.43 0.44 0.47 0.29
Net realized and unrealized gain
(loss) on investments................ 0.32 (0.04) 0.86 (1.12) 0.24
---------- ----------- --------- ------- -----------
Total From Investment
Operations:...................... 0.77 0.39 1.30 (0.65) 0.53
---------- ----------- --------- ------- -----------
Less Dividends:
Dividends from net investment
income............................... (0.46) (0.43) (0.44) (0.47) (0.29)
Dividends from net realized capital
gains................................ -- -- -- -- --
---------- ----------- --------- ------- -----------
Total Dividends:.................. (0.46) (0.43) (0.44) (0.47) (0.29)
---------- ----------- --------- ------- -----------
Net increase (decrease) in net asset
value.................................. 0.31 (0.04) 0.86 (1.12) 0.24
---------- ----------- --------- ------- -----------
Net Asset Value, End of Period.......... $ 10.25 $ 9.94 $ 9.98 $ 9.12 $ 10.24
---------- ----------- --------- ------- -----------
---------- ----------- --------- ------- -----------
Total Return(5)......................... 7.92% 4.05% 14.52% (6.46)% 5.42%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $ 33,318 $ 26,275 $ 16,113 $15,966 $20,121
Ratio to average net assets:
Net investment income including
reimbursement/waiver................. 4.52% 4.42% 4.56% 4.89% 4.87%(7)
Operating expenses including
reimbursement/waiver................. 0.63% 0.66% 0.70% 0.33% 0.05%(7)
Operating expenses excluding
reimbursement/waiver................. 1.20% 1.32% 1.58% 1.43% 1.82%(7)
Portfolio Turnover Rate................. 48% 16% 19% 11% 0%(6)
</TABLE>
- --------------------------
(1) The Fund commenced operations on March 12, 1993.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996, 1995 and 1994 was $0.39, $0.37,
$0.36 and $0.37, respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the period ended October 31, 1993
was $0.18.
(5) Calculation does not include the effect of any sales charge for Retail A
Shares.
(6) Not Annualized.
(7) Annualized.
9
<PAGE>
RHODE ISLAND MUNICIPAL BOND FUND(1)
(FOR A SHARE(1) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER
31,
------------------- PERIOD ENDED
OCTOBER 31,
1997 1996 1995(1)
-------- -------- -------------
RETAIL RETAIL RETAIL
A SHARES A SHARES SHARES
-------- -------- -------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.65 $ 10.67 $ 10.00
-------- -------- -------------
Income From Investment Operations:
Net investment income(2).............. 0.48 0.51 0.44
Net realized and unrealized gain
(loss) on investments................ 0.32 0.03 0.67
-------- -------- -------------
Total From Investment
Operations:...................... 0.80 0.54 1.11
-------- -------- -------------
Less Dividends:
Dividends from net investment
income............................... (0.50) (0.51) (0.44)
Dividends from net realized capital
gains................................ (0.04) (0.05) --
-------- -------- -------------
Total Dividends:.................. (0.54) (0.56) (0.44)
-------- -------- -------------
Net increase (decrease) in net asset
value.................................. 0.26 (0.02) 0.67
-------- -------- -------------
Net Asset Value, End of Period.......... $ 10.91 $ 10.65 $ 10.67
-------- -------- -------------
-------- -------- -------------
Total Return(3)......................... 7.78% 5.22% 11.29%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $17,134 $14,900 $ 10,850
Ratio to average net assets:
Net investment income including
reimbursement/waiver................. 4.50% 4.78% 5.13%(5)
Operating expenses including
reimbursement/waiver................. 0.83% 0.77% 0.40%(5)
Operating expenses excluding
reimbursement/waiver................. 1.34% 1.34% 2.25%(5)
Portfolio Turnover Rate................. 19% 13% 34%(4)
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 20, 1994. On September 7, 1995,
Retail Shares of the Fund were redesignated "Retail A Shares."
(2) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997 and 1996 and for the period ended October
31, 1995 was $0.43, $0.45 and $0.28, respectively.
(3) Calculation does not include the effect of any sales charge for Retail A
Shares.
(4) Not Annualized.
(5) Annualized.
10
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Fleet will use its best efforts to achieve each Fund's investment objective,
although such achievement cannot be assured. The investment objective of a Fund
may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," a Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Funds to be a complete investment program.
TAX-EXEMPT BOND FUND
The Tax-Exempt Bond Fund's investment objective is to provide shareholders
with as high a level of current interest income free of federal income tax as is
consistent with preservation of capital. To achieve this objective, the Fund
will invest substantially all of its assets in debt obligations issued by or on
behalf of states, territories and possessions of the United States, the District
of Columbia and their respective authorities, agencies, instrumentalities and
political subdivisions the interest on which, in the opinion of bond counsel to
the issuer, is exempt from regular federal income tax ("Municipal Securities").
The Fund's average weighted maturity will vary in response to variations in
comparative yields of differing maturities of instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in
Municipal Securities, primarily bonds (at least 65% under normal market
conditions).
From time to time, during temporary defensive periods, the Fund may, without
limit, hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in Fleet's opinion, prevailing market or economic conditions
warrant. Uninvested cash reserves will not earn income. Such taxable instruments
may include (i) obligations of the U.S. Treasury; (ii) obligations of agencies
or instrumentalities of the U.S. Government; (iii) "money market" instruments
such as certificates of deposit and bankers' acceptances of selected banks and
commercial paper rated within the two highest rating categories assigned by any
major rating service; (iv) repurchase agreements collateralized by U.S.
Government obligations or other "money market" instruments; or (v) futures
contracts; or (vi) securities issued by other investment companies that invest
in high quality short-term Municipal Securities. Under normal market conditions,
the Fund anticipates that not more than 5% of its net assets will be invested in
any one category of taxable securities and that not more than 20% of its total
assets will be invested in taxable securities in the aggregate. For more
information, see "Other Investment Policies and Risk Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Tax-Exempt Bond Fund.
NEW JERSEY MUNICIPAL BOND FUND
The New Jersey Municipal Bond Fund is a non-diversified investment
portfolio, the investment objective of which is to seek as high a level of
current interest income exempt from federal income tax and, to the extent
possible, from New Jersey personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will invest
primarily in New Jersey Municipal Securities as defined below. The Fund's
average portfolio maturity will vary in response to variations in the
comparative yields of differing maturities of instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the State of New Jersey and other states,
territories and possessions of the United States, the District of Columbia and
their respective authorities, agencies, instrumentalities and political
sub-divisions, the interest on which, in the opinion of bond counsel to the
issuer, is exempt from regular federal income tax ("Municipal Securities"). The
Fund expects that except during temporary defensive periods or when, in Fleet's
opinion, suitable obligations are unavailable for investment, at least 65% of
the Fund's total assets will be invested in Municipal Securities issued by or on
behalf of the State of New Jersey, its political sub-divisions, authorities,
agencies, instrumentalities and corporations, and certain other governmental
issuers such as Puerto Rico, the interest on which, in the opinion of bond
counsel to the issuer, is exempt from federal and New Jersey personal income
taxes ("New Jersey Municipal Securities"). See "Special Considerations and
Risks--New Jersey Municipal Bond Fund" below for a discussion of certain risks
in investing in New Jersey Municipal Securities. Dividends derived from interest
on Municipal Securities other than New Jersey Municipal Securities will
generally be exempt from regular federal income tax but may be subject to New
Jersey personal income tax. See "Taxes" below.
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From time to time, during temporary defensive periods, the Fund may, without
limit, hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in Fleet's opinion, prevailing market or economic conditions
warrant. Uninvested cash reserves will not earn income. Such taxable instruments
may include (i) obligations of the U.S. Treasury; (ii) obligations of agencies
or instrumentalities of the U.S. Government; (iii) "money market" instruments
such as certificates of deposit and bankers' acceptances of selected banks and
commercial paper rated within the two highest rating categories assigned by any
major rating service; (iv) repurchase agreements collateralized by U.S.
Government obligations or other "money market" instruments; (v) futures
contracts; or (vi) securities issued by other investment companies that invest
in high quality, short-term securities. Under normal market conditions, the Fund
anticipates that not more than 5% of its net assets will be invested in any one
category of taxable securities and that not more than 20% of its total assets
will be invested in taxable securities in the aggregate. For more information,
see "Other Investment Policies and Risk Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the New Jersey Municipal Bond Fund.
NEW YORK MUNICIPAL BOND FUND
The New York Municipal Bond Fund is a non-diversified investment portfolio,
the investment objective of which is to seek as high a level of current interest
income exempt from federal income tax and, to the extent possible, from New York
State and New York City personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will invest
primarily in New York Municipal Securities as defined below. The Fund's average
portfolio maturity will vary in response to variations in the comparative yields
of differing maturities of instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the State of New York and other states,
territories and possessions of the United States, the District of Columbia and
their respective authorities, agencies, instrumentalities and political
sub-divisions, the interest on which, in the opinion of bond counsel to the
issuer, is exempt from regular federal income tax ("Municipal Securities"). The
Fund expects that except during temporary defensive periods or when, in Fleet's
opinion, suitable obligations are unavailable for investment, 65% of the Fund's
total assets will be invested in Municipal Securities issued by or on behalf of
the State of New York, its political sub-divisions, authorities, agencies,
instrumentalities and corporations, and certain other governmental issuers such
as Puerto Rico, the interest on which, in the opinion of bond counsel to the
issuer, is exempt from federal, New York State and New York City personal income
taxes ("New York Municipal Securities"). See "Special Considerations and
Risks--New York Municipal Bond Fund" below for a discussion of certain risks in
investing in New York Municipal Securities. Dividends derived from interest on
Municipal Securities other than New York Municipal Securities will generally be
exempt from regular federal income tax but may be subject to New York State and
New York City personal income tax. See "Taxes" below.
From time to time, during temporary defensive periods, the Fund may, without
limit, hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in Fleet's opinion, prevailing market or economic conditions
warrant. Uninvested cash reserves will not earn income. See "Investment
Objectives and Policies--New Jersey Municipal Bond Fund" above for a description
of the types of taxable obligations in which the Fund may invest. Under normal
market conditions, the Fund anticipates that not more than 5% of its net assets
will be invested in any one category of taxable securities and that not more
than 20% of its total assets will be invested in taxable securities in the
aggregate. For more information, see "Other Investment Policies and Risk
Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the New York Municipal Bond Fund.
CONNECTICUT MUNICIPAL BOND FUND
The Connecticut Municipal Bond Fund is a non-diversified investment
portfolio, the investment objective of which is to seek as high a level of
current interest income exempt from federal income tax and, to the extent
possible, from Connecticut personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will invest
primarily in Connecticut Municipal Securities as defined below. The Fund's
average portfolio maturity will vary in response to variations in the
comparative yields of differing maturities of instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the State of Connecticut and other states,
territories and possessions of the United States, the District of Columbia and
their respective authorities, agencies, instrumentalities and political
sub-divisions, the interest on which, in the opinion of bond counsel to the
issuer, is
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exempt from regular federal income tax ("Municipal Securities"). The Fund
expects that except during temporary defensive periods or when, in Fleet's
opinion, suitable obligations are unavailable for investment, 65% of the Fund's
total assets will be invested in Municipal Securities issued by or on behalf of
the State of Connecticut, its political sub-divisions, or any public
instrumentality, state or local authority, district or similar public entity
created under the laws of Connecticut and certain other governmental issuers
such as Puerto Rico, the interest on which is, in the opinion of qualified legal
counsel, exempt from federal income tax and from Connecticut personal income tax
by virtue of federal law ("Connecticut Municipal Securities"). See "Special
Considerations and Risks--Connecticut Municipal Bond Fund" below, for a
discussion of certain risks in investing in Connecticut Municipal Securities.
Dividends derived from interest on Municipal Securities other than Connecticut
Municipal Securities will generally be exempt from regular federal income tax
but may be subject to Connecticut personal income tax. See "Taxes" below.
From time to time, during temporary defensive periods, the Fund may, without
limit, hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in Fleet's opinion, prevailing market or economic conditions
warrant. Uninvested cash reserves will not earn income. See "Investment
Objectives and Policies--New Jersey Municipal Bond Fund" above for a description
of the types of taxable obligations in which the Fund may invest. Under normal
market conditions, the Fund anticipates that not more than 5% of its net assets
will be invested in any one category of taxable securities and that not more
than 20% of its total assets will be invested in taxable securities in the
aggregate. For more information, see "Other Investment Policies and Risk
Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Connecticut Municipal Bond Fund.
MASSACHUSETTS MUNICIPAL BOND FUND
The Massachusetts Municipal Bond Fund is a non-diversified investment
portfolio, the investment objective of which is to seek as high a level of
current interest income exempt from federal income tax and, to the extent
possible, from Massachusetts personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will invest
primarily in Massachusetts Municipal Securities as defined below. The Fund's
average portfolio maturity will vary in response to variations in the
comparative yields of differing maturities of instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the Commonwealth of Massachusetts and
other states, territories and possessions of the United States, the District of
Columbia and their respective authorities, agencies, instrumentalities and
political sub-divisions, the interest on which, in the opinion of bond counsel
to the issuer, is exempt from regular federal income tax ("Municipal
Securities"). The Fund expects that except during temporary defensive periods or
when, in Fleet's opinion, suitable obligations are unavailable for investment,
at least 65% of the Fund's total assets will be invested in Municipal Securities
issued by or on behalf of the Commonwealth of Massachusetts, its political
sub-divisions, authorities, agencies, instrumentalities and corporations, and
certain other governmental issuers such as Puerto Rico, the interest on which,
in the opinion of bond counsel to the issuer, is exempt from federal and
Massachusetts personal income taxes ("Massachusetts Municipal Securities"). See
"Special Considerations and Risks--Massachusetts Municipal Bond Fund" below for
a discussion of certain risks in investing in Massachusetts Municipal
Securities. Dividends derived from interest on Municipal Securities other than
Massachusetts Municipal Securities will generally be exempt from regular federal
income tax but may be subject to Massachusetts personal income tax. See "Taxes"
below.
From time to time, during temporary defensive periods, the Fund may, without
limit, hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in Fleet's opinion, prevailing market or economic conditions
warrant. Uninvested cash reserves will not earn income. See "Investment
Objectives and Policies--New Jersey Municipal Bond Fund" above for a description
of the types of taxable obligations in which the Fund may invest. Under normal
market conditions, the Fund anticipates that not more than 5% of its net assets
will be invested in any one category of taxable securities and that not more
than 20% of its total assets will be invested in taxable securities in the
aggregate. For more information, see "Other Investment Policies and Risk
Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Massachusetts Municipal Bond Fund.
RHODE ISLAND MUNICIPAL BOND FUND
The Rhode Island Municipal Bond Fund is a non-diversified investment
portfolio, the investment objective of which is to seek as high a level of
current interest income exempt from federal income tax and, to the extent
possible, from Rhode Island personal income tax, as is consistent with relative
stability of principal. To achieve this objective, the Fund will
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invest primarily in Rhode Island Municipal Securities as defined below. The
Fund's average portfolio maturity will vary in response to variations in the
comparative yields of differing maturities of instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the State of Rhode Island and other
states, territories and possessions of the United States, the District of
Columbia and their respective authorities, agencies, instrumentalities and
political sub-divisions, the interest on which, in the opinion of bond counsel
to the issuer, is exempt from regular federal income tax ("Municipal
Securities"). The Fund expects that except during temporary defensive periods or
when, in Fleet's opinion, suitable obligations are unavailable for investment,
at least 65% of the Fund's total assets will be invested in Municipal Securities
issued by or on behalf of the State of Rhode Island, its political sub-
divisions, authorities, agencies, instrumentalities and corporations, and
certain other governmental issuers such as Puerto Rico, the interest on which,
in the opinion of bond counsel to the issuer, is exempt from federal and Rhode
Island personal income taxes ("Rhode Island Municipal Securities"). See "Special
Considerations and Risks--Rhode Island Municipal Bond Fund" below for a
discussion of certain risks in investing in Rhode Island Municipal Securities.
Dividends derived from interest on Municipal Securities other than Rhode Island
Municipal Securities will generally be exempt from regular federal income tax
but may be subject to Rhode Island personal income tax. See "Taxes" below.
From time to time, during temporary defensive periods, the Fund may, without
limit, hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in Fleet's opinion, prevailing market or economic conditions
warrant. Uninvested cash reserves will not earn income. See "Investment
Objectives and Policies--New Jersey Municipal Bond Fund" above for a description
of the types of taxable obligations in which the Fund may invest. Under normal
market conditions, the Fund anticipates that not more than 5% of its net assets
will be invested in any one category of taxable securities and that not more
than 20% of its total assets will be invested in taxable securities in the
aggregate. For more information, see "Other Investment Policies and Risk
Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Rhode Island Municipal Bond Fund.
SPECIAL CONSIDERATIONS AND RISKS
INVESTMENT QUALITY
Municipal Securities purchased by the Funds will consist primarily of issues
which are rated at the time of purchase within the four highest rating
categories assigned by S&P or Moody's or unrated instruments determined by Fleet
to be of comparable quality. Municipal Securities rated within the four highest
rating categories assigned by S&P ("AAA," "AA," "A" and "BBB") or Moody's
("Aaa," "Aa," "A" and "Baa") are considered to be investment grade. Municipal
Securities rated in the lowest of the four highest rating categories assigned by
S&P or Moody's are considered to have speculative characteristics, even though
they are of investment grade quality, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade Municipal
Securities. Such Municipal Securities will be purchased (and retained) only when
Fleet believes the issuers have an adequate capacity to pay interest and repay
principal. If the ratings of a particular Municipal Security purchased by a Fund
are subsequently downgraded below the four highest rating assigned by S&P or
Moody's, such factor will be considered by Fleet in its evaluation of the
overall merits of that Municipal Security, but such ratings will not necessarily
result in an automatic sale of the Municipal Security. Under normal market and
economic conditions, at least 65% of each Fund's total assets will be invested
in Municipal Securities rated in the three highest rating categories assigned by
S&P or Moody's. See Appendix A to the Statement of Additional Information for a
description of S&P's and Moody's rating categories.
GENERAL RISK CONSIDERATION
Generally, the market value of fixed income securities, such as Municipal
Securities, in the Funds can be expected to vary inversely to changes in
prevailing interest rates. During periods of declining interest rates, the
market value of investment portfolios comprised primarily of fixed income
securities, such as the Funds, will tend to increase, and during periods of
rising interest rates, the market value will tend to decrease. In addition,
during periods of declining interest rates, the yields of investment portfolios
comprised primarily of fixed income securities will tend to be higher than
prevailing market rates and, in periods of rising interest rates, yields will
tend to be somewhat lower. Fixed income securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities. Changes
in the financial strength of an issuer or changes in the ratings of any
particular security may also offset the value of these investments. Fluctuations
in the market value of fixed income securities subsequent to their acquisition
will not offset cash
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income from such securities but will be reflected in a Fund's net asset value.
Although no Fund presently intends to do so on a regular basis, each Fund
may invest more than 25% of its assets in Municipal Securities the interest on
which is paid solely from revenues on similar projects if such investment is
deemed necessary or appropriate by Fleet. To the extent that a Fund's assets are
concentrated in Municipal Securities payable from revenues on similar projects,
the Fund will be subject to the particular risks presented by such projects to a
greater extent than it would be if its assets were not so concentrated.
The New Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds are classified as non-diversified investment companies under the 1940 Act.
Investment return on a non-diversified portfolio typically is dependent upon the
performance of a smaller number of securities relative to the number held in a
diversified portfolio. Consequently, the change in value of any one security may
affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio, and thereby subject the market-based net asset value per
share of the non-diversified portfolio to greater fluctuations. In addition, a
non-diversified portfolio may be more susceptible to economic, political and
regulatory developments than a diversified investment portfolio with similar
objectives may be.
Other considerations affecting the Fund's investments in New Jersey
Municipal Securities are summarized in the Statement of Additional Information.
NEW JERSEY MUNICIPAL BOND FUND
The New Jersey Municipal Bond Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New Jersey Municipal
Securities to meet their continuing obligations for the payment of principal and
interest. Since the Fund invests primarily in New Jersey Municipal Securities,
the value of the Fund's shares may be especially affected by factors pertaining
to the economy of New Jersey and other factors specifically affecting the
ability of issuers of New Jersey Municipal Securities to meet their obligations.
The State of New Jersey generally has a diversified economic base consisting
of, among others, commerce and service industries, selective commercial
agriculture, insurance, tourism, petroleum refining and manufacturing, although
New Jersey's manufacturing industry has experienced a downward trend in the last
few years. New Jersey is a major recipient of federal assistance and, of all the
states, is among the highest in the amount of federal aid received. Therefore, a
decrease in federal financial assistance may adversely affect the financial
condition of New Jersey and its political subdivisions and instrumentalities.
While New Jersey's economic base has become more diversified over time and thus
its economy appears to be less vulnerable during recessionary periods, a
recurrence of high levels of unemployment could adversely affect New Jersey's
overall economy and the ability of New Jersey and its political subdivisions and
instrumentalities to meet their financial obligations. In addition, New Jersey
maintains a balanced budget which restricts total appropriation increases to
only 5% annually with respect to any municipality or county. This balanced
budget plan may adversely affect a particular municipality's or county's ability
to repay its obligations.
NEW YORK MUNICIPAL BOND FUND
The New York Municipal Bond Fund's ability to achieve its investment
objective is dependent upon the ability of the issuers of New York Municipal
Securities to meet their continuing obligations for the payment of principal and
interest. New York State and New York City face long-term economic problems that
could seriously affect their ability and that of other issuers of New York
Municipal Securities to meet their financial obligations.
Certain substantial issuers of New York Municipal Securities (including
issuers whose obligations may be acquired by the Fund) have experienced serious
financial difficulties in recent years. These difficulties have at times
jeopardized the credit standing and impaired the borrowing abilities of all New
York issuers and have generally contributed to higher interest costs for their
borrowings and fewer markets for their outstanding debt obligations. In recent
years, several different issues of Municipal Securities of New York State and
its agencies and instrumentalities and of New York City have been downgraded by
S&P and Moody's. On the other hand, strong demand for New York Municipal
Securities has at times had the effect of permitting New York Municipal
Securities to be issued with yields relatively lower, and after issuance, to
trade in the market at prices relatively higher, than comparably rated Municipal
Securities issued by other jurisdictions. A recurrence of the financial
difficulties previously experienced by certain issuers of New York Municipal
Securities could result in defaults or declines in the market values of those
issuers' existing obligations and, possibly, in the obligations of other issuers
of New York Municipal Securities. Although as of the date of this Prospectus no
issuers of New York Municipal Securities are in default with respect to the
payment of their Municipal Securities, the occurrence of any such default could
adversely affect the market values and marketability of all New York Municipal
Securities and, consequently, the net asset value of the Fund's portfolio.
Other considerations affecting the Fund's investments in New York Municipal
Securities are summarized in the Statement of Additional Information.
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CONNECTICUT MUNICIPAL BOND FUND
The Connecticut Municipal Bond Fund's ability to achieve its investment
objective depends on the ability of issuers of Connecticut Municipal Securities
to meet their continuing obligations to pay principal and interest. Since the
Fund invests primarily in Connecticut Municipal Securities, the value of the
Fund's shares may be especially affected by factors pertaining to the economy of
Connecticut and other factors specifically affecting the ability of issuers of
Connecticut Municipal Securities to meet their obligations.
Manufacturing has historically been of prime economic importance to
Connecticut. However, as a result of a rise in employment in service-related
industries and a decline in manufacturing employment, manufacturing accounted
for only 17.39% of total non-agricultural employment in Connecticut in 1996. The
annual average unemployment rate in Connecticut was reported to be 5.8% in 1996,
and the average per capita personal income of Connecticut residents was reported
to be $33,875 in 1996. However, pockets of significant unemployment and poverty
exist in some Connecticut cities and towns.
For the four fiscal years ended June 30, 1991, the General Fund experienced
operating deficits but, for the six fiscal years ended June 30, 1997, the
General Fund recorded operating surpluses, based on Connecticut's budgetary
method of accounting. General Fund expenditures and revenues are budgeted to be
approximately $9,550,000,000 and $9,700,000,000 for the 1997-98 and 1998-99
fiscal years, respectively, an increase of more than 35% from the budgeted
expenditures of approximately $7,008,000,000 for the 1991-92 fiscal year. In
1991, legislation was enacted by the State authorizing the State Treasurer to
issue Economic Recovery Notes to fund the General Fund's accumulated deficit.
The notes were to be payable no later than June 30, 1996, but payment of the
notes scheduled to be paid during the 1995-96 fiscal year was rescheduled to be
made over the four fiscal years ending June 30, 1999. Connecticut's general
obligation bonds are rated AA- by S&P and Aa3 by Moody's. On March 17, 1995,
Fitch reduced its ratings of Connecticut's general obligations bonds from AA+ to
AA.
Certain Connecticut municipalities have experienced severe fiscal
difficulties and have reported operating and accumulated deficits in recent
years. The most notable of them is the City of Bridgeport, which filed a
bankruptcy petition on June 7, 1991. The State opposed the petition. The United
States Bankruptcy Court for the District of Connecticut held that Bridgeport had
authority to file such a petition but that its petition should be dismissed on
the grounds that Bridgeport was not insolvent when the petition was filed. State
legislation enacted in 1993 prohibits municipal bankruptcy filings without the
prior written consent of the Governor. Regional economic difficulties,
reductions in revenues, and increased expenses could lead to further fiscal
problems for the State and its political subdivisions, authorities, and
agencies. This could result in declines in the value of their outstanding
obligations, increases in their future borrowing, costs, and impairment of their
ability to pay debt service on their obligations.
Other considerations affecting the Fund's investments in Connecticut
Municipal Securities are summarized in the Statement of Additional Information.
MASSACHUSETTS MUNICIPAL BOND FUND
The Massachusetts Municipal Bond Fund's ability to achieve its investment
objective depends on the ability of issuers of Massachusetts Municipal
Securities to meet their continuing obligations to pay principal and interest.
Since the Fund invests primarily in Massachusetts Municipal Securities, the
value of the Fund's shares may be especially affected by factors pertaining to
the economy of Massachusetts and other factors specifically affecting the
ability of issuers of Massachusetts Municipal Securities to meet their
obligations. As a result, the value of the Fund's shares may fluctuate more
widely than the value of shares of a portfolio investing in securities of
issuers in a number of different states. The ability of Massachusetts and its
political subdivisions to meet their obligations will depend primarily on the
availability of tax and other revenues to those governments and on their fiscal
conditions generally. The amount of tax and other revenues available to
governmental issuers of Massachusetts Municipal Securities may be affected from
time to time by economic, political and demographic conditions within
Massachusetts. In addition, constitutional or statutory restrictions may limit a
government's power to raise revenues or increase taxes. The availability of
federal, state and local aid to an issuer of Massachusetts Municipal Securities
may also affect that issuer's ability to meet its obligations. Payments of
principal and interest on limited obligation bonds will depend on the economic
condition of the facility or specific revenue source from whose revenues the
payments will be made, which in turn could be affected by economic, political
and demographic conditions in Massachusetts or a particular locality. Any
reduction in the actual or perceived ability of an issuer of Massachusetts
Municipal Securities to meet its obligations (including a reduction in the
rating of its outstanding securities) would likely affect adversely the market
value and marketability of its obligations and could affect adversely the values
of other Massachusetts Municipal Securities as well.
RHODE ISLAND MUNICIPAL BOND FUND
The Rhode Island Municipal Bond Fund's ability to achieve its investment
objective depends on the ability of issuers of Rhode Island Municipal Securities
to meet their continuing obligations to pay principal and interest. Since the
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Fund invests primarily in Rhode Island Municipal Securities, the value of the
Fund's shares may be especially affected by factors pertaining to the economy of
Rhode Island and other factors specifically affecting the ability of issuers of
Rhode Island Municipal Securities to meet their obligations. As a result, the
value of the Fund's shares may fluctuate more widely than the value of shares of
a portfolio investing in securities of issuers in a number of different states.
The ability of Rhode Island and its political subdivisions to meet their
obligations will depend primarily on the availability of tax and other revenues
to those governments and on their fiscal conditions generally. The amount of tax
and other revenues available to governmental issuers of Rhode Island Municipal
Securities may be affected from time to time by economic, political and
demographic conditions within Rhode Island. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state and local aid to an issuer of
Rhode Island Municipal Securities may also affect that issuer's ability to meet
its obligations. Payments of principal and interest on limited obligation bonds
will depend on the economic condition of the facility or specific revenue source
from whose revenues the payments will be made, which in turn could be affected
by economic, political and demographic conditions in Rhode Island or a
particular locality. Any reduction in the actual or perceived ability of an
issuer of Rhode Island Municipal Securities to meet its obligations (including a
reduction in the rating of its outstanding securities) would likely affect
adversely the market value and marketability of its obligations and could affect
adversely the value of other Rhode Island Municipal Securities as well.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which one or
more of the Funds have the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Funds may, in accordance with their investment policies, invest from
time to time in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Funds will invest in the obligations of U.S. branches of foreign
banks or foreign branches of U.S. banks
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only when Fleet believes that the credit risk with respect to the instrument is
minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a Fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default.
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities which may be held
by the Funds are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed.
Each Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Funds nor Fleet will review the proceedings relating to the issuance of
Municipal Securities or the bases for such opinions.
VARIABLE AND FLOATING RATE MUNICIPAL SECURITIES
Municipal Securities purchased by the Funds may include rated and unrated
variable and floating rate tax-exempt instruments. There may be no active
secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to a Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days' notice and do not have an active trading market) that
are acquired by the Funds are subject to the 10% (15% with respect to the New
Jersey Municipal Bond Fund) limit described in Investment Limitation No. 3 under
"Investment Limitations" in this Prospectus.
PRIVATE ACTIVITY BONDS
Each Fund may invest in "private activity bonds," the interest on which,
although exempt from regular federal income tax, may constitute an item of tax
preference for purposes of the federal alternative minimum tax. Investments in
such securities, however, will not be treated as investments in Municipal
Securities for purposes of the 80% requirement mentioned above and, under normal
conditions, will not exceed 20% of a Fund's total assets when added together
with any taxable investments held by the Fund.
Private activity bonds held by the Fund are in most cases revenue securities
and are not payable from the unrestricted revenues of the issuer. Consequently,
the credit quality of such private activity bonds is usually directly related to
the credit standing of the corporate user of the facility involved.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
No Fund will enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand by notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 10% (15% with respect to the New Jersey Municipal Bond Fund) limit
described in Investment Limitation No. 3 under "Investment Limitations" in this
Prospectus.
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The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
Each Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. A Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions such
as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by Fleet to be of good standing and only when, in Fleet's
judgment, the income to be earned from the loan justifies the attendant risks.
The Funds currently intend to limit the lending of their portfolio securities so
that, at any given time, securities loaned by a Fund represent not more than
one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Funds may invest in securities issued by other investment companies
which invest in high quality, short-term debt securities and which determine
their net asset value per share based on the amortized cost or penny-rounding
method, provided, however, that the Tax-Exempt Bond Fund may only invest in
securities of other investment companies which invest in high quality short-term
Municipal Securities and which determine their net asset value per share based
on the amortized cost or penny-rounding method. Investments in other investment
companies will cause a Fund (and, indirectly, the Fund's shareholders) to bear
proportionately the costs incurred in connection with the investment companies'
operations. Securities of other investment companies will be acquired by a Fund
within the limits prescribed by the 1940 Act. Each Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of other investment companies as a group; (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund; and (d) not more than 10% of the outstanding voting stock of any one
closed-end investment company will be owned in the aggregate by the Fund, other
investment portfolios of Galaxy, or any other investment companies advised by
Fleet.
CUSTODIAL RECEIPTS AND CERTIFICATES OF PARTICIPATION
Securities acquired by the Funds may be in the form of custodial receipts
evidencing rights to receive a specific future interest payment, principal
payment or both on certain Municipal Securities. Such obligations are held in
custody by a bank on behalf of holders of the receipts. These custodial receipts
are known by various names, including "Municipal Receipts," "Municipal
Certificates of Accrual on Tax-Exempt Securities" ("M-CATS") and "Municipal
Zero-Coupon Receipts." The Funds may also purchase from time to time
certificates of participation that, in the opinion of counsel to the issuer, are
exempt from federal income tax. A certificate of participation gives a Fund an
undivided interest in a pool of Municipal Securities held by a bank.
Certificates of participation may have fixed, floating or variable rates of
interest. If a certificate of participation is unrated, Fleet will have
determined that the instrument is of comparable quality to those instruments in
which the Fund may invest pursuant to guidelines approved by Galaxy's Board of
Trustees. For certain certificates of participation, a Fund will have the right
to demand payment, on not more than 30 days' notice, for all or any part of the
Fund's participation interest, plus accrued interest. As to these instruments,
each Fund intends to exercise its right to demand payment as needed to provide
liquidity, to maintain or improve the quality of its investment portfolio or
upon a default (if permitted under the terms of the instrument).
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FUTURES CONTRACTS
Each Fund may purchase and sell municipal bond index futures contracts as a
hedge against changes in market conditions. A municipal bond index assigns
values daily to the municipal bonds included in the index based on the
independent assessment of dealer-to-dealer municipal bond brokers. A municipal
bond index futures contract represents a firm commitment by which two parties
agree to take or make delivery of an amount equal to a specified dollar amount
multiplied by the difference between the municipal bond index value on the last
trading date of the contract and the price at which the futures contract is
originally struck. No physical delivery of the underlying securities in the
index is made.
Each Fund may also enter into contracts for the future delivery of fixed
income securities commonly known as interest rate futures contracts. Interest
rate futures contracts are similar to municipal bond index futures contracts
except that, instead of a municipal bond index, the "underlying commodity" is
represented by various types of fixed-income securities.
The Funds will not engage in futures transactions for speculation, but only
to hedge against changes in the market values of securities which the Funds hold
or intend to purchase. The Funds will engage in futures transactions only to the
extent permitted by the Commodity Futures Trading Commission ("CFTC") and the
Securities and Exchange Commission ("SEC"). The purchase of futures instruments
in connection with securities which the Funds intend to purchase will require an
amount of cash or other liquid assets, equal to the market value of the
outstanding futures contracts, to be deposited in a segregated account to
collateralize the position and thereby insure that the use of such futures is
unleveraged. Each Fund will limit its hedging transactions in futures contracts
so that, immediately after any such transaction, the aggregate initial margin
that is required to be posted by the Fund under the rules of the exchange on
which the futures contract is traded does not exceed 5% of the Fund's total
assets after taking into account any unrealized profits and unrealized losses on
the Fund's open contracts. In addition, no more than one-third of each Fund's
total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Funds to a
number of risks. Successful use of futures by the Funds is subject to the
ability of Fleet to predict correctly movements in the direction of the market.
In addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market will
exist for any particular futures contract at any particular time. Consequently,
a Fund may realize a loss on a futures transaction that is not offset by a
favorable movement in the price of securities which it holds or intends to
purchase or may be unable to close a futures position in the event of adverse
price movements. Any income from investments in futures contracts will be
taxable. Additional information concerning futures transactions, including
special rules regarding the taxation of such transactions, is contained in the
Statement of Additional Information and in Appendix B thereto.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. Each Fund may also
purchase or sell eligible securities on a "delayed settlement" basis. When-
issued and forward commitment transactions, which involve a commitment by a Fund
to purchase or sell particular securities with payment and delivery taking place
at a future date (perhaps one or two months later), permit a Fund to lock in a
price or yield on a security it owns or intends to purchase, regardless of
future changes in interest rates. Delayed settlement describes settlement of a
securities transaction in the secondary market which will occur sometime in the
future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
security delivery takes place. It is expected that forward commitments,
when-issued purchases and delayed settlements will not exceed 25% of the value
of a Fund's total assets absent unusual market conditions. In the event a Fund's
forward commitments, when-issued purchases and delayed settlements ever exceeded
25% of the value of its total assets, the Fund's liquidity and the ability of
Fleet to manage the Fund might be adversely affected. The Funds do not intend to
engage in when-issued purchases, forward commitments and delayed settlements for
speculative purposes, but only in furtherance of their investment objectives.
STAND-BY COMMITMENTS
The Funds may acquire "stand-by commitments" with respect to Municipal
Securities held by them. Under a stand-by commitment, a dealer agrees to
purchase, at a Fund's option, specified Municipal Securities at a specified
price. The Funds will acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. The Funds expect that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield otherwise
available for the same securities). Stand-by commitments acquired by a Fund
would be valued at zero in determining the Fund's net asset value.
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ASSET-BACKED SECURITIES
Each Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. A Fund will not invest more than 10% of its total assets in
asset-backed securities. See "Asset-Backed Securities" in the Statement of
Additional Information.
MORTGAGE-BACKED SECURITIES
Each Fund may invest in mortgage-backed securities (including collateralized
mortgage obligations) that represent pools of mortgage loans assembled for sale
to investors by various governmental agencies and government-related
organizations, such as the Government National Mortgage Association, the Federal
National Mortgage Association, and the Federal Home Loan Mortgage Corporation.
Mortgage-backed securities provide a monthly payment consisting of interest and
principal payments. Additional payment may be made out of unscheduled repayments
of principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-backed securities may tend to increase due
to refinancing of mortgages as interest rates decline. To the extent that the
Fund purchases mortgage-backed securities at a premium, mortgage foreclosures
and prepayments of principal by mortgagors (which may be made at any time
without penalty) may result in some loss of the Fund's principal investment to
the extent of the premium paid. The yield of a Fund that invests in
mortgage-backed securities may be affected by reinvestment of prepayments at
higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
interest rates decline; as a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
GUARANTEED INVESTMENT CONTRACTS
Each Fund may invest in guaranteed investment contracts ("GICs") issued by
United States and Canadian insurance companies. Pursuant to GICs, a Fund makes
cash contributions to a deposit fund of the insurance company's general account.
The insurance company then credits to the Fund payments at negotiated, floating
or fixed interest rates. A GIC is a general obligation of the issuing insurance
company and not a separate account. The purchase price paid for a GIC becomes
part of the general assets of the insurance company, and the contract is paid
from the company's general assets. The Funds will only purchase GICs that are
issued or guaranteed by insurance companies that at the time of purchase are
rated at least AA by S&P or receive a similar high quality rating from a
nationally recognized service which provides ratings of insurance companies.
GICs are considered illiquid securities and will be subject to the Funds' 10%
(15% with respect to the New Jersey Municipal Bond Fund) limitation on such
investments, unless there is an active and substantial secondary market for the
particular instrument and market quotations are readily available.
BANK INVESTMENT CONTRACTS
Each Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and will
be subject to the Funds' 10% (15% with respect to the New Jersey Municipal Bond
Fund) limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
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DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest rates, or indices, and include, but are not limited
to, municipal bond index and interest rate futures and certain asset-backed and
mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest rates
change adversely, the value of the derivative security will decline more than
the assets, rates or indices on which it is based; liquidity risk that the Funds
will be unable to sell a derivative security when it wants because of lack of
market depth or market disruption; pricing risk that the value of a derivative
security will not correlate exactly to the value of the underlying assets, rates
or indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
derivative securities are more complex than others, and for those instruments
that have been developed recently, data are lacking regarding their actual
performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Funds, and will determine, in connection with its day-to-day
management of the Funds, how they will be used in furtherance of each Fund's
investment objective. It is possible, however, that Fleet's evaluations will
prove to be inaccurate or incomplete and, even when accurate and complete, it is
possible that the Funds will, because of the risks discussed above, incur loss
as a result of their investments in derivative securities. See "Investment
Objectives and Policies--Derivative Securities" in the Statement of Additional
Information relating to the Funds for additional information.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover may result in the realization of substantial capital gains and involves
correspondingly greater transaction costs. To the extent that net capital gains
are realized, distributions derived from such gains are treated as ordinary
income for federal income tax purposes. See "Financial Highlights" and
"Taxes--Federal." Although the New Jersey Municipal Bond Fund cannot accurately
predict its annual portfolio turnover rate, it is not expected to exceed 100%.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to any Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
No Fund may:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) each Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10% of the value of its total assets at the time of such borrowing
(provided that each Fund may borrow pursuant to reverse repurchase
agreements in accordance with its investment policies and in amounts not in
excess of 10% of the value of its total assets at the time of such
borrowing); or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of its total
assets at the time of such borrowing. No Fund will purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding.
3. Invest more than 10% (15% with respect to the New Jersey Municipal
Bond Fund) of the value of its net assets in illiquid securities, including
repurchase agreements with remaining maturities in excess of seven days,
time deposits with maturities in excess of seven days, restricted
securities, non-negotiable time deposits and other securities which are not
readily marketable.
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4. Purchase any securities which would cause 25% or more of the value
of a Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that there is no
limitation with respect to securities issued or guaranteed by the U.S.
Government, any state, territory or possession of the U. S. Government, the
District of Columbia, or any of their authorities, agencies,
instrumentalities or political subdivisions.
In addition, the Tax-Exempt Bond Fund may not:
5. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total
assets would be invested in the securities of such issuer, except that up to
25% of the value of its total assets may be invested without regard to this
limitation.
In addition, the New Jersey Municipal Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds may not:
6. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total
assets would be invested in the securities of such issuer, except that up to
50% of the value of a Fund's total assets may be invested without regard to
this 5% limitation, provided that no more than 25% of the value of a Fund's
total assets are invested in the securities of any one issuer.
With respect to Investment Limitation No. 2 above, each Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
10% of the value of its total assets at the time of such borrowing.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of a Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Funds is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). The net asset value per share is determined on each
day on which the Exchange is open for trading. Currently, the holidays which
Galaxy observes are New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value per share of a Fund for purposes of pricing
sales and redemptions is calculated separately for each series of shares by
dividing the value of all securities and other assets attributable to a
particular series of shares of the Fund, less the liabilities attributable to
shares of that series of the Fund, by the number of outstanding shares of that
series of the Fund.
The Funds' assets are valued for purposes of pricing sales and redemptions
by an independent pricing service ("Service") approved by Galaxy's Board of
Trustees. When, in the judgment of the Service, quoted bid prices for portfolio
securities are readily available and are representative of the bid side of the
market, these investments are valued at the mean between quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments are carried at fair value as determined by the
Service, based on methods which include consideration of yields or prices of
bonds of comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
HOW TO PURCHASE SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered broker/
dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
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GENERAL
Investments in Retail A Shares of the Funds are subject to a front-end sales
charge. Investments in Retail B Shares of the Tax-Exempt Bond Fund are subject
to a back-end sales charge. This back-end sales charge declines over time and is
known as a "contingent deferred sales charge".
Investors should read "Characteristics of Retail A Shares and Retail B
Shares" and "Factors to Consider When Selecting Retail A Shares or Retail B
Shares" before deciding between the two.
FD Distributors has established several procedures to enable different types
of investors to purchase Retail Shares of the Funds. The Retail Shares described
in this Prospectus may be purchased by individuals, corporations or other
entities, who submit a purchase application to Galaxy, purchasing directly
either for their own accounts or for the accounts of others ("Direct
Investors"). Retail Shares may also be purchased by FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers
("Institutions") on behalf of their customers ("Customers"). Purchases by Direct
Investors may take place only on days on which FD Distributors, Galaxy's
custodian and Galaxy's transfer agent are open for business ("Business Days").
If an Institution accepts a purchase order from a Customer on a non-Business
Day, the order will not be executed until it is received and accepted by FD
Distributors on a Business Day in accordance with FD Distributors' procedures.
PURCHASE PROCEDURES--CUSTOMERS OF INSTITUTIONS
Purchase orders for Retail Shares are placed by Customers of Institutions
through their Institutions. The Institution is responsible for transmitting
Customer purchase orders to FD Distributors and for wiring required funds in
payment to Galaxy's custodian on a timely basis. FD Distributors is responsible
for transmitting such orders to Galaxy's transfer agent for execution. Retail
Shares purchased by Institutions on behalf of their Customers will normally be
held of record by the Institution and beneficial ownership of Retail Shares will
be recorded by the Institution and reflected in the account statements provided
to their Customers. Galaxy's transfer agent may establish an account of record
for each Customer of an Institution reflecting beneficial ownership of Retail
Shares. Depending on the terms of the arrangement between a particular
Institution and Galaxy's transfer agent, confirmations of Retail Share purchases
and redemptions and pertinent account statements will either be sent by Galaxy's
transfer agent directly to a Customer with a copy to the Institution, or will be
furnished directly to the Customer by the Institution. Other procedures for the
purchase of Retail Shares established by Institutions in connection with the
requirements of their Customer accounts may apply. Customers wishing to purchase
Retail Shares through their Institution should contact such entity directly for
appropriate purchase instructions.
PURCHASE PROCEDURES--DIRECT INVESTORS
PURCHASES BY MAIL. Retail Shares may be purchased by completing a purchase
application and mailing it, together with a check payable to each Fund in which
a Direct Investor wishes to invest, to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
ALL PURCHASE ORDERS PLACED BY MAIL MUST BE ACCOMPANIED BY A PURCHASE
APPLICATION. APPLICATIONS MAY BE OBTAINED BY CALLING FD DISTRIBUTORS AT
1-800-628-0414.
Subsequent investments in an existing account in any Fund may be made at any
time by sending a check for a minimum of $100 payable to the Fund in which the
additional investment is being made to Galaxy at the address above along with
either (a) the detachable form that regularly accompanies confirmation of a
prior transaction, (b) a subsequent order form that may be obtained from FD
Distributors, or (c) a letter stating the amount of the investment, the name of
the Fund and the account number in which the investment is to be made. If a
Direct Investor's check does not clear, the purchase will be cancelled.
PURCHASES BY WIRE. Direct Investors may also purchase Retail Shares by
arranging to transmit federal funds by wire to Fleet Bank of Massachusetts, N.A.
as agent for First Data Investor Services Group, Inc. ("Investor Services
Group"), Galaxy's transfer agent. Prior to making any purchase by wire, an
investor must telephone 1-800-628-0414 to place an order and for instructions.
Federal funds and registration instructions should be wired through the Federal
Reserve System to:
Fleet Bank of Massachusetts, N.A.
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
[Shareholder Name]
[Shareholder Account Number]
Direct Investors making initial investments by wire must promptly complete a
purchase application and forward it to
24
<PAGE>
The Galaxy Fund, P.O. Box 5108, 4400 Computer Drive, Westboro, Massachusetts
01581-5108. Applications may be obtained by calling FD Distributors at
1-800-628-0414. Redemptions will not be processed until the application in
proper form has been received by Investor Services Group. Direct Investors
making subsequent investments by wire should follow the instructions above.
EFFECTIVE TIME OF PURCHASES. A purchase order for Retail Shares received
and accepted by FD Distributors from an Institution or a Direct Investor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be executed at the net asset value per
share determined on that date, provided that Galaxy's custodian receives the
purchase price in federal funds or other immediately available funds prior to
4:00 p.m. on the third Business Day following the receipt of such order. Such
order will be executed on the day on which the purchase price is received in
proper form. If funds are not received by such date and time, the order will not
be accepted and notice thereof will be given promptly to the Institution or
Direct Investor submitting the order. Payment for orders which are not received
or accepted will be returned. If an Institution accepts a purchase order from a
Customer on a non-Business Day, the order will not be executed until it is
received and accepted by FD Distributors on a Business Day in accordance with
the above procedures. On a Business Day when the Exchange closes early due to a
partial holiday or otherwise, Galaxy will advance the times at which purchase
orders must be received in order to be processed on that Business Day.
OTHER PURCHASE INFORMATION
Except as provided under "Investor Programs" below, the minimum initial
investment by a Direct Investor, or initial aggregate investment by an
Institution investing on behalf of its Customers, is $2,500. The minimum
investment for subsequent purchases is $100. There are no minimum investment
requirements for investors participating in the Automatic Investment Program
described below. Customers may agree with a particular Institution to varying
minimum initial and minimum subsequent purchase requirements with respect to
their accounts.
Galaxy reserves the right to reject any purchase order, in whole or in part,
or to waive any minimum investment requirement. The issuance of Retail Shares to
Direct Investors and Institutions is recorded on the books of Galaxy and share
certificates will not be issued.
Investors may be charged a separate fee if they effect transactions in
Retail Shares through a broker or other agent.
APPLICABLE SALES CHARGE--RETAIL A SHARES
The public offering price for Retail A Shares of the Funds is the sum of the
net asset value of the Retail A Shares purchased plus any applicable front-end
sales charge. The sales charge assessed is as follows:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE REALLOWANCE TO DEALERS
-------------------------------- -----------------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
- ------------------------------ -------------- --------------- -----------------------
<S> <C> <C> <C>
Less than $50,000............. 3.75 3.90 3.25
$50,000 but less than
$100,000..................... 3.50 3.63 3.00
$100,000 but less than
$250,000..................... 3.00 3.09 2.50
$250,000 but less than
$500,000..................... 2.50 2.56 2.00
$500,000 and over............. 0.00* 0.00* 0.00
</TABLE>
- --------------------------
* There is no initial sales charge on purchases of $500,000 or more of Retail A
Shares; however, a contingent deferred sales charge of 1.00% will be imposed
on the lesser of the offering price or the net asset value of such Retail A
Shares on the redemption date for Shares redeemed within one year after
purchase. The contingent deferred sales charge will not be assessed on
redemptions within one year after purchase in connection with the death or
disability of a shareholder. To receive this exemption, a Direct Investor or
Customer must explain the status of his or her redemption at the time the
Retail A Shares are redeemed.
Further reductions in the sales charges shown above are also possible. See
"Quantity Discounts" below.
FD Distributors will pay the appropriate reallowance to dealers to
broker-dealer organizations which have entered into agreements with FD
Distributors. The reallowance to dealers may be changed from time to time.
At various times FD Distributors may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, FD Distributors in its discretion may from time to time, pursuant
to objective criteria established by FD Distributors, pay fees to qualifying
dealers for certain services or activities which are primarily intended to
result in sales of Retail A Shares of a
25
<PAGE>
Fund. If any such program is made available to any dealer, it will be made
available to all dealers on the same terms and conditions. Payments made under
such programs will be made by FD Distributors out of its own assets and not out
of the assets of the Funds. These programs will not change the price of Retail A
Shares or the amount that the Funds will receive from such sales.
Fleet's indirect parent, Fleet National Bank, or another affiliate of Fleet,
may at its expense, provide additional compensation to Fleet Enterprises, Inc.,
a broker-dealer affiliate of Fleet, whose customers purchase significant amounts
of Retail A Shares of a Fund. Such compensation will not represent an additional
expense to the Funds or their shareholders, since it will be paid from the
assets of Fleet's affiliates.
In certain situations or for certain individuals, the front-end sales charge
for Retail A Shares of the Funds may be waived either because of the nature of
the investor or the reduced sales effort required to attract such investments.
In order to receive the sales charge waiver, an investor must explain the status
of his or her investment at the time of purchase. No sales charge is assessed on
purchases of Retail A Shares of the Funds by the following categories of
investors or in the following types of transactions:
- reinvestment of dividends and distributions;
- purchases by any retirement account, including but not limited to SIMPLE,
IRA, SEP, Keogh and Roth accounts;
- purchases by persons who were beneficial owners of shares of the Funds or
any of the other portfolios offered by Galaxy or any other funds advised by
Fleet or its affiliates before December 1, 1995;
- purchases by directors, officers and employees of broker-dealers having
agreements with FD Distributors pertaining to the sale of Retail A Shares to the
extent permitted by such organizations;
- investors who purchase pursuant to a "wrap fee" program offered by any
broker-dealer or other financial institution or financial planning organization;
- purchases made with redemption proceeds from another mutual fund complex
on which a front-end or back-end sales charge has been paid, provided the
purchase is made within 60 days after the redemption;
- purchases by current and retired members of Galaxy's Board of Trustees and
members of their immediate families;
- purchases by officers, directors, employees and retirees of Fleet
Financial Group, Inc. and any of its affiliates and members of their immediate
families;
- purchases by officers, directors, employees and retirees of First Data
Corporation and any of its affiliates and members of their immediate families;
- purchases by persons who are also plan participants in any employee
benefit plan which is the record or beneficial holder of Trust Shares of any of
the portfolios offered by Galaxy;
- purchases by institutional investors, including but not limited to bank
trust departments and registered investment advisers;
- purchases by investment advisers, consultants or financial planners who
place trades for their own accounts or the accounts of their clients and who
charge such clients a management, consulting, advisory or other fee;
- purchases by clients of investment advisers or financial planners who
place trades for their own accounts if such accounts are linked to the master
accounts of such investment advisers or financial planners on the books of the
broker-dealer through whom Retail A Shares are purchased;
- purchases by institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund these plans, which
place trades through an omnibus account maintained with Galaxy by the
broker-dealer; and
- any purchase pursuant to the Reinstatement Privilege described below.
QUANTITY DISCOUNTS
Direct Investors or Customers may be entitled to reduced sales charges
through Rights of Accumulation, a Letter of Intent or a combination of
investments, as described below, even if the Direct Investor or Customer does
not wish to make an investment of a size that would normally qualify for a
quantity discount.
In order to obtain quantity discount benefits, a Direct Investor or Customer
must notify Galaxy's administrator, First Data Investor Services Group, Inc.
("Investor Services Group"), at the time of purchase that he or she would like
to take advantage of any of the discount plans described below. Upon such
notification, the investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time and are subject to
confirmation of a Direct Investor's or Customer's holdings through a check of
appropriate records. For more information about quantity discounts, please
contact FD Distributors or your Institution.
RIGHTS OF ACCUMULATION. A reduced sales charge applies to any purchase of
Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where a Direct Investor's or Customer's then current aggregate
investment in Retail A Shares is $50,000 or more. "Aggregate investment" means
the total of: (a) the dollar amount of the then current purchase of shares of an
Eligible Fund; and (b) the value (based on current net asset value) of
previously purchased and beneficially-owned shares of any Eligible Fund on which
a sales charge has been paid. If, for example, a Direct Investor or Customer
beneficially owns shares of one or more Eligible Funds with an aggregate current
value of
26
<PAGE>
$49,000 on which a sales charge has been paid and subsequently purchases shares
of an Eligible Fund having a current value of $1,000, the sales charge
applicable to the subsequent purchase would be reduced to 3.50% of the offering
price. Similarly, with respect to each subsequent investment, all shares of
Eligible Funds that are beneficially owned by the investor at the time of
investment may be combined to determine the applicable sales charge.
LETTER OF INTENT. By completing the Letter of Intent included as part of
the Account Application, a Direct Investor or Customer becomes eligible for the
reduced sales charge applicable to the total number of Eligible Fund Retail A
Shares purchased in a 13-month period pursuant to the terms and under the
conditions set forth below and in the Letter of Intent. To compute the
applicable sales charge, the offering price of Retail A Shares of an Eligible
Fund on which a sales charge has been paid and that are beneficially owned by a
Direct Investor or Customer on the date of submission of the Letter of Intent
may be used as a credit toward completion of the Letter of Intent. However, the
reduced sales charge will be applied only to new purchases.
Investor Services Group will hold in escrow Retail A Shares equal to 5% of
the amount indicated in the Letter of Intent for payment of a higher sales
charge if a Direct Investor or Customer does not purchase the full amount
indicated in the Letter of Intent. The escrow will be released when a Direct
Investor or Customer fulfills the terms of the Letter of Intent by purchasing
the specified amount. If purchases qualify for a further sales charge reduction,
the sales charge will be adjusted to reflect a Direct Investor's or Customer's
total purchases. If total purchases are less than the amount specified, a Direct
Investor or Customer will be requested to remit an amount equal to the
difference between the sales charge actually paid and the sales charge
applicable to the total purchases. If such remittance is not received within 20
days, Investor Services Group, as attorney-in-fact pursuant to the terms of the
Letter of Intent and at FD Distributors' direction, will redeem an appropriate
number of Retail A Shares held in escrow to realize the difference. Signing a
Letter of Intent does not bind a Direct Investor or Customer to purchase the
full amount indicated at the sales charge in effect at the time of signing, but
a Direct Investor or Customer must complete the intended purchase in accordance
with the terms of the Letter of Intent to obtain the reduced sales charge. To
apply, a Direct Investor or Customer must indicate his or her intention to do so
under a Letter of Intent at the time of purchase.
QUALIFICATION FOR DISCOUNTS. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit sharing plan established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
REINSTATEMENT PRIVILEGE. Direct Investors and Customers may reinvest all or
any portion of their redemption proceeds in Retail A Shares of the Funds or in
Retail A Shares of another portfolio of Galaxy within 90 days of the redemption
trade date without paying a sales load. Retail A Shares so reinvested will be
purchased at a price equal to the net asset value next determined after Investor
Services Group, Galaxy's transfer agent, receives a reinstatement request and
payment in proper form.
Direct Investors and Customers wishing to exercise this Privilege must
submit a written reinstatement request to Investor Services Group as transfer
agent stating that the investor is eligible to use the Privilege. The
reinstatement request and payment must be received within 90 days of the trade
date of the redemption. Currently, there are no restrictions as to the number of
times an investor may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the Internal Revenue Code's "wash
sale" rules.
APPLICABLE SALES CHARGE--RETAIL B SHARES
The public offering price for Retail B Shares of the Tax-Exempt Bond Fund is
the net asset value of the Retail B Shares purchased. Although Direct Investors
and Customers pay no front-end sales charge on purchases of Retail B Shares,
such Shares are subject to a contingent deferred sales charge at the rates set
forth below if they are redeemed within six years of purchase. Securities
dealers, brokers, financial institutions and other industry professionals will
receive commissions from FD Distributors in connection with sales of Retail B
Shares. These commissions may be different than the reallowances or placement
fees paid to dealers in connection with sales of Retail A Shares. Certain
affiliates of Fleet may, at their own expense, provide additional compensation
to Fleet Enterprises, Inc., a broker-dealer affiliate of Fleet, whose customers
purchase significant amounts of Retail B Shares of a Fund. See "Applicable Sales
Charge--Retail A Shares." The contingent deferred sales charge on Retail B
Shares is based on the lesser of the net asset value of the Shares on the
redemption date or the original cost of the Shares being redeemed. As a result,
no sales charge is imposed on any increase in the principal value of a Direct
Investor's or Customer's Retail B Shares. In addition, a contingent deferred
sales charge will not be assessed on Retail B Shares purchased through
reinvestment of dividends or capital gains distributions.
27
<PAGE>
The amount of any contingent deferred sales charge Direct Investors and
Customers must pay depends on the number of years that elapse between the
purchase date and the date such Retail B Shares are redeemed. Solely for
purposes of this determination, all payments during a month will be aggregated
and deemed to have been made on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
(AS A PERCENTAGE OF
DOLLAR AMOUNT
NUMBER OF YEARS SUBJECT TO THE
ELAPSED SINCE PURCHASE CHARGE)
-------------------------- --------------------
<S> <C>
Less than one..................................... 5.00%
More than one but less than two................... 4.00%
More than two but less than three................. 3.00%
More than three but less than four................ 3.00%
More than four but less than five................. 2.00%
More than five but less than six.................. 1.00%
After six......................................... None
</TABLE>
When a Direct Investor or Customer redeems his or her Retail B Shares, the
redemption request is processed to minimize the amount of the contingent
deferred sales charge that will be charged. Retail B Shares are redeemed first
from those shares that are not subject to a contingent deferred sales charge
(I.E., Retail B Shares that were acquired through reinvestment of dividends or
distributions or that qualify for other deferred sales charge exemptions) and
after that from the Retail B Shares that have been held the longest.
The proceeds from the contingent deferred sales charge that a Direct
Investor or Customer may pay upon redemption go to FD Distributors, which may
use such amounts to defray the expenses associated with the distribution-related
services involved in selling Retail B Shares.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. Certain types of
redemptions may also qualify for an exemption from the contingent deferred sales
charge. To receive exemptions (i), (iv) or (v) listed below, a Direct Investor
or Customer must explain the status of his or her redemption at the time Retail
B Shares are redeemed. The contingent deferred sales charge with respect to
Retail B Shares is not assessed on: (i) exchanges described under "Investor
Programs--Exchange Privilege" below; (ii) redemptions effected pursuant to a
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of Retail B Shares held in the account is less than the minimum account
size; (iii) redemptions in connection with the combination of the Fund with any
other investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (iv) redemptions in connection with the
death or disability of a shareholder; or (v) any redemption of Retail B Shares
held by Direct Investors or Customers, provided the Direct Investor or Customer
was the beneficial owner of shares of the Fund (or any of the other portfolios
offered by Galaxy or otherwise advised by Fleet or its affiliates) before
December 1, 1995. In addition to the foregoing exemptions, no contingent
deferred sales charge will be imposed on redemptions made pursuant to the
Systematic Withdrawal Plan, subject to the limitations set forth under "Investor
Programs--Automatic Investment Program and Systematic Withdrawal Plan" below.
CHARACTERISTICS OF RETAIL A SHARES AND RETAIL B SHARES
The primary difference between Retail A Shares and Retail B Shares lies in
their sales charge structures and shareholder servicing/distribution expenses. A
Direct Investor or Customer should understand that the purpose and function of
the sales charge structures and shareholder servicing/ distribution arrangements
for both Retail A Shares and Retail B Shares are the same.
Retail A Shares of the Funds are sold at their net asset value plus a
front-end sales charge of up to 3.75%. This front-end sales charge may be
reduced or waived in some cases. (See "Applicable Sales Charges--Retail A
Shares" and "Quantity Discounts.") Retail A Shares are currently subject to
ongoing shareholder servicing fees at an annual rate of up to .15% of the Fund's
average daily net assets attributable to its Retail A Shares.
Retail B Shares of the Tax-Exempt Bond Fund are sold at net asset value
without an initial sales charge. Normally, however, a deferred sales charge is
paid if the Shares are redeemed within six years of investment. (See "Applicable
Sales Charges--Retail B Shares.") Retail B Shares of the Fund are currently
subject to ongoing shareholder servicing and distribution fees at an annual rate
of up to .80% of the Fund's average daily net assets attributable to its Retail
B Shares. These ongoing fees, which are higher than those charged on Retail A
Shares, will cause Retail B Shares to have a higher expense ratio and pay lower
dividends than Retail A Shares.
Six years after purchase, Retail B Shares of the Tax-Exempt Bond Fund will
convert automatically to Retail A Shares of the Fund. The purpose of the
conversion is to relieve a holder of Retail B Shares of the higher ongoing
expenses charged to those Shares, after enough time has passed to allow FD
Distributors to recover approximately the amount it would have received if a
front-end sales charge had been charged. The conversion from Retail B Shares to
Retail A Shares takes place at net asset value, as a result of which a Direct
Investor or Customer receives dollar-for-dollar the same value of Retail A
Shares as he or she had of Retail B Shares. The conversion occurs six years
after the beginning of the calendar month in which the Shares are purchased.
Upon conversion, the converted shares will be relieved of the distribution and
shareholder servicing fees borne by Retail B Shares, although they will be
subject to the shareholder servicing fees borne by Retail A Shares.
Retail B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charge--Retail B Shares")
are also converted at the earlier of two dates--six years after the beginning of
the calendar
28
<PAGE>
month in which the reinvestment occurred or the date of conversion of the most
recently purchased Retail B Shares that were not acquired through reinvestment
of dividends or distributions. For example, if a Direct Investor or Customer
makes a one-time purchase of Retail B Shares of the Fund, and subsequently
acquires additional Retail B Shares of such Fund only through reinvestment of
dividends and/or distributions, all of such Direct Investor's or Customer's
Retail B Shares in the Fund, including those acquired through reinvestment, will
convert to Retail A Shares of the Fund on the same date.
FACTORS TO CONSIDER WHEN SELECTING RETAIL A SHARES OR RETAIL B SHARES
Before purchasing Retail A Shares or Retail B Shares of the Tax-Exempt Bond
Fund, Direct Investors and Customers should consider whether, during the
anticipated periods of their investments in the Fund, the accumulated
distribution and shareholder servicing fees and potential contingent deferred
sales charge on Retail B Shares prior to conversion would be less than the
initial sales charge and accumulated shareholder servicing fees on Retail A
Shares purchased at the same time, and to what extent such differential would be
offset by the higher yield of Retail A Shares. In this regard, to the extent
that the sales charge for Retail A Shares is waived or reduced by one of the
methods described above, investments in Retail A Shares become more desirable.
An investment of $250,000 or more in Retail B Shares would not be in most
shareholders' best interest. Shareholders should consult their financial
advisers and/or brokers with respect to the advisability of purchasing Retail B
Shares in amounts exceeding $250,000.
Although Retail A Shares are subject to a shareholder servicing fee, they
are not subject to the higher distribution and shareholder servicing fee
applicable to Retail B Shares. For this reason, Retail A Shares can be expected
to pay correspondingly higher dividends per Share. However, because initial
sales charges are deducted at the time of purchase, purchasers of Retail A
Shares (that do not qualify for exemptions from or reductions in the initial
sales charge) would have less of their purchase price initially invested in the
Fund than purchasers of Retail B Shares in the Fund.
As described above, purchasers of Retail B Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Retail B Shares. Because the Fund's future returns
cannot be predicted, there can be no assurance that this will be the case.
Holders of Retail B Shares would, however, own shares that are subject to a
contingent deferred sales charge of up to 5.00% upon redemption, depending upon
the year of redemption. Direct Investors or Customers expecting to redeem during
this six-year period should compare the cost of the contingent deferred sales
charge plus the aggregate annual distribution and shareholder servicing fees on
Retail B Shares to the cost of the initial sales charge and shareholder
servicing fees on the Retail A Shares. Over time, the expense of the annual
distribution and shareholder servicing fees on the Retail B Shares may equal or
exceed the initial sales charge and annual shareholder servicing fee applicable
to Retail A Shares. For example, if net asset value remains constant, the
aggregate distribution and shareholder servicing fees with respect to Retail B
Shares of the Fund would equal or exceed the initial sales charge and aggregate
shareholder servicing fees of Retail A Shares approximately six years after the
purchase. In order to reduce such fees for investors that hold Retail B Shares
for more than six years, Retail B Shares will be automatically converted to
Retail A Shares as described above at the end of such six-year period.
HOW TO REDEEM SHARES
Redemption orders are effected at the net asset value per share next
determined after receipt and acceptance of the order by FD Distributors. On a
Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day. Proceeds from the
redemptions of Retail B Shares of the Tax-Exempt Bond Fund will be reduced by
the amount of any applicable contingent deferred sales charge. Galaxy reserves
the right to transmit redemption proceeds within seven days after receiving the
redemption order if, in its judgment, an earlier payment could adversely affect
a Fund.
REDEMPTION PROCEDURES--CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or part of their Retail Shares in
accordance with procedures governing their accounts at Institutions. It is the
responsibility of the Institutions to transmit redemption orders to FD
Distributors and credit their Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy, although Institutions may charge a Customer's account for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institutions.
Payments for redemption orders received by FD Distributors on a Business Day
will normally be wired on the third Business Day to the Institutions.
Direct Investors may redeem all or part of their Retail Shares in accordance
with any of the procedures described below.
29
<PAGE>
REDEMPTION PROCEDURES--DIRECT INVESTORS
REDEMPTION BY MAIL. Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581-5108
A written redemption request must (i) state the name of the Fund and the
number of shares to be redeemed, (ii) identify the shareholder account number
and tax identification number, and (iii) be signed by each registered owner
exactly as the Retail Shares are registered. A redemption request for an amount
in excess of $50,000, or for any amount where (i) the proceeds are to be sent
elsewhere than the address of record (excluding the transfer of assets to a
successor custodian), (ii) the proceeds are to be sent to an address of record
which has changed in the preceding 30 days, or (iii) the check is to be made
payable to someone other than the registered owner(s), must be accompanied by
signature guarantees. The guarantor of a signature must be a bank which is a
member of the FDIC, a trust company, a member firm of a national securities
exchange or any other eligible guarantor institution. FD Distributors will not
accept guarantees from notaries public. FD Distributors may require additional
supporting documents for redemptions made by corporations, executors,
administrators, trustees and guardians. A redemption request will not be deemed
to be properly received until FD Distributors receives all required documents in
proper form. The Funds ordinarily will make payment for Retail Shares redeemed
by mail within three Business Days after proper receipt by FD Distributors of
the redemption request. Questions with respect to the proper form for redemption
requests should be directed to FD Distributors at 1-800-628-0414.
REDEMPTION BY TELEPHONE. Direct Investors who have not otherwise indicated
on the application, or in a subsequent notification in writing, may redeem
Retail Shares by calling 1-800-628-0414 and instructing FD Distributors to mail
a check for redemption proceeds of up to $50,000 to the address of record. A
redemption request for an amount in excess of $50,000, or for any amount where
(i) the proceeds are to be sent elsewhere than the address of record (excluding
the transfer of assets to a successor custodian), (ii) the proceeds are to be
sent to an address of record which has changed in the preceding 30 days, or
(iii) the check is to be made payable to someone other than the registered
owner(s), must be accompanied by signature guarantees. (See "Redemption by Mail"
above for details regarding signature guarantees.)
REDEMPTION BY WIRE. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
Retail Shares by instructing FD Distributors by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to a Direct Investor's account at
any commercial bank in the United States. FD Distributors charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption proceeds.
The redemption proceeds must be paid to the same bank and account as designated
on the application or in written instructions subsequently received by FD
Distributors. To request redemption of Retail Shares by wire, Direct Investors
should call FD Distributors at 1-800-628-0414.
In order to arrange for redemption by wire after an account has been opened
or to change the bank or account designated to receive redemption proceeds, a
written request must be sent to Galaxy at the address listed above under
"Redemption by Mail." Such requests must be signed by the investor and
accompanied by a signature guarantee (see "Redemption by Mail" above for details
regarding signature guarantees). Further documentation may be requested from
corporations, executors, administrators, trustees, or guardians. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures for transactions
by wire or mail which are described above.
Galaxy reserves the right to refuse a wire or telephone redemption if it
believes it is advisable to do so. Procedures for redeeming Retail Shares by
wire or telephone may be modified or terminated at any time by Galaxy or FD
Distributors. In attempting to confirm that telephone instructions are genuine,
Galaxy will use such procedures as are considered reasonable, including
recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security number, address and/or bank). If Galaxy fails to follow established
procedures for the authentication of telephone instructions, it may be liable
for losses due to unauthorized or fraudulent telephone transactions.
NO REDEMPTION BY A DIRECT INVESTOR IN ANY FUND WILL BE PROCESSED UNTIL
GALAXY HAS RECEIVED A COMPLETED APPLICATION WITH RESPECT TO THE DIRECT
INVESTOR'S ACCOUNT.
IF ANY PORTION OF THE RETAIL SHARES TO BE REDEEMED REPRESENTS AN INVESTMENT
MADE BY PERSONAL CHECK, GALAXY RESERVES THE RIGHT TO DELAY PAYMENT OF PROCEEDS
UNTIL FD DISTRIBUTORS IS REASONABLY SATISFIED THAT THE CHECK HAS BEEN COLLECTED
WHICH COULD TAKE UP TO 15 DAYS FROM THE PURCHASE DATE. A DIRECT INVESTOR WHO
ANTICIPATES THE NEED FOR MORE IMMEDIATE ACCESS TO HIS OR HER INVESTMENT SHOULD
PURCHASE RETAIL SHARES BY FEDERAL FUNDS OR BANK WIRE OR BY CERTIFIED OR
CASHIER'S CHECK. BANKS NORMALLY IMPOSE A CHARGE IN CONNECTION WITH THE USE OF
BANK WIRES, AS WELL AS CERTIFIED CHECKS, CASHIER'S CHECKS AND FEDERAL FUNDS.
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OTHER REDEMPTION INFORMATION
Galaxy reserves the right to redeem accounts (other than retirement plan
accounts) involuntarily, upon 60 days' written notice, if the account's net
asset value falls below $250 as a result of redemptions. In addition, if an
investor has agreed with a particular Institution to maintain a minimum balance
in his or her account at the Institution with respect to Retail Shares of a
Fund, and the balance in such account falls below that minimum, the Customer may
be obliged by the Institution to redeem all of his or her shares.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Direct Investors and Customers of Institutions may, after appropriate prior
authorization, exchange Retail A Shares of a Fund having a value of at least
$100 for Retail A Shares of any of the other Funds or portfolios offered by
Galaxy or for shares of any other investment portfolios otherwise advised by
Fleet or its affiliates in which the Direct Investor or Customer maintains an
existing account, provided that such other shares may legally be sold in the
state of the investor's residence. Direct Investors and Customers of
Institutions may exchange Retail B Shares of the Tax-Exempt Bond Fund for Retail
B Shares of the Money Market, Short-Term Bond, High Quality Bond, Equity Value,
Equity Growth, Small Company Equity, MidCap Equity, Asset Allocation, Growth and
Income and Strategic Equity Funds offered by Galaxy in which the Direct Investor
or Customer maintains an existing account, provided that such other Retail B
Shares may legally be sold in the state of the investor's residence.
No additional sales charge will be incurred when exchanging Retail A Shares
of a Fund for Retail A Shares of another Galaxy portfolio that imposes a sales
charge. Retail B Shares may be exchanged without the payment of any contingent
deferred sales charge at the time the exchange is made. In determining the
holding period for calculating the contingent deferred sales charge payable on
redemptions of Retail B Shares, the holding period of the Retail B Shares
originally held will be added to the holding period of the Retail B Shares
acquired through exchange.
The minimum initial investment to establish an account in another Fund or
portfolio by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless at the time of the exchange the Direct Investor or
Customer elects, with respect to the Fund or portfolio into which the exchange
is being made, to participate in the Automatic Investment Program described
below, in which event there is no minimum initial investment requirement, or in
the College Investment Program described below, in which event the minimum
initial investment is generally $100. The minimum initial investment to
establish an account by exchange in the Institutional Government Money Market
Fund is $2 million.
An exchange involves a redemption of all or a portion of the Retail Shares
of a Fund and the investment of the redemption proceeds in Retail Shares of
another Fund or portfolio offered by Galaxy or, with respect to Retail A Shares,
otherwise advised by Fleet or its affiliates. The redemption will be made at the
per share net asset value next determined after the exchange request is
received. The Retail Shares of a Fund or portfolio to be acquired will be
purchased at the per share net asset value next determined after acceptance of
the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege, Direct
Investors should call Investor Services Group at 1-800-628-0414. Customers of
Institutions should call their Institution for such information. Customers
exercising the exchange privilege into other portfolios should request and
review these portfolios' prospectuses prior to making an exchange. Telephone
1-800-628-0414 for a prospectus or to make an exchange. See "How to Redeem
Shares--Redemption Procedures--Direct Investors--Redemptions by Wire" above for
a description of Galaxy's policy on telephone transactions.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the SEC.
Galaxy does not charge any exchange fee. However, Institutions may charge
such fees with respect to either all exchange requests or with respect to any
request which exceeds the permissible number of free exchanges during a
particular period. Customers of Institutions should contact their Institutions
for applicable information.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, a Customer or Direct Investor should consult a tax
or other financial adviser to determine the tax consequences.
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AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits a Direct Investor to purchase
Retail Shares of a Fund (minimum of $50 per transaction) each month or each
quarter. Provided the Direct Investor's financial institution allows automatic
withdrawals, Retail Shares are purchased by transferring funds from a Direct
Investor's checking, bank money market, NOW or savings account designated by the
Direct Investor. The account designated will be debited in the specified amount,
and Retail Shares will be purchased on a monthly or quarterly basis, on any
Business Day designated by a Direct Investor. If the designated day falls on a
weekend or holiday, the purchase will be made on the Business Day closest to the
designated day. Only an account maintained at a domestic financial institution
which is an Automated Clearing House member may be so designated.
The Systematic Withdrawal Plan permits a Direct Investor to automatically
redeem Retail Shares on a monthly, quarterly, semi-annual, or annual basis on
any Business Day designated by a Direct Investor, if the account has a starting
value of at least $10,000. If the designated day falls on a weekend or holiday,
the redemption will be made on the Business Day closest to the designated day.
Proceeds of the redemption will be sent to the shareholder's address of record
or financial institution within three Business Days of the redemption. If
redemptions exceed purchases and dividends, the number of shares in the account
will be reduced. Investors may terminate the Systematic Withdrawal Plan at any
time upon written notice to Investor Services Group, Galaxy's transfer agent
(but not less than five days before a payment date). There is no charge for this
service. Purchases of additional Retail A Shares concurrently with withdrawals
are ordinarily not advantageous because of the sales charge involved in the
additional purchases. No contingent deferred sales charge will be assessed on
redemptions of Retail B Shares made through the Systematic Withdrawal Plan that
do not exceed 12% of an account's net asset value on an annualized basis. For
example, monthly, quarterly and semi-annual Systematic Withdrawal Plan
redemptions of Retail B Shares will not be subject to the contingent deferred
sales charge if they do not exceed 1%, 3% and 6%, respectively, of an account's
net asset value on the redemption date. Systematic Withdrawal Plan redemptions
of Retail B Shares in excess of this limit are still subject to the applicable
contingent deferred sales charge.
PAYROLL DEDUCTION PROGRAM
The Payroll Deduction Program provides Direct Investors with a convenient,
systematic way to purchase Fund shares by deducting a minimum amount of $25 per
pay period from their paycheck. To be eligible for the Program, the payroll
department of a Direct Investor's employer must have the capability to forward
transactions directly through the Automated Clearing House (ACH), or indirectly
through a third party payroll processing company that has access to the ACH. A
Direct Investor must complete and submit a Galaxy Payroll Deduction Application
to his or her employer's payroll department, which will arrange for the
specified amount to be debited from the Direct Investor's paycheck each pay
period. Retail Shares of Galaxy will be purchased within three days after the
debit occurred. If the designated day falls on a weekend or non-Business Day,
the purchase will be made on the Business Day closest to the designated day. A
Direct Investor should allow between two to four weeks for the Payroll Deduction
Program to be established after submitting an application to the employer's
payroll department.
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits a Direct
Investor to open an account with Galaxy and purchase Retail Shares of a Fund
with a minimum amount of $100 for initial or subsequent investments, except that
if the Direct Investor purchases Retail Shares through the Automatic Investment
Program, the minimum per transaction is $50. The College Program is designed to
assist Direct Investors who want to finance a college savings plan. See
"Investor Programs--Automatic Investment Program and Systematic Withdrawal Plan"
for information on the Automatic Investment Program. Galaxy reserves the right
to redeem accounts participating in the College Program involuntarily, upon 60
days' written notice, if the account's net asset value falls below the
applicable minimum initial investment as a result of redemptions. See "How to
Redeem Shares--Other Redemption Information" above for further information.
Direct Investors in the College Program will receive consolidated monthly
statements of their accounts. Detailed information concerning College Program
accounts and applications may be obtained from FD Distributors (call
1-800-628-0414).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for the
Direct Deposit Program. This Program enables a Direct Investor to purchase
Retail Shares of a Fund by having social security payments automatically
deposited into his or her Fund account. There is no minimum deposit requirement.
For instructions on how to enroll in the Direct
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Deposit Program, Direct Investors should call FD Distributors at 1-800-628-0414.
Death or legal incapacity will terminate a Direct Investor's participation in
the Program. A Direct
Investor may elect at any time to terminate his or her participation by
notifying in writing the Social Security Administration. Further, Galaxy may
terminate a Direct Investor's participation upon 30 days' notice to the Direct
Investor.
INFORMATION SERVICES
GALAXY INFORMATION CENTER--24 HOUR INFORMATION SERVICE
The Galaxy Information Center provides Fund performance and investment
information 24 hours a day, seven days a week. To access the Galaxy Information
Center, just call 1-800-628-0414.
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to Fund
and account information as well as the ability to make telephone redemptions and
exchanges. These transactions are subject to the terms and conditions described
above under "How to Redeem Shares" and "Investor Programs". To access the Voice
Response System, just call 1-800-628-0414 from any touch-tone telephone and
follow the recorded instructions.
GALAXY SHAREHOLDER SERVICES
For account information and recent exchange transactions, Direct Investors
can call Galaxy Shareholder Services Monday through Friday, between the hours of
9:00 a.m. to 5:00 p.m. (Eastern Time) at 1-800-628-0414.
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
Direct Investors residing outside the United States can contact Galaxy by
calling 1-508-855-5237.
Investment returns and principal values will vary with market conditions so
that an investor's Retail Shares, when redeemed, may be worth more or less than
their original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price,
deduction of any applicable sales charge, and reinvestment of dividends and
capital gains distributions, if any.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Funds are declared daily and
paid monthly. Dividends on each share of the Funds are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers and Direct
Investors may elect to have their dividends reinvested in additional Retail
Shares of the same series of a Fund at the net asset value of such shares on the
ex-dividend date. Such election, or any revocation thereof, must be communicated
in writing to Galaxy's transfer agent (see "Custodian and Transfer Agent" below)
and will become effective with respect to dividends paid after its receipt.
TAXES
FEDERAL
The Tax-Exempt Bond Fund, New York Municipal Bond Fund, Connecticut
Municipal Bond Fund, Massachusetts Municipal Bond Fund and Rhode Island
Municipal Bond Fund each qualified during its last taxable year and intends to
continue to qualify, and the New Jersey Municipal Bond Fund intends to qualify,
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended, (the "Code"). Such qualification generally relieves a Fund of liability
for federal income taxes to the extent the Fund's earnings are distributed in
accordance with the Code.
The policy of each Fund is to pay dividends with respect to each taxable
year equal to at least the sum of 90% of its net exempt interest income and 90%
of its net investment company taxable income, if any. Dividends derived from
interest on Municipal Securities (known as exempt-interest dividends) may be
treated by the Funds' shareholders as items of interest excludable from their
gross income under Section 103(a) of the Code, unless under the circumstances
applicable to a particular shareholder, exclusion would be disallowed. (See
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the Statement of Additional Information under "Additional Information Concerning
Taxes.")
If a Fund should hold certain "private activity bonds" issued after August
7, 1986, shareholders must include, as an item of tax preference, the portion of
dividends paid by the Fund that is attributable to interest on such bonds in
their federal alternative minimum taxable income for purposes of determining
liability, if any, for the 26% to 28% alternative minimum tax for individuals
and the 20% alternative minimum tax applicable to corporations. Corporate
shareholders must also take all exempt-interest dividends into account in
determining certain adjustments for federal alternative minimum tax purposes.
Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits. Interest on indebtedness incurred by a shareholder
to purchase or carry Fund shares generally is not deductible for federal income
tax purposes.
Dividends from a Fund which are derived from taxable income or from
long-term or short-term capital gains will be subject to federal income tax,
whether such dividends are paid in the form of cash or additional Retail Shares
of the Funds.
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
Investors considering buying shares of a Fund on or just before the record
date of a capital gain distribution should be aware that the amount of the
forthcoming distribution payment, although in effect a return of capital,
generally will be subject to tax.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of a Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Funds may be
taxable to shareholders under state or local law as dividend income, even though
all or a portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.
It is anticipated that substantially all dividends paid by the New Jersey
Municipal Bond Fund will not be subject to New Jersey personal income tax. In
accordance with the provisions of New Jersey law as currently in effect,
distributions paid by a "qualified investment fund" will not be subject to the
New Jersey personal income tax to the extent that the distributions are
attributable to income received as interest or gain from New Jersey Municipal
Securities (as defined above), or as interest or gain from direct U.S.
Government obligations. Distributions by a "qualified investment fund" that are
attributable to most other sources will be subject to the New Jersey personal
income tax. Shares of the Fund are not subject to property taxation by New
Jersey or its political subdivisions.
The New Jersey personal income tax is not applicable to corporations. For
all corporations subject to the New Jersey Corporation Business Tax, dividends
and distributions from a "qualified investment fund" are included in the net
income tax base for purposes of computing the Corporation Business Tax.
Furthermore, any gain upon the redemption or sale of shares by a corporate
shareholder is also included in the net income tax base for purposes of
computing the Corporation Business Tax.
With respect to the New York Municipal Bond Fund, exempt-interest dividends
(as defined for federal income tax purposes), derived from interest on New York
Municipal Securities (as defined above) will be exempt from New York State and
New York City personal income taxes (but not corporate franchise taxes),
provided the interest on such obligations is and continues to be exempt from
applicable federal, New York State and New York City income taxes. To the extent
that investors are subject to state and local taxes outside of New York State
and New York City, dividends by the Fund may be taxable income for purposes
thereof. Dividends and distributions derived from income (including capital
gains on all New York Municipal Securities) other than interest on New York
Municipal Securities described above are not exempt from New York State and New
York City taxes. Interest or indebtedness incurred or continued by a shareholder
to purchase or carry shares of the Fund is not deductible for federal, New York
State or New York City personal income tax purposes.
Dividends paid by the Connecticut Municipal Bond Fund that qualify as
exempt-interest dividends for federal income tax purposes are not subject to the
Connecticut personal income tax imposed on resident and non-resident
individuals, trusts and estates to the extent that they are derived from
Connecticut Municipal Securities (as defined above). Other Fund dividends and
distributions, whether received in cash or additional Retail Shares, are subject
to this tax, except that distributions treated as capital gain dividends for
federal income tax purposes are not subject to the tax to the extent that they
are derived from obligations issued by or on behalf of the State of Connecticut,
its political subdivisions, or public instrumentalities, state or local
authorities, districts or similar public entities created under Connecticut law.
Dividends and distributions paid by the Fund that constitute items of tax
preference for purposes of the federal alternative minimum tax, other than any
derived from Connecticut Municipal Securities, could cause liability for the net
Connecticut minimum
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tax, applicable to investors subject to the Connecticut personal income tax who
are required to pay the federal alternative minimum tax. Dividends paid by the
Fund, including those that qualify as exempt-interest dividends for federal
income tax purposes, are taxable for purposes of the Connecticut Corporation
Business Tax; however, 70% (100% if the investor owns at least 20% of the total
voting power and value of the Fund's shares) of amounts that are treated as
dividends and not as exempt-interest dividends or capital gain dividends for
federal income tax purposes are deductible for purposes of this tax, but no
deduction is allowed for expenses related thereto. Shares of the Fund are not
subject to property tax within the State of Connecticut or its political
subdivisions.
Distributions by the Massachusetts Municipal Bond Fund to its shareholders
are exempt from Massachusetts personal income taxation to the extent they are
derived from (and designated by the Fund as being derived from) (i) interest on
Massachusetts Municipal Securities (as defined above), (ii) capital gains
realized by the Fund from the sale of certain Massachusetts Municipal
Securities, or (iii) interest on U.S. Government obligations exempt from state
income taxation. Distributions from the Fund's other net investment income and
short-term capital gains will be taxable as ordinary income. Distributions from
the Fund's net long-term capital gains will be taxable as long-term capital
gains regardless of how long the shareholder has owned Fund shares. The tax
treatment of distributions is the same whether distributions are paid in cash or
in additional Retail Shares of the Fund. In 1994, the Massachusetts personal
income tax statute was modified to provide for graduated rates of tax (with some
exceptions) on gains from the sale or exchange of capital assets held for more
than one year based on the length of time the asset has been held since January
1, 1995. The Massachusetts Department of Revenue has released proposed
regulations providing that the holding period of the mutual fund (rather than
that of its shareholders) will be determinative for purposes of applying the
revised statute to shareholders that receive capital gain distributions (other
than exempt capital gain distributions as discussed above), so long as the
mutual fund separately designates the amount of such distributions attributable
to each of six classes of gains from the sale or exchange of capital assets held
for more than one year in a notice provided to shareholders and the Commissioner
of Revenue on or before March 1 of the calendar year after the calendar year of
such distributions. In the absence of such notice, the holding period of the
assets giving rise to such gain is deemed to be more than one but not more than
two years. Shareholders should consult their tax advisers with respect to the
Massachusetts tax treatment of capital gain distributions from the Fund.
Distributions by the Massachusetts Municipal Bond Fund to corporate
shareholders, including exempt-interest dividends, may be subject to
Massachusetts corporate excise tax. Fund shares are not, however, subject to
property taxation by Massachusetts or its political subdivisions.
The Rhode Island Municipal Bond Fund has received a ruling from the Rhode
Island Division of Taxation to the effect that distributions by it to its
shareholders are exempt from Rhode Island personal income taxation and the Rhode
Island business corporation tax to the extent they are derived from (and
designated by the Fund as being derived from) interest earned on Rhode Island
Municipal Securities (as defined above) or obligations of the United States.
Distributions from the Fund's other net investment income and short-term capital
gains will be taxable as ordinary income. Distributions from the Fund's net
long-term capital gains will be taxable as long-term capital gains regardless of
how long the shareholder has owned Fund shares. The tax treatment of
distributions is the same whether distributions are paid in cash or in
additional Retail Shares of the Fund.
The Rhode Island Municipal Bond Fund will be subject to the Rhode Island
business corporation tax on its "gross income" apportioned to the State of Rhode
Island. For this purpose, gross income does not include interest income earned
by the Fund on Rhode Island Municipal Securities and obligations of the United
States, capital gains realized by the Fund on the sale of certain Rhode Island
Municipal Securities, and 50 percent of the Fund's other net capital gains.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Funds should
consult their tax advisers with specific reference to their own tax situation.
Shareholders will be advised annually as to the federal income tax consequences,
and with respect to shareholders of the New Jersey Municipal Bond, New York
Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond and
Rhode Island Municipal Bond Funds, the New Jersey personal income tax, New York
State and New York City personal income tax, Connecticut personal income tax,
Massachusetts personal income tax and Rhode Island personal income tax,
consequences, respectively, of distributions made each year.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
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INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02108, serves as the investment adviser to the Funds. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients and
manages the other investment portfolios of Galaxy.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with each Fund's investment policies, Fleet manages each Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Funds,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of .75% of the average daily net assets of each Fund.
Fleet may from time to time, in its discretion, waive advisory fees payable
by the Funds in order to help maintain a competitive expense ratio and may from
time to time allocate a portion of its advisory fees to Fleet Bank or other
subsidiaries of Fleet Financial Group, Inc. in consideration for administrative
and/or shareholder support services which they provide to beneficial
shareholders. Fleet is currently waiving a portion of the advisory fees payable
to it by the Funds so that it is entitled to receive advisory fees at the annual
rate of .55% of each such Fund's average daily net assets, but Fleet may in its
discretion revise or discontinue this waiver at any time. For the fiscal year
ended October 31, 1997, Fleet received advisory fees (after fee waivers) at the
effective annual rates of .55%, .55%, .25%, .25% and .25% of the Tax-Exempt
Bond, New York Municipal Bond, Connecticut Municipal Bond, Massachusetts
Municipal Bond and Rhode Island Municipal Bond Funds' average daily net assets,
respectively. In addition to fee waivers, Fleet also reimbursed the Tax-Exempt
Bond, New York Municipal Bond and Rhode Island Municipal Bond Funds for certain
operating expenses, which reimbursement may be revised or discontinued at any
time. The New Jersey Municipal Bond Fund did not conduct investment operations
during the fiscal year ended October 31, 1997.
The organizational arrangements of Fleet require that all investment
decisions with respect to the Funds be made by Fleet's Tax-Exempt Investment
Policy Committee and no one person is responsible for making recommendations to
that Committee.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Retail
Shares of the Funds, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which have agreed to provide shareholder support services that are
banks or bank affiliates are subject to such banking laws and regulations.
Should legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Funds,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Funds' method of operation would not
affect their net asset value per share or result in financial losses to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Funds' administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Funds in their administration
and operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Funds, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of combined
average daily net assets of the Funds and the other portfolios offered by Galaxy
(collectively, the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily all or a portion of the
administration fee payable to it by the Funds. For the
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fiscal year ended October 31, 1997, Investor Services Group received
administration fees at the effective annual rate of .082% of the average daily
net assets of each of the Tax-Exempt Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds. The New Jersey Municipal Bond Fund did not conduct investment operations
during the fiscal year ended October 31, 1997.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each series in the Funds as follows: Class
M--Series 1 shares (Trust Shares), Class M--Series 2 shares (Retail A Shares)
and Class M-- Series 3 shares (Retail B Shares), each series representing
interests in the Tax-Exempt Bond Fund; Class O--Series 1 shares (Trust Shares)
and Class O--Series 2 shares (Retail A Shares), each series representing
interests in the New York Municipal Bond Fund; Class P--Series 1 shares (Trust
Shares) and Class P--Series 2 shares (Retail A Shares), each series representing
interests in the Connecticut Municipal Bond Fund; Class Q--Series 1 shares
(Trust Shares) and Class Q--Series 2 shares (Retail A Shares), each series
representing interests in the Massachusetts Municipal Bond Fund; Class R--Series
1 shares (Trust Shares) and Class R-- Series 2 shares (Retail A Shares), each
series representing interests in the Rhode Island Municipal Bond Fund; and Class
Y--Series 1 shares (Trust Shares) and Class Y-- Series 2 shares (Retail A
Shares), each series representing interests in the New Jersey Municipal Bond
Fund. The Tax-Exempt Bond Fund is classified as a diversified investment company
and the New Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds are classified as non-diversified companies under the 1940 Act. The Board
of Trustees has also authorized the issuance of additional classes and series of
shares representing interests in other portfolios of Galaxy. For information
regarding the Funds' Trust Shares and these other portfolios, which are offered
through separate prospectuses, contact FD Distributors at 1-800-628-0414.
Shares of each series in a Fund bear their pro rata portion of all operating
expenses paid by that Fund except as follows. Holders of a Fund's Retail A
Shares bear the fees that are paid to Institutions under Galaxy's Shareholder
Services Plan described below and holders of Retail B Shares of the Tax-Exempt
Bond Fund bear the fees that are paid under Galaxy's Distribution and Services
Plan described below. Currently, these payments are not made with respect to a
Fund's Trust Shares. In addition, shares of each series in a Fund bear differing
transfer agency expenses. Standardized yield and total return quotations are
computed separately for each series of shares. The difference in the expenses
paid by the respective series will affect their performance.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class, and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to such investment portfolio as are declared in the discretion of
Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.30% of the average daily net asset value of Retail A Shares of the Funds owned
beneficially by Customers. Institutions may receive up to one-half of this fee
for providing one or more of the following services to such Customers:
aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with FD Distributors; processing dividend
payments from a Fund; providing sub-accounting with respect to Retail A Shares
or the information necessary for sub-accounting; and providing periodic mailings
to Customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such Customers: providing
Customers with information as to their positions in Retail A Shares; responding
to Customer inquiries; and providing a service to invest the assets of Customers
37
<PAGE>
in Retail A Shares. These services are described more fully in the Statement of
Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of each Fund, and
to limit the payment under these servicing agreements for each Fund to an
aggregate fee of not more than .15% (on an annualized basis) of the average
daily net asset value of the Retail A Shares of the Fund beneficially owned by
Customers of Institutions. Galaxy understands that Institutions may charge fees
to their Customers who are the beneficial owners of Retail A Shares in
connection with their accounts with such Institutions. Any such fees would be in
addition to any amounts which may be received by an Institution under the
Shareholder Services Plan. Under the terms of each servicing agreement entered
into with Galaxy, Institutions are required to provide to their Customers a
schedule of any fees that they may charge in connection with Customer
investments in Retail A Shares.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act with respect to Retail B Shares of the Tax-Exempt Bond Fund.
Under the Distribution and Services Plan, Galaxy may pay (a) FD Distributors or
another person for expenses and activities intended to result in the sale of
Retail B Shares, including the payment of commissions to broker-dealers and
other industry professionals who sell Retail B Shares and the direct or indirect
cost of financing such payments, (b) Institutions for shareholder liaison
services, which means personal services for holders of Retail B Shares and/or
the maintenance of shareholder accounts, such as responding to customer
inquiries and providing information on accounts, and (c) Institutions for
administrative support services, which include but are not limited to (i)
transfer agent and subtransfer agent services for beneficial owners of Retail B
Shares; (ii) aggregating and processing purchase and redemption orders; (iii)
providing beneficial owners with statements showing their positions in Retail B
Shares; (iv) processing dividend payments; (v) providing sub-accounting services
for Retail B Shares held beneficially; (vi) forwarding shareholder
communications, such as proxies, shareholder reports, dividend and tax notices,
and updating prospectuses to beneficial owners; and (vii) receiving, translating
and transmitting proxies executed by beneficial owners.
Under the Distribution and Services Plan for Retail B Shares, payments by
Galaxy (i) for distribution expenses may not exceed the annual rate of .65% of
the average daily net assets attributable to the Fund's outstanding Retail B
Shares and (ii) to an Institution for shareholder liaison services and/ or
administrative support services may not exceed the annual rates of .15% and
.15%, respectively, of the average daily net assets attributable to the Fund's
outstanding Retail B Shares which are owned of record or beneficially by that
Institution's Customers for whom the Institution is the dealer of record or
shareholder of record or with whom it has a servicing relationship. As of the
date of this Prospectus, Galaxy intends to limit the Fund's payments for
shareholder liaison and administrative support services under the Plan to an
aggregate fee of not more than .15% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
Customers of Institutions.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at One Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as the custodian of the Funds' assets, and First Data Investor Services
Group, Inc. ("Investor Services Group"), a wholly-owned subsidiary of First Data
Corporation, serves as the Funds' transfer and dividend disbursing agent.
Services performed by both entities for the Funds are described in the Statement
of Additional Information. Communications to Investor Services Group should be
directed to Investor Services Group at P.O. Box 5108, 4400 Computer Drive,
Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Funds. Galaxy bears
the expenses incurred in the Funds' operations including taxes; interest; fees
(including fees paid to its trustees and officers who are not affiliated with
Investor Services Group); SEC fees; state securities fees; costs of preparing
and printing prospectuses for regulatory purposes and for distribution to
existing shareholders; advisory, administration, shareholder servicing, Rule
12b-1 distribution (if applicable), fund accounting and custody fees; charges of
the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholder reports and meetings; and any extraordinary expenses. The
Funds also pay for brokerage fees and commissions in connection with the
purchase of portfolio securities.
38
<PAGE>
PERFORMANCE AND REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant bond
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance of the Funds may be compared to data prepared by LIPPER
ANALYTICAL SERVICES, INC., a widely recognized independent service which
monitors the performance of mutual funds.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL,
and THE NEW YORK TIMES, or publications of a local or regional nature, may also
be used in comparing the performance of the Funds. Performance data will be
calculated separately for Trust Shares, Retail A Shares and/or Retail B Shares
of the Funds.
The standard yield is computed by dividing a Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the maximum public offering price per share
on the last day of the period, and annualizing the result on a semi-annual
basis. The Funds may also advertise their "effective yield" which is calculated
similarly but, when annualized, the income earned by an investment in a Fund is
assumed to be reinvested. Each Fund may also quote their "tax equivalent yield"
which demonstrates the level of taxable yield necessary to produce an after-tax
equivalent yield to the Fund's tax-free yield. It is calculated by increasing a
Fund's yield (calculated as above) by the amount necessary to reflect the
payment of income taxes at stated tax rates. A Fund's tax-equivalent yield will
always be higher than its yield.
The Funds may also advertise their performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of a Fund's operations, or on a year-by-year
basis. Each Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in a
Fund for the specified period. Both methods of calculating total return reflect
the maximum front-end sales load charged by the Funds for Retail A Shares and
the applicable contingent deferred sales charge for Retail B Shares of the
Tax-Exempt Bond Fund and assume that dividends and capital gains distributions
made by a Fund during the period are reinvested in Fund shares.
The Funds may also advertise total return data without reflecting the sales
charges imposed on the purchase of Retail A Shares or the redemption of Retail B
Shares in accordance with the rules of the SEC. Quotations that do not reflect
the sales charges will be higher than quotations that do reflect the sales
charges.
The performance of the Funds will fluctuate and any quotation of performance
should not be considered as representative of future performance. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in a
Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance data are
generally functions of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions.
Any additional fees charged by Institutions with respect to accounts of
Customers that have invested in shares of a Fund will not be included in
performance calculations.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of a particular Fund or a particular series of shares in a
Fund means, with respect to the approval of an investment advisory agreement, a
distribution plan or a change in an investment objective or fundamental
investment policy, the affirmative vote of the holders of the lesser of (a) more
than 50% of the outstanding shares of such Fund or such series of shares, or (b)
67% or more of the shares of such Fund or such series of shares present at a
meeting if more than 50% of the outstanding shares of such Fund or such series
of shares are represented at the meeting in person or by proxy.
39
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
HIGHLIGHTS................................................................ 1
EXPENSE SUMMARY........................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 5
INVESTMENT OBJECTIVES AND POLICIES........................................ 11
Tax-Exempt Bond Fund.................................................... 11
New Jersey Municipal Bond Fund.......................................... 11
New York Municipal Bond Fund............................................ 12
Connecticut Municipal Bond Fund......................................... 12
Massachusetts Municipal Bond Fund....................................... 13
Rhode Island Municipal Bond Fund........................................ 13
Special Considerations and Risks........................................ 14
Other Investment Policies and Risk Considerations....................... 17
INVESTMENT LIMITATIONS.................................................... 22
PRICING OF SHARES......................................................... 23
HOW TO PURCHASE SHARES.................................................... 23
Distributor............................................................. 23
General................................................................. 24
Purchase Procedures--Customers of Institutions.......................... 24
Purchase Procedures--Direct Investors................................... 24
Other Purchase Information.............................................. 25
Applicable Sales Charge--Retail A Shares................................ 25
Quantity Discounts...................................................... 26
Applicable Sales Charge--Retail B Shares................................ 27
Characteristics of Retail A Shares and Retail B Shares.................. 28
Factors to Consider When Selecting Retail A Shares or Retail B Shares... 29
HOW TO REDEEM SHARES...................................................... 29
Redemption Procedures--Customers of Institutions........................ 29
Redemption Procedures--Direct Investors................................. 30
Other Redemption Information............................................ 31
<CAPTION>
PAGE
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<S> <C>
INVESTOR PROGRAMS......................................................... 31
Exchange Privilege...................................................... 31
Automatic Investment Program and Systematic Withdrawal Plan............. 32
Payroll Deduction Program............................................... 32
College Investment Program.............................................. 32
Direct Deposit Program.................................................. 32
INFORMATION SERVICES...................................................... 33
Galaxy Information Center--24 Hour Information Service.................. 33
Voice Response System................................................... 33
Galaxy Shareholder Services............................................. 33
DIVIDENDS AND DISTRIBUTIONS............................................... 33
TAXES..................................................................... 33
Federal................................................................. 33
State and Local......................................................... 34
Miscellaneous........................................................... 35
MANAGEMENT OF THE FUNDS................................................... 35
Investment Adviser...................................................... 36
Authority to Act as Investment Adviser.................................. 36
Administrator........................................................... 36
DESCRIPTION OF GALAXY AND ITS SHARES...................................... 37
Shareholder Services Plan............................................... 37
Distribution and Services Plan.......................................... 38
CUSTODIAN AND TRANSFER AGENT.............................................. 38
EXPENSES.................................................................. 38
PERFORMANCE AND REPORTING................................................. 39
MISCELLANEOUS............................................................. 39
</TABLE>
<PAGE>
RETAIL A SHARES
THE GALAXY FUND
RHODE ISLAND MUNICIPAL BOND FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
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- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HIGHLIGHTS............................................................ 3
EXPENSE SUMMARY....................................................... 5
FINANCIAL HIGHLIGHTS.................................................. 7
INVESTMENT OBJECTIVE AND POLICIES..................................... 9
Special Considerations and Risks.................................... 10
Other Investment Policies and Risk Considerations................... 11
INVESTMENT LIMITATIONS................................................ 19
PRICING OF SHARES..................................................... 20
HOW TO PURCHASE AND REDEEM SHARES..................................... 20
Distributor......................................................... 20
Purchase of Shares.................................................. 20
Purchase Procedures--Customers of Institutions...................... 21
Purchase Procedures--Direct Investors............................... 21
Other Purchase Information.......................................... 22
Applicable Sales Charge............................................. 23
Quantity Discounts.................................................. 25
Redemption Procedures--Customers of Institutions.................... 26
Redemption Procedures--Direct Investors............................. 26
Other Redemption Information........................................ 28
INVESTOR PROGRAMS..................................................... 28
Exchange Privilege.................................................. 28
<CAPTION>
PAGE
----
<S> <C>
Automatic Investment Program and Systematic Withdrawal Plan......... 29
Payroll Deduction Program........................................... 30
College Investment Program.......................................... 30
Direct Deposit Program.............................................. 30
INFORMATION SERVICES.................................................. 31
Galaxy Information Center--24 Hour Information Service.............. 31
Voice Response System............................................... 31
Galaxy Shareholder Services......................................... 31
DIVIDENDS AND DISTRIBUTIONS........................................... 31
TAXES................................................................. 32
Federal............................................................. 32
State and Local..................................................... 33
Miscellaneous....................................................... 33
MANAGEMENT OF THE FUND................................................ 33
Investment Adviser.................................................. 33
Authority to Act as Investment Adviser.............................. 34
Administrator....................................................... 34
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 35
Shareholder Services Plan........................................... 36
CUSTODIAN AND TRANSFER AGENT.......................................... 36
EXPENSES.............................................................. 37
PERFORMANCE REPORTING................................................. 37
MISCELLANEOUS......................................................... 38
</TABLE>
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<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance, call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a separate series of Galaxy's shares ("Retail A
Shares"), which represent interests in the RHODE ISLAND MUNICIPAL BOND FUND, a
separate investment portfolio (the "Fund") offered to investors by Galaxy. The
Fund is a municipal bond fund, and its objective is to seek as high a level of
current interest income exempt from federal income tax and, to the extent
possible, from Rhode Island personal income tax, as is consistent with relative
stability of principal. Under normal market and economic conditions, the Fund
will invest at least 65% of its total assets in debt securities of the State of
Rhode Island, its political subdivisions, authorities, agencies,
instrumentalities and corporations, and certain other governmental issuers, such
as Puerto Rico, the interest on which, in the opinion of bond counsel to the
issuer, is exempt from federal and Rhode Island personal income taxes ("Rhode
Island Municipal Securities"). The Fund is a non-diversified investment
portfolio under the Investment Company Act of 1940, as amended, (the "1940
Act").
The Fund is advised by Fleet Investment Advisors Inc. and sponsored and
distributed by First Data Distributors, Inc., which is not affiliated with Fleet
Investment Advisors Inc. or its parent, Fleet Financial Group, Inc., and
affiliates.
The Retail A Shares described in this Prospectus are offered to customers
("Customers") of FIS Securities, Inc., Fleet Brokerage Securities, Inc., Fleet
Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its
affiliates, their correspondent banks, and other qualified banks, savings and
loan associations and broker/dealers ("Institutions"). Retail A Shares may also
be purchased directly by individuals or corporations, who submit a purchase
application to Galaxy, purchasing either for their own accounts or for the
accounts of others ("Direct Investors"). Galaxy is also authorized to issue an
additional series of shares in the Fund ("Trust Shares"), which are offered
under a separate prospectus primarily to investors maintaining qualified
accounts at bank and trust institutions affiliated with Fleet Financial Group,
Inc. As of the date of this Prospectus, however, Trust Shares of the Fund are
not being offered to investors. Retail A Shares and Trust Shares represent equal
pro rata interests in the Fund, except they bear different expenses which
reflect the difference in the range of services provided to them. See "Financial
Highlights," "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
shown above. The Statement of Additional Information, as it may be amended from
time to time, is incorporated by reference in its entirety into this Prospectus.
------------------------
FEBRUARY 28, 1998
2
<PAGE>
HIGHLIGHTS
Q: WHAT IS THE GALAXY FUND?
A: Galaxy is an open-end management investment company (commonly known as a
mutual fund) that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives and policies.
This Prospectus describes Galaxy's RHODE ISLAND MUNICIPAL BOND FUND.
Prospectuses for Galaxy's MONEY MARKET, GOVERNMENT, U.S. TREASURY, TAX-EXEMPT,
CONNECTICUT MUNICIPAL MONEY MARKET, MASSACHUSETTS MUNICIPAL MONEY MARKET,
INSTITUTIONAL GOVERNMENT MONEY MARKET, EQUITY VALUE, EQUITY GROWTH, EQUITY
INCOME, INTERNATIONAL EQUITY, SMALL COMPANY EQUITY, MIDCAP EQUITY, ASSET
ALLOCATION, GROWTH AND INCOME, SMALL CAP VALUE, STRATEGIC EQUITY, SHORT-TERM
BOND, INTERMEDIATE GOVERNMENT INCOME, HIGH QUALITY BOND, CORPORATE BOND,
TAX-EXEMPT BOND, NEW JERSEY MUNICIPAL BOND, NEW YORK MUNICIPAL BOND, CONNECTICUT
MUNICIPAL BOND AND MASSACHUSETTS MUNICIPAL BOND FUNDS may be obtained by calling
1-800-628-0414.
Q: WHO ADVISES THE FUND?
A: The Fund is managed by Fleet Investment Advisors Inc. ("Fleet"), an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc. Fleet Financial
Group, Inc. is a financial services company with total assets as of December 31,
1997 of approximately $85.5 billion. See "Management of the Fund-- Investment
Adviser."
Q: WHAT ADVANTAGES DOES THE FUND OFFER?
A: The Fund offers investors the opportunity to invest in a professionally
managed investment portfolio without having to become involved with the detailed
accounting and safekeeping procedures normally associated with direct
investments in securities. The Fund also offers the economic advantages of block
trading in portfolio securities and the availability of a family of twenty-seven
mutual funds should your investment goals change.
Q: HOW DOES ONE BUY AND REDEEM SHARES?
A: The Fund is distributed by First Data Distributors, Inc. Retail A Shares
of the Fund are sold to individuals, corporations or other entities, who submit
a purchase application to Galaxy, purchasing either for their own accounts or
for the accounts of others ("Direct Investors"). Retail A Shares may also be
purchased on behalf of customers ("Customers") of FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers
("Institutions"). Retail A Shares of the Fund may be purchased at their net
asset value plus a maximum initial sales charge of 3.75%. Retail A Shares are
currently subject to a shareholder servicing fee of up to .15% of the average
daily net asset value of such shares. Share purchase and redemption information
for both Direct Investors and Customers is provided below under "How to Purchase
and Redeem Shares." Except as provided below under "Investor Programs," the
minimum initial investment for Direct Investors and the minimum initial
aggregate investment for Institutions purchasing on behalf of their Customers is
$2,500. The minimum investment for subsequent purchases is $100. There are no
minimum investment requirements for investors participating in the Automatic
Investment Program described below. The minimum initial investment in the
College Investment Program described below is $100 ($50 minimum per transaction
if investment is made through the Automatic Investment Program). Institutions
may require Customers to
3
<PAGE>
maintain certain minimum investments in Retail A Shares. See "How to Purchase
and Redeem Shares-- Other Purchase Information" below.
Q: WHEN ARE DIVIDENDS PAID?
A: Dividends from net investment income of the Fund are declared daily and
paid monthly. Net realized capital gains of the Fund are distributed at least
annually. Dividends and distributions are paid in cash, although shareholders
may choose to have dividends and distributions automatically reinvested in
additional shares of the same series of shares with respect to which the
dividend or distribution was declared without a sales charge. See "Dividends and
Distributions."
Q: WHAT POTENTIAL RISKS ARE PRESENTED BY THE FUND'S INVESTMENT PRACTICES?
A: The Fund invests primarily in Rhode Island Municipal Securities rated at
the time of purchase within the four highest rating categories assigned by
Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's"). Municipal Securities rated in the lowest of the four highest rating
categories assigned by Moody's or S&P are considered to have speculative
characteristics, even though they are of investment grade quality. Because the
Fund invests primarily in Rhode Island Municipal Securities, the achievement of
its investment objective is dependent upon the ability of the issuers of such
Rhode Island Municipal Securities to meet their continuing obligations for the
payment of principal and interest. In addition, because the Fund is
non-diversified, its investment return may be dependent upon the performance of
a smaller number of securities relative to the number of securities held in a
diversified portfolio. The Fund may lend its securities and enter into
repurchase agreements and reverse repurchase agreements with qualifying banks
and broker/dealers. The Fund may enter into interest rate futures contracts and
municipal bond index futures contracts. The Fund may purchase securities on a
"when-issued" basis and may purchase or sell securities on a "forward
commitment" or "delayed settlement" basis. The Fund may also acquire "stand-by
commitments" with respect to Municipal Securities held in its portfolio. The
value of the Fund's portfolio securities will generally vary inversely with
changes in prevailing interest rates. See "Investment Objective and Policies."
Q: WHAT SHAREHOLDER PRIVILEGES ARE OFFERED BY THE FUND?
A: Retail A Shares of the Fund may be exchanged for Retail A Shares of any
other Galaxy portfolio which offers Retail A Shares and for shares of any other
investment portfolio otherwise advised by Fleet or its affiliates. Exchanges are
not subject to sales charges. Galaxy offers an Automatic Investment Program
which allows investors to automatically invest in Retail A Shares on a monthly
or quarterly basis, as well as other shareholder privileges. See "Investor
Programs."
4
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Retail A Shares and (ii) the operating
expenses for Retail A Shares of the Fund. Shareholder Transaction Expenses are
charges you pay when buying and selling shares of the Fund. Annual Fund
Operating Expenses are paid out of the Fund's assets and include fees for
portfolio management, maintenance of shareholder accounts, general Fund
administration, accounting and other services. Examples based on the summary are
also shown.
<TABLE>
<CAPTION>
RHODE
ISLAND
MUNICIPAL
SHAREHOLDER TRANSACTION EXPENSES BOND FUND
- -------------------------------------------------- -----------
<S> <C>
Maximum Front End Sales Charge Imposed on
Purchases
(as a percentage of offering price)............. 3.75%(1)
Sales Load on Reinvested Dividends................ None
Deferred Sales Load............................... None
Redemption Fees(2)................................ None
Exchange Fees..................................... None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- --------------------------------------------------
<S> <C>
Advisory Fees (After Fee Waivers)................. .35%
12b-1 Fees........................................ None
Other Expenses.................................... .60%
-----------
Total Fund Operating Expenses (After Fee
Waivers)........................................ .95%
-----------
-----------
</TABLE>
- ---------
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Retail A Shares that
are purchased with no initial sales charge as part of an investment of
$500,000 or more. See "How to Purchase and Redeem Shares--Public Offering
Price" and "How to Purchase and Redeem Shares--Quantity Discounts."
(2) Direct Investors are charged a $5.00 fee if redemption proceeds are paid
by wire.
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) deduction at the time of purchase of the maximum applicable front-end sales
load, (2) a 5% annual return, and (3) redemption of your investment at the end
of the following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- --------
<S> <C> <C> <C> <C>
Rhode Island Municipal Bond Fund.................. $47 $66 $87 $148
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly. The information contained in the Expense Summary and
Example is based on expenses incurred by the Fund during the last fiscal year,
restated to reflect the expenses which the Fund expects to incur during the
current fiscal year on its Retail A Shares. Without voluntary fee waivers by
Fleet, Advisory Fees would be .75% and Total Fund Operating Expenses would be
1.35% for Retail A Shares of the Fund. Fleet is under no obligation to waive
fees and/ or reimburse expenses but has advised Galaxy that it intends to waive
fees and/or reimburse expenses during the current year to the extent necessary
to maintain the Fund's operating expenses at the level set
5
<PAGE>
forth in the above table. For more complete descriptions of these costs and
expenses, see "Management of the Fund" and "Description of Galaxy and Its
Shares" in this Prospectus and the financial statements and notes incorporated
by reference into the Statement of Additional Information. Any fees that are
charged by affiliates of Fleet or other Institutions directly to their customer
accounts for services related to an investment in Retail A Shares of the Fund
are in addition to and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
6
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Retail A Shares in the Fund. Galaxy is also
authorized to issue an additional series of shares in the Fund, Trust Shares. As
described below under "Description of Galaxy and Its Shares," Retail A Shares
and Trust Shares represent equal pro rata interests in the Fund, except that (i)
Retail A Shares of the Fund bear the expenses incurred under Galaxy's
Shareholder Services Plan at an annual rate of up to .15% of the average daily
net asset value of the Fund's outstanding Retail A Shares, and (ii) Retail A
Shares and Trust Shares bear differing transfer agency expenses.
The financial highlights presented below have been audited by Coopers &
Lybrand L.L.P., Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Fund dated October 31,
1997 (the "Annual Report"). Such financial highlights should be read in
conjunction with the financial statements contained in the Annual Report and
incorporated by reference into the Statement of Additional Information. More
information about the performance of the Fund is also contained in the Annual
Report, which may be obtained without charge by contacting Galaxy at its
telephone numbers or address provided above.
7
<PAGE>
RHODE ISLAND MUNICIPAL BOND FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, PERIOD ENDED
--------------------------- OCTOBER 31,
1997 1996 1995(1,2)
------------ ------------ ------------
<S> <C> <C> <C>
RETAIL A
RETAIL A SHARES SHARES
--------------------------- ------------
Net Asset Value, Beginning of Period.............. $ 10.65 $ 10.67 $ 10.00
------------ ------------ ------------
Income from Investment Operations:
Net investment income(3)........................ 0.48 0.51 0.44
Net realized and unrealized gain (loss) on
investments.................................... 0.32 0.03 0.67
------------ ------------ ------------
Total From Investment Operations:............. 0.80 0.54 1.11
------------ ------------ ------------
Less Dividends:
Dividends from net investment income............ (0.50) (0.51) (0.44)
Dividends from net realized capital gains....... (0.04) (0.05) --
------------ ------------ ------------
Total Dividends:.............................. (0.54) (0.56) (0.44)
------------ ------------ ------------
Net increase (decrease) in net asset value........ 0.26 (0.02) 0.67
------------ ------------ ------------
Net Asset Value, End of Period.................... $ 10.91 $ 10.65 $ 10.67
------------ ------------ ------------
------------ ------------ ------------
Total Return(4)................................... 7.78% 5.22% 11.29%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............... $17,134 $14,900 $10,850
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 4.50% 4.78% 5.13%(6)
Operating expenses including
reimbursement/waiver........................... 0.83% 0.77% 0.40%(6)
Operating expenses excluding
reimbursement/waiver........................... 1.34% 1.34% 2.25%(6)
Portfolio Turnover Rate........................... 19% 13% 34%(5)
</TABLE>
- ---------
(1) The Fund commenced operations on December 20, 1994.
(2) On September 7, 1995, Retail Shares of the Fund were redesignated "Retail A
Shares."
(3) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by Fleet and/ or the Fund's administrator for
the years ended October 31, 1997 and 1996 and for the period ended October
31, 1995 was $0.43, $0.45 and $0.28, respectively.
(4) Calculation does not include the effect of any sales charge for Retail A
Shares.
(5) Not Annualized.
(6) Annualized.
8
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
Fleet Investment Advisors Inc., the Fund's investment adviser ("Fleet"),
will use its best efforts to achieve the Fund's investment objective, although
its achievement cannot be assured. The investment objective of the Fund may not
be changed without the approval of a majority of its outstanding shares (as
defined under "Miscellaneous"). Except as noted below under "Investment
Limitations," the Fund's investment policies may be changed without shareholder
approval. An investor should not consider an investment in the Fund to be a
complete investment program.
The Fund is a non-diversified investment portfolio, the investment objective
of which is to seek as high a level of current interest income exempt from
federal income tax and, to the extent possible, from Rhode Island personal
income tax, as is consistent with relative stability of principal. To achieve
this objective, the Fund will invest primarily in Rhode Island Municipal
Securities as defined below. The Fund's average portfolio maturity will vary in
response to variations in the comparative yields of differing maturities of
instruments.
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Fund will invest, except
during temporary defensive periods, at least 80% of its total assets in debt
obligations issued by or on behalf of the State of Rhode Island and other
states, territories and possessions of the United States, the District of
Columbia and their respective authorities, agencies, instrumentalities and
political sub-divisions, the interest on which, in the opinion of bond counsel
to the issuer, is exempt from regular federal income tax ("Municipal
Securities"). The Fund expects that except during temporary defensive periods or
when, in Fleet's opinion, suitable obligations are unavailable for investment,
at least 65% of the Fund's total assets will be invested in Municipal Securities
issued by or on behalf of the State of Rhode Island, its political
sub-divisions, authorities, agencies, instrumentalities and corporations, and
certain other governmental issuers such as Puerto Rico, the interest on which,
in the opinion of bond counsel to the issuer, is exempt from federal and Rhode
Island personal income taxes ("Rhode Island Municipal Securities"). See "Special
Considerations and Risks" below for a discussion of certain risks in investing
in Rhode Island Municipal Securities. Dividends derived from interest on
Municipal Securities other than Rhode Island Municipal Securities will generally
be exempt from regular federal income tax but may be subject to Rhode Island
personal income tax. See "Taxes" below.
From time to time, during temporary defensive periods, the Fund may, without
limit, hold uninvested cash reserves or invest in taxable obligations in such
proportions as, in Fleet's opinion, prevailing market or economic conditions
warrant. Uninvested cash reserves may not earn income. Such taxable instruments
may include (i) obligations of the U.S. Treasury; (ii) obligations of agencies
or instrumentalities of the U.S. Government; (iii) "money market" instruments
such as certificates of deposit and bankers' acceptances of selected banks and
commercial paper rated within the two highest rating categories assigned by any
major rating service; (iv) repurchase agreements collateralized by U.S.
Government obligations or other "money market" instruments; (v) futures
contracts; or (vi) securities issued by other investment companies that invest
in high quality, short-term securities. Under normal market conditions, the Fund
anticipates that not more than 5% of its net assets will be invested in any one
category of taxable securities and that not more than 20% of its total assets
will be invested in taxable securities in the aggregate. For more information,
see "Other Investment Policies and Risk Considerations" below.
See "Special Considerations and Risks" and "Other Investment Policies and
Risk Considerations" below for information regarding additional investment
policies of the Fund.
9
<PAGE>
SPECIAL CONSIDERATIONS AND RISKS
INVESTMENT QUALITY
Municipal Securities purchased by the Fund will consist primarily of issues
which are rated at the time of purchase within the four highest rating
categories assigned by S&P ("AAA," "AA," "A" and "BBB") or Moody's ("Aaa," "Aa,"
"A" and "Baa") or unrated instruments determined by Fleet to be of comparable
quality. Municipal Securities rated within the four highest rating categories
assigned by S&P or Moody's are considered to be investment grade. Municipal
Securities rated in the lowest of the four highest rating categories assigned by
S&P or Moody's are considered to have speculative characteristics, even though
they are of investment grade quality, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade Municipal
Securities. Such Municipal Securities will be purchased (and retained) only when
Fleet believes the issuers have an adequate capacity to pay interest and repay
principal. If the ratings of a particular Municipal Security purchased by the
Fund are subsequently downgraded below the four highest rating categories
assigned by S&P or Moody's, such factor will be considered by Fleet in its
evaluation of the overall merits of that Municipal Security but such ratings
change will not necessarily result in an automatic sale of the Municipal
Security. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in Municipal Securities rated in the three
highest rating categories assigned by S&P or Moody's.
GENERAL RISK CONSIDERATIONS
Generally, the market value of fixed income securities, such as Municipal
Securities, in the Fund can be expected to vary inversely to changes in
prevailing interest rates. During periods of declining interest rates, the
market value of investment portfolios comprised primarily of fixed income
securities, such as the Fund, will tend to increase, and during periods of
rising interest rates, the market value will tend to decrease. In addition,
during periods of declining interest rates, the yields of investment portfolios
comprised primarily of fixed income securities will tend to be higher than
prevailing market rates and, in periods of rising interest rates, yields will
tend to be somewhat lower. Fixed income securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities. Changes
in the financial strength of an issuer or changes in the ratings of any
particular security may also offset the value of these investments. Fluctuations
in the market value of fixed income securities subsequent to their acquisition
will not offset cash income from such securities but will be reflected in the
Fund's net asset value.
The Fund is classified as a non-diversified investment company under the
1940 Act. Investment return on a non-diversified portfolio typically is
dependent upon the performance of a smaller number of securities relative to the
number held in a diversified portfolio. Consequently, the change in value of any
one security may affect the overall value of a non-diversified portfolio more
than it would a diversified portfolio, and thereby subject the market-based net
asset value per share of the non-diversified portfolio to greater fluctuations.
In addition, a non-diversified portfolio may be more susceptible to economic,
political and regulatory developments than a diversified investment portfolio
with similar objectives may be.
Although the Fund does not presently intend to do so on a regular basis, the
Fund may invest more than 25% of its assets in Municipal Securities the interest
on which is paid solely from revenues on similar projects if such investment is
deemed necessary or appropriate by Fleet. To the extent that the Fund's assets
are concentrated in Municipal Securities payable from revenues on similar
projects, the Fund will be
10
<PAGE>
subject to the particular risks presented by such projects to a greater extent
than it would be if its assets were not so concentrated.
RHODE ISLAND MUNICIPAL SECURITIES
The Fund's ability to achieve its investment objective depends on the
ability of issuers of Rhode Island Municipal Securities to meet their continuing
obligations to pay principal and interest. Since the Fund invests primarily in
Rhode Island Municipal Securities, the value of the Fund's shares may be
especially affected by factors pertaining to the economy of Rhode Island and
other factors specifically affecting the ability of issuers of Rhode Island
Municipal Securities to meet their obligations. As a result, the value of the
Fund's shares may fluctuate more widely than the value of shares of a portfolio
investing in securities of issuers in a number of different states. The ability
of Rhode Island and its political subdivisions to meet their obligations will
depend primarily on the availability of tax and other revenues to those
governments and on their fiscal conditions generally. The amount of tax and
other revenues available to governmental issuers of Rhode Island Municipal
Securities may be affected from time to time by economic, political and
demographic conditions within Rhode Island. In addition, constitutional or
statutory restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state and local aid to an issuer of
Rhode Island Municipal Securities may also affect that issuer's ability to meet
its obligations. Payments of principal and interest on limited obligation bonds
will depend on the economic condition of the facility or specific revenue source
from whose revenues the payments will be made, which in turn could be affected
by economic, political and demographic conditions in Rhode Island or a
particular locality. Any reduction in the actual or perceived ability of an
issuer of Rhode Island Municipal Securities to meet its obligations (including a
reduction in the rating of its outstanding securities) would likely affect
adversely the market value and marketability of its obligations and could affect
adversely the values of other Rhode Island Municipal Securities as well.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which the
Fund has the power to utilize. Some may be employed on a regular basis; others
may not be used at all. Accordingly, reference to any particular method or
technique carries no implication that it will be utilized or, if it is, that it
will be successful.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in other "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority
11
<PAGE>
of the U.S. Government to purchase the agency's obligations; still others, such
as those of the Federal Home Loan Mortgage Corporation, are supported only by
the credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law. Some of these
instruments may be variable or floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit, and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S.
branches of foreign banks may subject a Fund to additional risks, including
future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and U.S. branches of foreign banks may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting,
and recordkeeping standards than those applicable to domestic branches of U.S.
banks. The Fund will invest in the obligations of U.S. branches of foreign banks
or foreign branches of U.S. banks only when Fleet believes that the credit risk
with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default.
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities which may be held
by the Fund are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in
12
<PAGE>
some cases, from the proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. Private activity bonds
held by the Fund are in most cases revenue securities and are not payable from
the unrestricted revenues of the issuer. Consequently, the credit quality of
such private activity bonds is usually directly related to the credit standing
of the corporate user of the facility involved.
The Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the Fund
nor Fleet will review the proceedings relating to the issuance of Municipal
Securities or the bases for such opinions.
VARIABLE AND FLOATING RATE INSTRUMENTS
Municipal Securities purchased by the Fund may include rated and unrated
variable and floating rate tax-exempt instruments. There may be no active
secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to the Fund will approximate their par value.
Illiquid variable and floating rate instruments (instruments which are not
payable upon seven days' notice and do not have an active trading market) that
are acquired by the Fund are subject to the 10% limitation described in
Investment Limitation No. 3 under "Investment Limitations" in this Prospectus.
PRIVATE ACTIVITY BONDS
The Fund may invest in "private activity bonds," the interest on which,
although exempt from regular federal income tax, may constitute an item of tax
preference for purposes of the federal alternative minimum tax. Investments in
such securities, however, will not be treated as investments in Municipal
Securities for purposes of the 80% requirement mentioned above and, under normal
market conditions, will not exceed 20% of the Fund's total assets when added
together with any taxable investments held by the Fund. Private activity bonds
held by the Fund are in most cases revenue securities and are not payable from
the unrestricted revenues of the issuer. Consequently, the credit quality of
such private activity bonds is usually directly related to the credit standing
of the corporate user of the facility involved.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
The Fund will not enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand by notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 10% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
13
<PAGE>
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund holding such obligation would suffer a loss
to the extent that the proceeds from a sale of the underlying securities
(including accrued interest) were less than the repurchase price (including
accrued interest) under the agreement. In the event that such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such securities
by the Fund might be delayed pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with the investment limitations described
below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by Fleet to be of good standing and only when, in Fleet's
judgment, the income to be earned from the loan justifies the attendant risks.
The Fund currently intends to limit the lending of its portfolio securities so
that, at any given time, securities loaned by the Fund represent not more than
one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Fund may invest in securities issued by other investment companies which
invest in high quality, short-term debt securities and which determine their net
asset value per share based on the amortized cost or penny-rounding method.
Investments in other investment companies will cause the Fund (and, indirectly,
the Fund's shareholders) to bear proportionately the costs incurred in
connection with the investment companies' operations. Securities of other
investment companies will be acquired by a Fund within the limits prescribed by
the 1940 Act. The Fund currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Fund, other investment portfolios of Galaxy, or any
other investment companies advised by Fleet.
CUSTODIAL RECEIPTS AND PARTICIPATION INTERESTS
Securities acquired by the Fund may be in the form of custodial receipts
evidencing rights to receive a specific future interest payment, principal
payment or both on certain Municipal Securities. Such obligations are held in
custody by a bank on behalf of holders of the receipts. These custodial receipts
are known
14
<PAGE>
by various names, including "Municipal Receipts," "Municipal Certificates of
Accrual on Tax-Exempt Securities" ("M-CATS") and "Municipal Zero Coupon
Receipts." The Fund may also purchase from time to time certificates of
participation that, in the opinion of counsel to the issuer, are exempt from
federal income tax. A certificate of participation gives the Fund an undivided
interest in a pool of Municipal Securities held by a bank. Certificates of
participation may have fixed, floating or variable rates of interest. If a
certificate of participation is unrated, Fleet will have determined that the
instrument is of comparable quality to those instruments in which the Fund may
invest pursuant to guidelines approved by Galaxy's Board of Trustees. For
certain certificates of participation, the Fund will have the right to demand
payment, on not more than 30 days' notice, for all or any part of the Fund's
participation interest, plus accrued interest. As to these instruments, the Fund
intends to exercise its right to demand payment as needed to provide liquidity,
to maintain or improve the quality of its investment portfolio or upon a default
(if permitted under the terms of the instrument).
FUTURES CONTRACTS
The Fund may purchase and sell municipal bond index futures contracts as a
hedge against changes in market conditions. A municipal bond index assigns
values daily to the municipal bonds included in the index based on the
independent assessment of dealer-to-dealer municipal bond brokers. A municipal
bond index futures contract represents a firm commitment by which two parties
agree to take or make delivery of an amount equal to a specified dollar amount
multiplied by the difference between the municipal bond index value on the last
trading date of the contract and the price at which the futures contract is
originally struck. No physical delivery of the underlying securities in the
index is made.
The Fund may also enter into contracts for the future delivery of fixed
income securities commonly known as interest rate futures contracts. Interest
rate futures contracts are similar to municipal bond index futures contracts
except that, instead of a municipal bond index, the "underlying commodity" is
represented by various types of fixed income securities.
The Fund will not engage in futures transactions for speculation, but only
to hedge against changes in the market values of securities which the Fund holds
or intends to purchase. The Fund will engage in futures transactions only to the
extent permitted by the Commodity Futures Trading Commission ("CFTC") and the
Securities and Exchange Commission ("SEC"). The purchase of futures instruments
in connection with securities which the Fund intends to purchase will require an
amount of cash or other liquid assets, equal to the market value of the
outstanding futures contracts, to be deposited in a segregated account to
collateralize the position and thereby insure that the use of such futures is
unleveraged. The Fund will limit its hedging transactions in futures contracts
so that, immediately after any such transaction, the aggregate initial margin
that is required to be posted by the Fund under the rules of the exchange on
which the futures contract is traded does not exceed 5% of the Fund's total
assets after taking into account any unrealized profits and unrealized losses on
the Fund's open contracts. In addition, no more than one-third of the Fund's
total assets may be covered by such contracts.
Transactions in futures as a hedging device may subject the Fund to a number
of risks. Successful use of futures by the Fund is subject to the ability of
Fleet to predict correctly movements in the direction of the market. In
addition, there may be an imperfect correlation, or no correlation at all,
between movements in the price of futures contracts and movements in the price
of the instruments being hedged. There is no assurance that a liquid market will
exist for any particular futures contract at any particular time. Consequently,
the Fund may realize a loss on a futures transaction that is not offset by a
favorable
15
<PAGE>
movement in the price of securities which it holds or intends to purchase or may
be unable to close a futures position in the event of adverse price movements.
Any income from investments in futures contracts will be taxable. Additional
information concerning futures transactions, including special rules regarding
the taxation of such transactions, is contained in the Statement of Additional
Information and in Appendix B thereto.
WHEN-ISSUED, FORWARD COMMITMENT AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase Municipal Securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. The Fund may also
purchase or sell securities on a "delayed settlement" basis. When-issued and
forward commitment transactions, which involve a commitment by the Fund to
purchase or sell particular securities with payment and delivery taking place at
a future date (perhaps one or two months later), permit the Fund to lock in a
price or yield on a security it owns or intends to purchase, regardless of
future changes in interest rates. Delayed settlement describes settlement of a
securities transaction in the secondary market which will occur sometime in the
future. When-issued, forward commitment and delayed settlement transactions
involve the risk, however, that the yield or price obtained in a transaction may
be less favorable than the yield or price available in the market when the
securities delivery takes place. The Fund's forward commitments, when-issued
purchases and delayed settlements are not expected to exceed 25% of the value of
its total assets absent unusual market conditions. In the event its forward
commitments, when-issued purchases and delayed settlements ever exceeded 25% of
the value of its assets, the Fund's liquidity and the ability of Fleet to manage
the Fund might be adversely affected. The Fund does not intend to engage in
when-issued purchases, forward commitments and delayed settlements for
speculative purposes but only in furtherance of its investment objective.
STAND-BY COMMITMENTS
The Fund may acquire "stand-by commitments" with respect to Municipal
Securities held in its portfolio. Under a stand-by commitment, a dealer agrees
to purchase at the Fund's option specified Municipal Securities at a specified
price. The Fund will acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for a "stand-by commitment" either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). Standby commitments acquired by
the Fund would be valued at zero in determining the Fund's net asset value.
ASSET-BACKED SECURITIES
The Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function
16
<PAGE>
of current market rates, although other economic and demographic factors will be
involved. The Fund will not invest more than 10% of its total assets in
asset-backed securities. See "Asset-Backed Securities" in the Statement of
Additional Information.
MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities (including collateralized
mortgage obligations) that represent pools of mortgage loans assembled for sale
to investors by various governmental agencies and government-related
organizations, such as the Government National Mortgage Association, the Federal
National Mortgage Association, and the Federal Home Loan Mortgage Corporation.
Mortgage-backed securities provide a monthly payment consisting of interest and
principal payments. Additional payment may be made out of unscheduled repayments
of principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-backed securities may tend to increase due
to refinancing of mortgages as interest rates decline. To the extent that the
Fund purchases mortgage-backed securities at a premium, mortgage foreclosures
and prepayments of principal by mortgagors (which may be made at any time
without penalty) may result in some loss of the Fund's principal investment to
the extent of the premium paid. The yield of the Fund from investing in
mortgage-backed securities may be affected by reinvestment of prepayments at
higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including saving associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
interest rates decline. As a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the values of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
GUARANTEED INVESTMENT CONTRACTS
The Fund may invest in guaranteed investment contracts ("GICs") issued by
United States and Canadian insurance companies. Pursuant to GICs, the Fund would
make cash contributions to a deposit fund of the insurance company's general
account. The insurance company then credits to the Fund payments at negotiated,
floating or fixed interest rates. A GIC is a general obligation of the issuing
insurance company and not a separate account. The purchase price paid for a GIC
becomes part of the general assets of the insurance company, and the contract is
paid from the company's general assets. The Fund will only purchase GICs that
are issued or guaranteed by insurance companies that at the time of purchase are
rated at least AA by S&P or receive a similar high quality rating from a
nationally recognized service which provides ratings of insurance companies.
GICs are considered illiquid securities and will be subject to the Fund's 10%
limitation on such investments, unless there is an active and substantial
secondary market for the particular instrument and market quotations are readily
available.
17
<PAGE>
BANK INVESTMENT CONTRACTS
The Fund may invest in bank investment contracts ("BICs") issued by banks
that meet the quality and asset size requirements for banks described above
under "U.S. Government Obligations and Money Market Instruments." Pursuant to
BICs, cash contributions are made to a deposit account at the bank in exchange
for payments at negotiated, floating or fixed interest rates. A BIC is a general
obligation of the issuing bank. BICs are considered illiquid securities and will
be subject to the Fund's 10% limitation on such investments, unless there is an
active and substantial secondary market for the particular instrument and market
quotations are readily available.
DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its interest policies,
purchase certain "derivative" securities. Derivative securities are instruments
that derive their value from the performance of underlying assets, interest
rates, or indices, and include, but are not limited to, municipal bond index and
interest rate futures and certain asset-backed and mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest rates
change adversely, the value of the derivative security will decline more than
the assets, rates or indices on which it is based; liquidity risk that the Fund
will be unable to sell a derivative security when it wants because of lack of
market depth or market disruption; pricing risk that the value of a derivative
security will not correlate exactly to the value of the underlying assets, rates
or indices on which it is based; and operations risk that loss will occur as a
result of inadequate systems and controls, human error or otherwise. Some
derivative securities are more complex than others, and for those instruments
that have been developed recently, data are lacking regarding their actual
performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Fund, and will determine, in connection with its day-to-day
management of the Fund, how they will be used in furtherance of the Fund's
investment objective. It is possible, however, that Fleet's evaluations will
prove to be inaccurate or incomplete and, even when accurate and complete, it is
possible that the Fund will, because of the risks discussed above, incur loss as
a result of its investments in derivative securities. See "Investment Objectives
and Policies--Derivative Securities" in the Statement of Additional Information
relating to the Fund for additional information.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if Fleet
believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover may result in the realization of substantial capital gains and involves
correspondingly greater transaction costs. To the extent that net capital gains
are realized, distributions derived from such gains are treated as ordinary
income for federal income tax purposes. See "Financial Highlights" and
"Taxes--Federal."
18
<PAGE>
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objective and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) the Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with the Fund's
permitted investments, where the value of the collateral is equal at all
times to at least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that the Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase agreements
in accordance with its investment policies and in amounts not in excess of
10% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the Fund's total assets at the time
of such borrowing. The Fund will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other securities
which are not readily marketable.
4. Purchase securities which would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry; provided, however, that there is no limitation with respect
to securities issued or guaranteed by the U.S. Government, any state,
territory or possession of the U.S. Government, the District of Columbia or
any of their authorities, agencies, instrumentalities or political
subdivisions.
5. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of its total
assets would be invested in the securities of such issuer, except that up to
50% of the value of the Fund's total assets may be invested without regard
to this 5% limitation, provided that no more than 25% of the value of the
Fund's total assets are invested in the securities of any one issuer.
With respect to Investment Limitation No. 2 above, the Fund intends to limit
any borrowings (including reverse repurchase agreements) to not more than 10% of
the value of its total assets at the time of such borrowing.
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<PAGE>
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of a Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). The net asset value per share is determined on each
day on which the Exchange is open for trading. Currently, the holidays which
Galaxy observes are New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value per share of the Fund for purposes of pricing
sales and redemptions is calculated separately for each series of shares by
dividing the value of all securities and other assets attributable to a
particular series of shares of the Fund, less the liabilities attributable to
shares of that series of the Fund, by the number of outstanding shares of that
series of the Fund.
The Fund's assets are valued for purposes of pricing sales and redemptions
by an independent pricing service ("Service") approved by Galaxy's Board of
Trustees. When, in the judgment of the Service, quoted bid prices for portfolio
securities are readily available and are representative of the bid side of the
market, these investments are valued at the mean between quoted bid prices (as
obtained by the Service from dealers in such securities) and asked prices (as
calculated by the Service based upon its evaluation of the market for such
securities). Other investments are carried at fair value as determined by the
Service, based on methods which include consideration of yields or prices of
municipal bonds of comparable quality, coupon, maturity and type; indications as
to values from dealers; and general market conditions. The Service may also
employ electronic data processing techniques and matrix systems to determine
value. Short-term securities are valued at amortized cost, which approximates
market value. The amortized cost method involves valuing a security at its cost
on the date of purchase and thereafter assuming a constant amortization to
maturity of the difference between the principal amount due at maturity and
cost.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
FD Distributors has established several procedures to enable different types
of investors to purchase Retail A Shares of the Fund. The Retail A Shares
described in this Prospectus may be purchased by individuals, corporations or
other entities, who submit a purchase application to Galaxy, purchasing directly
either for their own accounts or for the accounts of others ("Direct
Investors"). Retail A Shares may also be purchased by FIS Securities, Inc.,
Fleet Brokerage Securities Inc., Fleet Securities, Inc., Fleet Enterprises,
Inc., Fleet Financial Group, Inc., its affiliates, their correspondent banks and
other qualified
20
<PAGE>
banks, savings and loan associations and broker/dealers ("Institutions") on
behalf of their customers ("Customers"). Purchases by Direct Investors may take
place only on days on which FD Distributors, Galaxy's custodian and Galaxy's
transfer agent are open for business ("Business Days"). If an Institution
accepts a purchase order from a Customer on a non-Business Day, the order will
not be executed until it is received and accepted by FD Distributors on a
Business Day in accordance with FD Distributors' procedures.
PURCHASE PROCEDURES--CUSTOMERS OF INSTITUTIONS
Purchase orders for Retail A Shares are placed by Customers of Institutions
through their Institutions. The Institution is responsible for transmitting
Customer purchase orders to FD Distributors and for wiring required funds in
payment to Galaxy's custodian on a timely basis. FD Distributors is responsible
for transmitting such orders to Galaxy's transfer agent for execution. Retail A
Shares purchased by Institutions on behalf of their Customers will normally be
held of record by the Institution and beneficial ownership of Retail A Shares
will be recorded by the Institution and reflected in the account statements
provided to their Customers. Galaxy's transfer agent may establish an account of
record for each Customer of an Institution reflecting beneficial ownership of
Retail A Shares. Depending on the terms of the arrangement between a particular
Institution and Galaxy's transfer agent, confirmations of Retail A Share
purchases and redemptions and pertinent account statements will either be sent
by Galaxy's transfer agent directly to a Customer with a copy to the
Institution, or will be furnished directly to the Customer by the Institution.
Other procedures for the purchase of Retail A Shares established by Institutions
in connection with the requirements of their Customer accounts may apply.
Customers wishing to purchase Retail A Shares through their Institution should
contact such entity directly for appropriate purchase instructions.
PURCHASE PROCEDURES--DIRECT INVESTORS
PURCHASES BY MAIL. Retail A Shares may be purchased by completing a
purchase application and mailing it, together with a check payable to the Fund,
to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581
All purchase orders placed by mail must be accompanied by a purchase
application. Applications may be obtained by calling FD Distributors at
1-800-628-0414.
Subsequent investments in an existing account in the Fund may be made at any
time by sending a check for a minimum of $100 payable to the Fund to Galaxy at
the address above along with either (a) the detachable form that regularly
accompanies confirmation of a prior transaction, (b) a subsequent order form
that may be obtained from FD Distributors, or (c) a letter stating the amount of
the investment, the name of the Fund and the account number in which the
investment is to be made. If a Direct Investor's check does not clear, the
purchase will be cancelled.
PURCHASES BY WIRE. Investors may also purchase Retail A Shares by arranging
to transmit federal funds by wire to Fleet Bank of Massachusetts, N.A. as agent
for First Data Investor Services Group, Inc. ("Investor Services Group"),
Galaxy's transfer agent. Prior to making any purchase by wire, an investor
21
<PAGE>
must telephone 1-800-628-0414 to place an order and for instructions. Federal
funds and registration instructions should be wired through the Federal Reserve
System to:
Fleet Bank of Massachusetts, N.A.
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
[Shareholder Name]
[Shareholder Account Number]
Direct Investors making initial investments by wire must promptly complete a
purchase application and forward it to The Galaxy Fund, P.O. Box 5108, 4400
Computer Drive, Westboro, Massachusetts 01581-5108. Applications may be obtained
by calling FD Distributors at 1-800-628-0414. Redemptions will not be processed
until the application in proper form has been received by Investor Services
Group. Direct Investors making subsequent investments by wire should follow the
instructions above.
EFFECTIVE TIME OF PURCHASES. A purchase order for Retail A Shares received
and accepted by FD Distributors from an Institution or a Direct Investor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be executed at the net asset value per
share determined on that date, provided that Galaxy's custodian receives the
purchase price in federal funds or other immediately available funds prior to
4:00 p.m. on the third Business Day following the receipt of such order. Such
order will be executed on the day on which the purchase price is received in
proper form. If funds are not received by such date and time, the order will not
be accepted and notice thereof will be given promptly to the Institution or
Direct Investor submitting the order. Payment for orders which are not received
or accepted will be returned. If an Institution accepts a purchase order from a
Customer on a non-Business Day, the order will not be executed until it is
received and accepted by FD Distributors on a Business Day in accordance with
the above procedures. On a Business Day when the Exchange closes early due to a
partial holiday or otherwise, Galaxy will advance the time at which purchase
orders must be received in order to be processed on that Business Day.
OTHER PURCHASE INFORMATION
Except as provided under "Investor Programs" below, the minimum initial
investment by a Direct Investor, or initial aggregate investment by an
Institution investing on behalf of its Customers, is $2,500. The minimum
investment for subsequent purchases is $100. There are no minimum investment
requirements for investors participating in the Automatic Investment Program
described below. Customers may agree with a particular Institution to varying
minimum initial and minimum subsequent purchase requirements with respect to
their accounts.
Galaxy reserves the right to reject any purchase order, in whole or in part,
or to waive any minimum investment requirement. The issuance of Retail A Shares
to Direct Investors and Institutions is recorded on the books of Galaxy and
Retail A Share certificates will not be issued.
Investors may be charged a separate fee if they effect transactions in
Retail Shares through a broker or other agent.
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<PAGE>
APPLICABLE SALES CHARGE
The public offering price for Retail A Shares of the Fund is the sum of the
net asset value of the Retail A Shares purchased plus any applicable front-end
sales charge. The sales charge assessed is as follows:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE REALLOWANCE TO DEALERS
-------------------------------- -----------------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
- ------------------------------ -------------- --------------- -----------------------
<S> <C> <C> <C>
Less than $50,000............. 3.75 3.90 3.25
$50,000 but less than
$100,000..................... 3.50 3.63 3.00
$100,000 but less than
$250,000..................... 3.00 3.09 2.50
$250,000 but less than
$500,000..................... 2.50 2.56 2.00
$500,000 and over............. 0.00* 0.00* 0.00
</TABLE>
- ---------
* There is no initial sales charge on purchases of $500,000 or more of Retail A
Shares; however, a contingent deferred sales charge of 1.00% will be imposed
on the lesser of the offering price or the net asset value of such Retail A
Shares on the redemption date for Shares redeemed within one year after
purchase. The contingent deferred sales charge will not be assessed on
redemptions within one year after purchase in connection with the death or
disability of a shareholder. To receive this exemption, a Direct Investor or
Customer must explain the status of his or her redemption at the time the
Retail A Shares are redeemed.
Further reductions in the sales charges shown above are also possible. See
"Quantity Discounts" below.
FD Distributors will pay the appropriate reallowance to dealers to
broker-dealer organizations which have entered into agreements with FD
Distributors. The reallowance to dealers may be changed from time to time.
At various times, FD Distributors may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, FD Distributors in its discretion may from time to time, pursuant
to objective criteria established by FD Distributors, pay fees to qualifying
dealers for certain services or activities which are primarily intended to
result in sales of Retail A Shares of the Fund. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by FD
Distributors out of its own assets and not out of the assets of the Fund. These
programs will not change the price of Retail A Shares or the amount that the
Fund will receive from such sales.
Fleet's indirect parent, Fleet National Bank, or another affiliate of Fleet,
may at its expense, provide additional compensation to Fleet Enterprises, Inc.,
a broker-dealer affiliate of Fleet, whose customers purchase significant amounts
of Retail A Shares of the Fund. Such compensation will not represent an
additional expense to the Fund or its shareholders, since it will be paid from
the assets of Fleet's affiliates.
In certain situations or for certain individuals, the front-end sales charge
for Retail A Shares of the Fund may be waived either because of the nature of
the investor or the reduced sales effort required to attract such investments.
In order to receive the sales charge waiver, an investor must explain the status
of
23
<PAGE>
his or her investment at the time of purchase. No sales charge is assessed on
purchases of Retail A Shares of the Fund by the following categories of
investors or in the following types of transactions:
- reinvestment of dividends and distributions;
- purchases by any retirement account, including but not limited to SIMPLE,
IRA, SEP, Keogh and Roth accounts;
- purchases by persons who were beneficial owners of shares of the Fund or
any of the other portfolios offered by Galaxy or any other funds advised
by Fleet or its affiliates before December 1, 1995;
- purchases by directors, officers and employees of broker-dealers having
agreements with FD Distributors pertaining to the sale of Retail A Shares
to the extent permitted by such organizations;
- investors who purchase pursuant to a "wrap fee" program offered by any
broker-dealer or other financial institution or financial planning
organization;
- purchases made with redemption proceeds from another mutual fund complex
on which a front-end or back-end sales charge has been paid, provided the
purchase is made within 60 days after the redemption;
- purchases by current and retired members of Galaxy's Board of Trustees and
members of their immediate families;
- purchases by officers, directors, employees and retirees of Fleet
Financial Group, Inc. and any of its affiliates and members of their
immediate families;
- purchases by officers, directors, employees and retirees of First Data
Corporation and any of its affiliates and members of their immediate
families;
- purchases by persons who are also plan participants in any employee
benefit plan which is the record or beneficial holder of Trust Shares of
any of the portfolios offered by Galaxy;
- purchases by institutional investors, including but not limited to bank
trust departments and registered investment advisers;
- purchases by investment advisers, consultants or financial planners who
place trades for their own accounts or the accounts of their clients and
who charge such clients a management, consulting, advisory or other fee;
- purchases by clients of investment advisers or financial planners who
place trades for their own accounts if such accounts are linked to the
master accounts of such investment advisers or financial planners on the
books of the broker-dealer through whom Retail A Shares are purchased;
- purchases by institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund these plans,
which place trades through an omnibus account maintained with Galaxy by
the broker-dealer; and
- any purchase pursuant to the Reinstatement Privilege described below.
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<PAGE>
QUANTITY DISCOUNTS
Direct Investors or Customers may be entitled to reduced sales charges
through Rights of Accumulation, a Letter of Intent or a combination of
investments, as described below, even if the Direct Investor or Customer does
not wish to make an investment of a size that would normally qualify for a
quantity discount.
In order to obtain quantity discount benefits, a Direct Investor or Customer
must notify Galaxy's administrator, First Data Investor Services Group, Inc.
("Investor Services Group"), at the time of purchase that he or she would like
to take advantage of any of the discount plans described below. Upon such
notification, the investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time and are subject to
confirmation of a Direct Investor's or Customer's holdings through a check of
appropriate records. For more information about quantity discounts, please
contact FD Distributors or your Institution.
RIGHTS OF ACCUMULATION. A reduced sales charge applies to any purchase of
Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where a Direct Investor's or Customer's then current aggregate
investment in Retail A Shares is $50,000 or more. "Aggregate investment" means
the total of: (a) the dollar amount of the then current purchase of shares of an
Eligible Fund; and (b) the value (based on current net asset value) of
previously purchased and beneficially-owned shares of any Eligible Fund on which
a sales charge has been paid. If, for example, a Direct Investor or Customer
beneficially owns shares of one or more Eligible Funds with an aggregate current
value of $49,000 on which a sales charge has been paid and subsequently
purchases shares of an Eligible Fund having a current value of $1,000, the sales
charge applicable to the subsequent purchase would be reduced to 3.50% of the
offering price. Similarly, with respect to each subsequent investment, all
shares of Eligible Funds that are beneficially owned by the investor at the time
of investment may be combined to determine the applicable sales charge.
LETTER OF INTENT. By completing the Letter of Intent included as part of
the Account Application, a Direct Investor or Customer becomes eligible for the
reduced sales charge applicable to the total number of Eligible Fund Retail A
Shares purchased in a 13-month period pursuant to the terms and under the
conditions set forth below and in the Letter of Intent. To compute the
applicable sales charge, the offering price of Retail A Shares of an Eligible
Fund on which a sales charge has been paid that are beneficially owned by a
Direct Investor or Customer on the date of submission of the Letter of Intent
may be used as a credit toward completion of the Letter of Intent. However, the
reduced sales charge will be applied only to new purchases.
Investor Services Group will hold in escrow Retail A Shares equal to 5% of
the amount indicated in the Letter of Intent for payment of a higher sales
charge if a Direct Investor or Customer does not purchase the full amount
indicated in the Letter of Intent. The escrow will be released when a Direct
Investor or Customer fulfills the terms of the Letter of Intent by purchasing
the specified amount. If purchases qualify for a further sales charge reduction,
the sales charge will be adjusted to reflect a Direct Investor's or Customer's
total purchases. If total purchases are less than the amount specified, a Direct
Investor or Customer will be requested to remit an amount equal to the
difference between the sales charge actually paid and the sales charge
applicable to the total purchases. If such remittance is not received within 20
days, Investor Services Group as attorney-in-fact pursuant to the terms of the
Letter of Intent and at FD Distributors' direction, will redeem an appropriate
number of Retail A Shares held in escrow to realize the difference. Signing a
Letter of Intent does not bind a Direct Investor or Customer to purchase the
full amount indicated at the sales charge in effect at the time of signing, but
a Direct Investor
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or Customer must complete the intended purchase in accordance with the terms of
the Letter of Intent to obtain the reduced sales charge. To apply, a Direct
Investor or Customer must indicate his or her intention to do so under a Letter
of Intent at the time of purchase.
QUALIFICATION FOR DISCOUNTS. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension plan (or the aggregate investments of a trustee or other
fiduciary) established for the benefit of the persons listed above.
REINSTATEMENT PRIVILEGE. Direct Investors and Customers may reinvest all or
any portion of their redemption proceeds in Retail A Shares of the Fund or in
Retail A Shares of another portfolio of Galaxy within 90 days of the redemption
trade date without paying a sales load. Retail A Shares so reinvested will be
purchased at a price equal to the net asset value next determined after Investor
Services Group, Galaxy's transfer agent, receives a reinstatement request and
payment in proper form.
Direct Investors and Customers wishing to exercise this Privilege must
submit a written reinstatement request to Investor Services Group as transfer
agent stating that the investor is eligible to use the Privilege. The
reinstatement request and payment must be received within 90 days of the trade
date of the redemption. Currently, there are no restrictions as to the number of
times an investor may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the Internal Revenue Code's "wash
sale" rules.
REDEMPTION PROCEDURES--CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or part of their Retail A Shares in
accordance with procedures governing their accounts at Institutions. It is the
responsibility of the Institutions to transmit redemption orders to FD
Distributors and credit their Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy, although Institutions may charge a Customer's account for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institutions.
Payments for redemption orders received by FD Distributors on a Business Day
will normally be wired on the third Business Day to the Institutions.
DIRECT INVESTORS MAY REDEEM ALL OR PART OF THEIR RETAIL A SHARES IN
ACCORDANCE WITH ANY OF THE PROCEDURES DESCRIBED BELOW.
REDEMPTION PROCEDURES--DIRECT INVESTORS
REDEMPTION BY MAIL. Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581
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A written redemption request must (i) state the number of shares to be
redeemed, (ii) identify the shareholder account number and tax identification
number, and (iii) be signed by each registered owner exactly as the shares are
registered. A redemption request for an amount in excess of $50,000, or for any
amount where (i) the proceeds are to be sent elsewhere than the address of
record (excluding the transfer of assets to a successor custodian), (ii) the
proceeds are to be sent to an address of record which has changed in the
preceding 30 days, or (iii) the check is to be made payable to someone other
than the registered owner(s), must be accompanied by signature guarantees. The
guarantor of a signature must be a bank which is a member of the FDIC, a trust
company, a member firm of a national securities exchange or any other eligible
guarantor institution. FD Distributors will not accept guarantees from notaries
public. FD Distributors may require additional supporting documents for
redemptions made by corporations, executors, administrators, trustees and
guardians. A redemption request will not be deemed to be properly received until
FD Distributors receives all required documents in proper form. The Fund
ordinarily will make payment for Retail A Shares redeemed by mail within three
Business Days after proper receipt by FD Distributors of the redemption request.
Questions with respect to the proper form for redemption requests should be
directed to FD Distributors at 1-800-628-0414.
REDEMPTION BY TELEPHONE. Direct investors who have not otherwise indicated
on the application, or in a subsequent notification in writing, may redeem
Retail A Shares by calling 1-800-628-0414 and instructing FD Distributors to
mail a check for redemption proceeds of up to $50,000 to the address of record.
A redemption request for an amount in excess of $50,000 or for any amount where
(i) the proceeds are to be sent elsewhere than the address of record (excluding
the transfer of assets to a successor custodian), (ii) the proceeds are to be
sent to an address of record which has changed in the preceding 30 days, or
(iii) the check is to be made payable to someone other than the registered
owner(s), must be accompanied by signature guarantees. (See "Redemption by
Mail.")
REDEMPTION BY WIRE. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
Retail A Shares by instructing FD Distributors by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to a Direct Investor's account at
any commercial bank in the United States. FD Distributors charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption proceeds.
The redemption proceeds must be paid to the same bank and account as designated
on the application or in written instructions subsequently received by FD
Distributors. To request redemption of Retail A Shares by wire, Direct Investors
should call FD Distributors at 1-800-628-0414.
In order to arrange for redemption by wire after an account has been opened
or to change the bank or account designated to receive redemption proceeds, a
written request must be sent to Galaxy, at the address listed above under
"Redemption by Mail." Such requests must be signed by the investor and
accompanied by a signature guarantee (see "Redemption by Mail" above for details
regarding signature guarantees). Further documentation may be requested from
corporations, executors, administrators, trustees, or guardians. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures for transactions
by wire or mail which are described above.
Galaxy reserves the right to refuse a wire or telephone redemption if it
believes it is advisable to do so. Procedures for redeeming Retail A Shares by
wire or telephone may be modified or terminated at any time by Galaxy or FD
Distributors. In attempting to confirm that telephone instructions are genuine,
Galaxy
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will use such procedures as are considered reasonable, including recording those
instructions and requesting information as to account registration (such as the
name in which an account is registered, the account number, recent transactions
in the account, and the account holder's social security number, address and/ or
bank). If Galaxy fails to follow established procedures for the authentication
of telephone transactions, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
NO REDEMPTION BY A DIRECT INVESTOR IN THE FUND WILL BE PROCESSED UNTIL
GALAXY HAS RECEIVED A COMPLETED APPLICATION WITH RESPECT TO THE DIRECT
INVESTOR'S ACCOUNT.
IF ANY PORTION OF THE RETAIL A SHARES TO BE REDEEMED REPRESENTS AN
INVESTMENT MADE BY PERSONAL CHECK, GALAXY RESERVES THE RIGHT TO DELAY PAYMENT OF
PROCEEDS UNTIL FD DISTRIBUTORS IS REASONABLY SATISFIED THAT THE CHECK HAS BEEN
COLLECTED, WHICH COULD TAKE UP TO 15 DAYS FROM THE PURCHASE DATE. A DIRECT
INVESTOR WHO ANTICIPATES THE NEED FOR MORE IMMEDIATE ACCESS TO HIS OR HER
INVESTMENT SHOULD PURCHASE RETAIL A SHARES BY FEDERAL FUNDS OR BANK WIRE OR BY
CERTIFIED OR CASHIER'S CHECK. BANKS NORMALLY IMPOSE A CHARGE IN CONNECTION WITH
THE USE OF BANK WIRES, AS WELL AS CERTIFIED CHECKS, CASHIER'S CHECKS AND FEDERAL
FUNDS.
OTHER REDEMPTION INFORMATION
Galaxy reserves the right to redeem accounts (other than retirement plan
accounts) involuntarily, upon 60 days' written notice, if the account's net
asset value falls below $250 as a result of redemptions. In addition, if an
investor has agreed with a particular Institution to maintain a minimum balance
in his or her account at the Institution with respect to Retail A Shares of the
Fund, and the balance in such account falls below that minimum, the Customer may
be obliged by the Institution to redeem all of his or her shares.
Redemption orders are effected at the net asset value per share next
determined after receipt and acceptance of the order by FD Distributors. On a
Business Day when the Exchange closes early due to partial holiday or otherwise,
Galaxy will advance the time at which redemption orders must be received in
order to be processed on that Business Day. Galaxy reserves the right to wire
redemption proceeds within seven days after receiving the redemption order if,
in its judgment, an earlier payment could adversely affect the Fund.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Direct Investors and Customers of Institutions may, after appropriate prior
authorization, exchange Retail A Shares of the Fund having a value of at least
$100 for Retail A Shares of any of the other portfolios offered by Galaxy or for
shares of any other investment portfolios otherwise advised by Fleet or its
affiliates in which the Direct Investor or Customer maintains an existing
account, provided that such other shares may legally be sold in the state of the
investor's residence. No additional sales charge will be incurred when
exchanging Retail A Shares of the Fund for Retail A Shares of another Galaxy
portfolio that imposes a sales charge.
The minimum initial investment to establish an account by exchange in
another portfolio offered by Galaxy or otherwise advised by Fleet, except for
the Institutional Government Money Market Fund, is $2,500, unless at the time of
exchange the Direct Investor or Customer elects, with respect to the portfolio
into which the exchange is being made, to participate in the Automatic
Investment Program described below, in which event there is no minimum initial
investment requirement, or in the College Investment
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Program described below, in which event the minimum initial investment is
generally $100. The minimum initial investment to establish an account by
exchange in the Institutional Government Money Market Fund is $2 million.
An exchange involves a redemption of all or a portion of the shares of the
Fund and the investment of the redemption proceeds in shares of another
portfolio offered by Galaxy or otherwise advised by Fleet. The redemption will
be made at the per share net asset value next determined after the exchange
request is received. The shares of the portfolio to be acquired will be
purchased at the per share net asset value next determined after acceptance of
the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in the Fund. For
further information regarding Galaxy's exchange privilege, Direct Investors
should call Investor Services Group at 1-800-628-0414. Customers of Institutions
should call their Institution for such information. Customers exercising the
exchange privilege into other portfolios should request and review these
portfolios' prospectuses prior to making an exchange. Telephone 1-800-628-0414
for a prospectus or to make an exchange. See "How to Purchase and Redeem
Shares-- Redemption Procedures--Direct Investors--Redemption by Wire" above for
a description of Galaxy's policy regarding telephone instructions.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the SEC.
Galaxy does not charge any exchange fee. However, Institutions may charge
such fees with respect to either all exchange requests or with respect to any
request which exceeds the permissible number of free exchanges during a
particular period. Customers of Institutions should contact their Institutions
for applicable information.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, a Customer or Direct Investor should consult a tax
or other financial adviser to determine the tax consequences.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits a Direct Investor to purchase
Retail A Shares of the Fund (minimum of $50 per transaction) each month or each
quarter. Provided the Direct Investor's financial institution allows automatic
withdrawals, Fund shares are purchased by transferring funds from a Direct
Investor's checking, bank money market, NOW or savings account designated by the
investor. The account designated will be debited in the specified amount, and
Retail A Shares will be purchased, on any Business Day designated by a Direct
Investor. If the designated day falls on a weekend or holiday, the purchase will
be made on the Business Day closest to the designated day. Only an account
maintained at a domestic financial institution which is an Automated Clearing
House member may be so designated.
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<PAGE>
The Systematic Withdrawal Plan permits a Direct Investor to redeem Retail A
Shares of the Fund on a monthly, quarterly, semi-annual, or annual basis on any
Business Day designated by a Direct Investor, if the account has a starting
value of at least $10,000. If the designated day falls on a weekend or holiday,
the redemption will be made on the Business Day closest to the designated day.
Proceeds of the redemption will be sent to the shareholder's address of record
or financial institution within five business days of the redemption. If
redemptions exceed purchases and dividends, the number of shares in the account
will be reduced. Investors may terminate the Systematic Withdrawal Plan at any
time upon written notice to the Investor Services Group, Galaxy's transfer agent
(but not less than five days before a payment date). There is no charge for this
service. Purchases of additional Retail A Shares concurrently with withdrawals
are ordinarily not advantageous because of the sales charge.
PAYROLL DEDUCTION PROGRAM
The Payroll Deduction Program provides Direct Investors with a convenient,
systematic way to purchase Fund shares by deducting a minimum amount of $25 per
pay period from their paycheck. To be eligible for the Program, the payroll
department of a Direct Investor's employer must have the capability to forward
transactions directly through the Automated Clearing House (ACH), or indirectly
through a third party payroll processing company that has access to the ACH. A
Direct Investor must complete and submit a Galaxy Payroll Deduction Application
to his or her employer's payroll department, which will arrange for the
specified amount to be debited from the Direct Investor's paycheck each pay
period. Retail A Shares of the Fund will be purchased within three days after
the debit occurred. If the designated day falls on a weekend or non-Business
Day, the purchase will be made on the Business Day closest to the designated
day. A Direct Investor should allow between two or four weeks for the Payroll
Deduction Program to be established after submitting an application to the
employer's payroll department.
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits a Direct
Investor to open an account with Galaxy and purchase Retail A Shares of the Fund
with a minimum amount of $100 for initial or subsequent investments, except that
if the Direct Investor purchases Retail A Shares through the Automatic
Investment Program, the minimum per transaction is $50. The College Program is
designed to assist Direct Investors who want to finance a college savings plan.
See "Investor Programs--Automatic Investment Program and Systematic Withdrawal
Plan" for information on the Automatic Investment Program. Galaxy reserves the
right to redeem accounts participating in the College Program involuntarily,
upon 60 days' written notice, if the account's net asset value falls below the
applicable minimum initial investment as a result of redemptions. See "How to
Purchase and Redeem Shares--Other Redemption Information" above for further
information.
Investors in the College Program will receive consolidated monthly
statements of their accounts. Detailed information concerning College Program
accounts and applications may be obtained from FD Distributors (call
1-800-628-0414).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for the
Direct Deposit Program. This program enables Direct Investors to purchase Retail
A Shares of the Fund by having social security
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payments automatically deposited into his or her Fund account. There is no
minimum deposit requirement. For instructions on how to enroll in the Direct
Deposit Program, Direct Investors should call FD Distributors at 1-800-628-0414.
Death or legal incapacity will terminate a Direct Investor's participation
in the program. Direct Investors may elect at any time to terminate his or her
participation by notifying in writing the Social Security Administration.
Further, Galaxy may terminate a Direct Investor's participation upon 30 days'
notice to the Direct Investor.
INFORMATION SERVICES
GALAXY INFORMATION CENTER--24 HOUR INFORMATION SERVICE
The Galaxy Information Center provides Fund performance and investment
information 24 hours a day, seven days a week. To access the Galaxy Information
Center Automated Telephone Service, just call 1-800-628-0414.
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to Fund
and account information as well as the ability to make telephone redemptions and
exchanges. These transactions are subject to the terms and conditions described
under "How To Purchase and Redeem Shares" and "Investor Programs" above. To
access the Voice Response System, just call 1-800-628-0414 from any touchtone
telephone and follow the recorded instructions.
GALAXY SHAREHOLDER SERVICES
For account information and recent exchange transactions, Direct Investors
can call Galaxy Shareholder Services Monday through Friday, between the hours of
9:00 a.m. to 5:00 p.m. (Eastern Time) at 1-800-628-0414.
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
Direct Investors residing outside the United States can contact Galaxy by
calling 1-508-855-5237.
Investment returns and principal values will vary with market conditions so
that an investor's Retail A Shares, when redeemed, may be worth more or less
than their original cost. Past performance is no guarantee of future results.
Unless otherwise indicated, total return figures include changes in share price,
deduction of any applicable sales charge, and reinvestment of dividends and
capital gains distributions, if any.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared and paid
monthly. Dividends on each share of the Fund are determined in the same manner,
irrespective of series, but may differ in amount because of the difference in
the expenses paid by the respective series. Net realized capital gains are
distributed at least annually.
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Dividends and distributions will be paid in cash. Customers and Direct
Investors may elect to have their dividends reinvested in additional Retail A
Shares of the Fund at the net asset value of such Shares on the ex-dividend
date. Such election, or any revocation thereof, must be communicated in writing
to Galaxy's transfer agent (see "Custodian and Transfer Agent" below) and will
become effective with respect to dividends paid after its receipt.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify, as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification relieves the Fund of
liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
The policy of the Fund is to pay dividends with respect to each taxable year
equal to at least the sum of 90% of its net exempt interest income and 90% of
its net investment company taxable income, if any. Dividends derived from
interest on Municipal Securities (known as exempt-interest dividends) may be
treated by the Fund's shareholders as items of interest excludable from their
gross income under section 103(a) of the Code, unless under the circumstances
applicable to a particular shareholder, exclusions would be disallowed. (See the
Statement of Additional Information under "Additional Information Concerning
Taxes.")
If the Fund should hold certain "private activity bonds" issued after August
7, 1986, shareholders must include, as an item of tax preference, the portion of
dividends paid by the Fund that is attributable to interest on such bonds in
their federal alternative minimum taxable income for purposes of determining
liability, if any, for the 26% to 28% alternative minimum tax for individuals
and the 20% alternative minimum tax applicable to corporations. Corporate
shareholders must also take all exempt-interest dividends into account in
determining certain adjustments for federal alternative minimum tax purposes.
Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits. Interest on indebtedness incurred by a shareholder
to purchase or carry Fund shares generally is not deductible for federal income
tax purposes.
Dividends from the Fund which are derived from taxable income or from
long-term or short-term capital gains will be subject to federal income tax,
whether such dividends are paid in the form of cash or additional Retail A
Shares of the Fund.
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
Investors considering buying shares of the Fund on or just before the record
date of a capital gain distribution should be aware that the amount of the
forthcoming distribution payment, although in effect a return of capital,
generally will be subject to tax.
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A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Fund may be
taxable to shareholders under state or local law as dividend income, even though
all or a portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.
The Fund has received a ruling from the Rhode Island Division of Taxation to
the effect that distributions by it to its shareholders are exempt from Rhode
Island personal income taxation and the Rhode Island business corporation tax to
the extent they are derived from (and designated by the Fund as being derived
from) interest earned on Rhode Island Municipal Securities (as defined above) or
obligations of the United States. Distributions from the Fund's other net
investment income and short-term capital gains will be taxable as ordinary
income. Distributions from the Fund's net long-term capital gains will be
taxable as long-term capital gains regardless of how long the shareholder has
owned Fund shares. The tax treatment of distributions is the same whether
distributions are paid in cash or in additional Retail A Shares of the Fund.
The Fund will be subject to the Rhode Island business corporation tax on its
"gross income" apportioned to the State of Rhode Island. For this purpose, gross
income does not include interest income earned by the Fund on Rhode Island
Municipal Securities and obligations of the United States, capital gains
realized by the Fund on the sale of certain Rhode Island Municipal Securities,
and 50 percent of the Fund's other net capital gains.
MISCELLANEOUS
The foregoing summarizes some of the important tax considerations generally
affecting the Fund and its shareholders and is not intended as a substitute for
careful tax planning. Accordingly, potential investors in the Fund should
consult their tax advisers with specific reference to their own tax situation.
Shareholders will be advised annually as to the federal income tax consequences
and Rhode Island personal income tax consequences of distributions made each
year.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients, and
manages the other investment portfolios of Galaxy.
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Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Fund,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of .75% of the average daily net assets of the Fund.
Fleet may from time to time, in its discretion, waive advisory fees payable
by the Fund in order to help maintain a competitive expense ratio and may from
time to time allocate a portion of its advisory fees to Fleet Bank or other
subsidiaries of Fleet Financial Group, Inc., in consideration for administrative
and/or shareholder support services which they provide to beneficial
shareholders. Fleet is currently waiving a portion of the advisory fee payable
to it by the Fund so that it is entitled to receive advisory fees at the annual
rate of .55% of the Fund's average daily net assets, but Fleet may in its
discretion revise or discontinue this waiver at any time. For the fiscal year
ended October 31, 1997, Fleet received advisory fees (after fee waivers) at the
effective annual rate of .25% of the Fund's average daily net assets. In
addition to the fee waivers, Fleet reimbursed the Fund during the fiscal year
ended October 31, 1997 for certain operating expenses, which reimbursement may
be revised or discontinued at any time.
The organizational arrangements of Fleet require that all investment
decisions with respect to the Fund be made by Fleet's Tax-Exempt Investment
Policy Committee, and no one person is primarily responsible for making
recommendations to that committee.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the SEC, financial institutions that are affiliated with
Fleet or that have sold shares of the Funds, if Fleet believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Retail A
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which have agreed to provide shareholder support services that are
banks or bank affiliates are subject to such banking laws and regulations.
Should legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Fund,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Fund's method of operation would not
affect its net asset value per share or result in financial losses to any
shareholder.
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ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581, serves as the
Fund's administrator. Investor Services Group is a wholly-owned subsidiary of
First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Fund, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of combined
average daily net assets of the Fund and the other portfolios offered by Galaxy
(collectively, the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily all or a portion of the
administration fee payable to it by the Fund. For the fiscal year ended October
31, 1997, Investor Services Group received administration fees at the effective
annual rate of .082% of the Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each series in the Fund as follows: Class R -
Series 1 shares (Trust Shares) and Class R - Series 2 shares (Retail A Shares),
both series representing interests in the Fund. The Fund is classified as a
non-diversified company under the 1940 Act. The Board of Trustees has also
authorized the issuance of additional classes and series of shares representing
interests in other portfolios of Galaxy. For information regarding the Fund's
Trust Shares and these other portfolios, which are offered through separate
prospectuses, contact FD Distributors at 1-800-628-0414. As of the date of this
Prospectus, Trust Shares of the Fund are not being offered to investors.
Shares of each series in the Fund bear their pro rata portfolio of all
operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below. Currently, these payments are not
made with respect to the Fund's Trust Shares. In addition, shares of each series
in the Fund bear differing transfer agency expenses. Standardized yield and
total return quotations are computed separately for each series of shares. The
differences in the expenses paid by the respective series will affect their
performance.
Retail A Shares of the Fund have certain exchange and other privileges which
are not available to Trust Shares. Trust Shares of the Fund are sold without a
sales load.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, currently represents an equal proportionate interest in the
related investment portfolio with other shares of the same class, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to such investment portfolio as are declared in the discretion
of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise
35
<PAGE>
expressly required by law or when the Board of Trustees determines that the
matter to be voted on affects only the interests of shareholders of a particular
class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.30% of the average daily net asset value of Retail A Shares beneficially owned
by Customers. Institutions may receive up to one-half of this fee for providing
one or more of the following services to such Customers: aggregating and
processing purchase and redemption requests and placing net purchase and
redemption orders with FD Distributors; processing dividend payments from the
Fund; providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and providing periodic mailings to
Customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such Customers: providing
Customers with information as to their positions in Retail A Shares; responding
to Customer inquiries; and providing a service to invest the assets of Customers
in Retail A Shares. These services are described more fully in the Statement of
Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .15% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund. Galaxy understands that Institutions may charge
fees to their Customers who are the beneficial owners of Retail A Shares in
connection with their accounts with such Institutions. Any such fees would be in
addition to any amounts which may be received by an Institution under the
Shareholder Services Plan. Under the terms of each servicing agreement entered
into with Galaxy, Institutions are required to provide to their Customers a
schedule of any fees that they may charge in connection with Customer
investments in Retail A Shares.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank, located at One Chase Manhattan Plaza, New York,
New York 10081, a wholly-owned subsidiary of The Chase Manhattan Corporation,
serves as the custodian of the Fund's assets, and First Data Investor Services
Group, Inc. ("Investor Services Group"), a wholly-owned subsidiary of First Data
Corporation, serves as the Fund's transfer and dividend disbursing agent.
Services performed by both entities for the Fund are described in the Statement
of Additional Information. Communications to Investor Services Group should be
directed to Investor Services Group at P.O. Box 5108, 4400 Computer Drive,
Westboro, Massachusetts 01581.
36
<PAGE>
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Fund. Galaxy bears
the expenses incurred in the Fund's operations. Such expenses include taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, fund accounting and custody fees; charges of the transfer agent, and
dividend disbursing agent; certain insurance premiums; outside auditing and
legal expenses; costs of independent pricing services; costs of shareholders'
reports and meetings; and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions in connection with the purchase of portfolio
securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant bond indices
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by LIPPER ANALYTICAL
SERVICES, INC., a widely recognized independent service which monitors the
performance of mutual funds.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or publications of a local or regional nature, may also
be used in comparing the performance of the Fund. Performance data will be
calculated separately for Retail A Shares and Trust Shares of the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and analyzing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The Fund may also quote its "tax-equivalent yield" which
demonstrates the level of taxable yield necessary to produce an after-tax
equivalent yield to the Fund's tax-free yield. It is calculated by increasing
the Fund's yield (calculated above) by the amount necessary to reflect the
payment of federal income taxes at a stated tax rate. The Fund's tax-equivalent
yield will always be higher than its yield.
The Fund may also advertise its performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five-and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return reflect
the sales load charged by the Fund with respect to its Retail A Shares and
assume that dividends and capital gains distributions made by the Fund during
the period are reinvested in Fund shares.
37
<PAGE>
The Fund may also advertise total return data without reflecting the sales
charge imposed on the purchase of Retail A Shares in accordance with the rules
of the SEC. Quotations that do not reflect the sales charge will be higher than
quotations that do reflect the sales charge.
The performance of the Fund will fluctuate and any quotation of performance
should not be considered as representative of future performance. Since yield
fluctuates, yield data cannot necessarily be used to compare an investment in
the Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance data are
generally functions of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions.
Any additional fees charged directly by Institutions to accounts of
Customers that have invested in Retail A Shares of the Fund will not be included
in performance calculations.
The Fund's portfolio manager and other investment professionals may from
time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
38
<PAGE>
TRUST
THE GALAXY FUND
EQUITY VALUE FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY........................................................... 2
FINANCIAL HIGHLIGHTS...................................................... 3
INVESTMENT OBJECTIVE AND POLICIES......................................... 5
In General.............................................................. 5
Special Risk Considerations............................................. 6
Other Investment Policies and Risk Considerations....................... 6
INVESTMENT LIMITATIONS.................................................... 12
PRICING OF SHARES......................................................... 14
HOW TO PURCHASE AND REDEEM SHARES......................................... 14
Distributor............................................................. 14
Purchase of Shares...................................................... 14
Redemption of Shares.................................................... 15
DIVIDENDS AND DISTRIBUTIONS............................................... 16
TAXES..................................................................... 16
Federal................................................................. 16
State and Local......................................................... 17
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT OF THE FUND.................................................... 18
Investment Adviser...................................................... 18
Authority to Act as Investment Adviser.................................. 19
Administrator........................................................... 19
DESCRIPTION OF GALAXY AND ITS SHARES...................................... 19
Shareholder Services Plan............................................... 20
Agreements for Sub-Account Services..................................... 21
CUSTODIAN AND TRANSFER AGENT.............................................. 21
EXPENSES.................................................................. 21
PERFORMANCE REPORTING..................................................... 22
MISCELLANEOUS............................................................. 23
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts regarding purchases, redemptions,
01581-5108 exchanges and other shareholder services
or for current performance call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares"), which
represent interests in the EQUITY VALUE FUND (the "Fund") offered by Galaxy.
The Fund's investment objective is to seek long-term capital appreciation.
Income is secondary to the objective of capital appreciation. The Fund attempts
to achieve this objective by investing, under normal market and economic
conditions, at least 75% of its total assets in common stock, preferred stock
and debt securities convertible into common stock that the Fund's investment
adviser believes are undervalued and exhibit acceptable levels of risk.
This Prospectus describes Trust Shares in the Fund. Trust Shares are offered
to investors maintaining qualified accounts primarily at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue two additional series of shares in the Fund,
Retail A Shares and Retail B Shares (Retail A Shares and Retail B Shares are
referred to herein collectively as "Retail Shares"), which are offered under a
separate prospectus primarily to individuals, corporations or other entities
purchasing either for their own accounts or for the accounts of others and to
FIS Securities Inc., Fleet Brokerage Corporation, Fleet Securities, Inc., Fleet
Enterprises, Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks and other qualified banks, savings and loan associations and
broker/dealers on behalf of their customers. Trust Shares, Retail A Shares and
Retail B Shares represent equal pro rata interests in the Fund, except they bear
different expenses which reflect the difference in the range of services
provided to them. See "Financial Highlights," "Management of the Fund" and
"Description of Galaxy and Its Shares" herein.
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF, OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------
FEBRUARY 28, 1998
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Trust Shares and (ii) the operating
expenses for Trust Shares of the Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
EQUITY
VALUE
SHAREHOLDER TRANSACTION EXPENSES FUND
- ---------------------------------------------------------------------- ------
<S> <C>
Sales Load............................................................ None
Sales Load on Reinvested Dividends.................................... None
Deferred Sales Load................................................... None
Redemption Fees....................................................... None
Exchange Fees......................................................... None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------
<S> <C>
Advisory Fees......................................................... .75%
12b-1 Fees............................................................ None
Other Expenses........................................................ .31%
------
Total Fund Operating Expenses......................................... 1.06%
------
------
</TABLE>
- ---------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Value Fund..................................................... $11 $33 $57 $127
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly. The information contained in the Expense Summary and
Example is based on expenses incurred by the Fund during the last fiscal year,
restated to reflect the expenses which the Fund expects to incur during the
current fiscal year on its Trust Shares. For more complete descriptions of these
costs and expenses, see "Management of the Fund" and "Description of Galaxy and
Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information relating
to the Fund. Any fees that are charged by affiliates of Fleet or other
institutions directly to their customer accounts for services related to an
investment in Trust Shares of the Fund are in addition to and not reflected in
the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy is also
authorized to issue two additional series of shares in the Fund, Retail A Shares
and Retail B Shares. As described below under "Description of Galaxy and Its
Shares," Trust Shares, Retail A Shares and Retail B Shares represent equal pro
rata interests in the Fund, except that (i) effective October 1, 1994 Retail A
Shares of the Fund bear the expenses incurred under Galaxy's Shareholder
Services Plan at an annual rate of up to .30% of the average daily net asset
value of the Fund's outstanding Retail A Shares, (ii) Retail B Shares of the
Fund bear the expenses incurred under Galaxy's Distribution and Services Plan
for Retail B Shares at an annual rate of up to .95% of the average daily net
asset value of the Fund's outstanding Retail B Shares, and (iii) Trust Shares,
Retail A Shares and Retail B Shares bear differing transfer agency expenses.
The financial highlights presented below have been audited by Coopers &
Lybrand L.L.P., Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Fund dated October 31,
1997 (the "Annual Report"). Such financial highlights should be read in
conjunction with the financial statements and notes thereto contained in the
Annual Report and incorporated by reference into the Statement of Additional
Information relating to the Fund. Information in the financial highlights for
periods prior to the fiscal year ended October 31, 1994 reflects the investment
results of both Trust Shares and Retail A Shares of the Fund (Retail A Shares of
the Fund were first offered during the fiscal year ended October 31, 1991). More
information about the performance of the Fund is also contained in the Annual
Report, which may be obtained without charge by contacting Galaxy at its
telephone number or address provided above.
3
<PAGE>
EQUITY VALUE FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------- PERIOD
ENDED
1997 1996 1995 1994 YEAR ENDED OCTOBER 31,(2) OCTOBER
----------------------------------------- ---------------------------------------------------- 31,
TRUST SHARES 1993 1992 1991 1990 1989 1988(1,2)
----------------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period............. $ 15.96 $ 14.33 $ 13.32 $ 13.12 $ 11.41 $ 11.52 $ 9.45 $ 11.51 $ 10.41 $ 10.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
Investment
Operations:
Net investment
income(3,4)...... 0.17 0.21 0.28 0.19 0.19 0.26 0.37 0.39 0.36 0.03
Net realized and
unrealized gain
(loss) on
investments...... 4.16 2.74 2.24 0.45 2.14 0.33 2.41 (1.37) 1.10 0.38
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
Investment
Operations:.... 4.33 2.95 2.52 0.64 2.33 0.59 2.78 (0.98) 1.46 0.41
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net
investment
income........... (0.18) (0.21) (0.30) (0.16) (0.20) (0.27) (0.37) (0.38) (0.36) --
Dividends from net
realized capital
gains............ (1.90) (1.11) (1.21) (0.28) (0.42) (0.43) (0.34) (0.70) -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
Dividends:..... (2.08) (1.32) (1.51) (0.44) (0.62) (0.70) (0.71) (1.08) (0.36) --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net increase
(decrease) in net
asset value........ 2.25 1.63 1.01 0.20 1.71 (0.11) 2.07 (2.06) 1.10 0.41
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End
of Period.......... $ 18.21 $ 15.96 $ 14.33 $ 13.32 $ 13.12 $ 11.41 $ 11.52 $ 9.45 $ 11.51 $ 10.41
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Return........ 29.87% 22.05% 21.31% 5.05% 21.18% 5.66% 30.45% (9.43)% 14.19% 4.10%(5)
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's)... $241,532 $194,827 $165,330 $154,403 $176,107 $133,578 $ 99,601 $ 92,893 $ 92,366 $75,774
Ratios to average
net assets:
Net investment
income including
reimbursement/
waiver........... 0.98% 1.42% 2.10% 1.46% 1.52% 2.24% 3.25% 3.66% 3.25% 1.89%(6)
Operating expenses
including
reimbursement/
waiver........... 1.04% 1.03% 1.02% 1.06% 0.97% 0.94% 0.94% 0.95% 0.97% 0.95%(6)
Operating expenses
excluding
reimbursement/
waiver........... 1.04% 1.03% 1.02% 1.06% 0.97% 0.94% 0.94% 0.95% 0.98% 0.95%(6)
Portfolio Turnover
Rate............... 111% 116% 76% 71% 50% 136% 40% 94% 44% 4%(5)
Average Commission
Rate Paid(7)....... $ 0.0601 $ 0.0605 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- ---------
(1) The Fund commenced operations on September 1, 1988.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
reflect the financial results of both Trust and Retail Shares. On September
7, 1995, Retail Shares of the Fund were redesignated "Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Trust Shares for the years ended
October 31, 1997, 1996, 1995 and 1994 was $0.17, $0.21, $0.28 and $0.19,
respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1993,
1992, 1991, 1990 and 1989 and for the period ended October 31, 1988 was
$0.19, $0.26, $0.37, $0.39, $0.36 and $0.03, respectively.
(5) Not Annualized.
(6) Annualized.
(7) Required for fiscal years beginning on or after September 1, 1995.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The investment objective of the Fund, is to seek long-term capital
appreciation. The Fund attempts to achieve its investment objective by investing
primarily in common stock, preferred stock (including convertible preferred
stock) and debt obligations convertible into common stock that Fleet Investment
Advisors Inc. ("Fleet"), the Fund's investment adviser, believes to be
undervalued, as measured by various financial tests, including one or more of
the following: cash flow, return on equity, return on assets, fixed charge
coverage and ratios of market capitalization to revenues. In addition, Fleet
considers the current value of an issuer's fixed assets (including real estate),
cash items, net working capital, indebtedness and historical book value. Stocks
which appear to be undervalued are also reviewed to determine whether
unacceptable risks account for their low valuation. The Fund also seeks to
purchase stock with a projected price-earnings ratio below that of the Standard
& Poor's 500 Composite Stock Price Index (the "S&P 500").
Under normal market and economic conditions, the Fund invests at least 75%
of its total assets in common stock, preferred stock and debt securities
convertible into common stock that Fleet believes to be undervalued. Debt
securities convertible into common stock are purchased primarily during periods
of relative market instability and are acquired principally for income with the
potential for appreciation being a secondary consideration. Equity investments
consist primarily of common stock of companies having capitalizations that
exceed $100 million. Stocks of such companies generally are listed on a national
exchange or are unlisted securities with an established over-the-counter market.
The Fund may hold other types of securities in such proportions as, in
Fleet's opinion, existing market and economic conditions may warrant, including
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and other high quality "money market" instruments. The Fund
may also hold cash pending investment, during temporary defensive periods or if,
in the opinion of Fleet, suitable stock or convertible debt securities are
unavailable. The Fund may also invest up to 20% of its total assets in foreign
securities either directly or indirectly through American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"). In addition, the Fund may
invest in securities issued by foreign branches of U.S. banks and foreign banks.
See "Special Risk Considerations--Foreign Securities" and "Other Investment
Policies and Risk Considerations--American and European Depository Receipts"
below. The Fund may also write covered call options. See "Other Investment
Policies and Risk Considerations--Covered Call Options" and "Other Investment
Policies and Risk Considerations--Derivative Securities" below. See "Other
Investment Policies and Risk Considerations" below for information regarding
additional investment policies of the Fund.
Fleet will use its best efforts to achieve the Fund's investment objective,
although its achievement cannot be assured. The investment objective of the Fund
may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program.
5
<PAGE>
SPECIAL RISK CONSIDERATIONS
MARKET RISK
The Fund invests primarily in equity securities. As with other mutual funds
that invest primarily in equity securities, the Fund is subject to market risks.
That is, the possibility exists that common stocks will decline over short or
even extended periods of time and both the U.S. and certain foreign equity
markets tend to be cyclical, experiencing both periods when stock prices
generally increase and periods when stock prices generally decrease.
INTEREST RATE RISK
To the extent that the Fund invests in fixed income securities, its holdings
of such securities are sensitive to changes in interest rates and the interest
rate environment. Generally, the prices of bonds and other debt securities
fluctuate inversely with interest rate change.
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs, as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
prices of the Fund's securities in their local markets. Conversely, a decrease
in the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in countries with emerging economies or
emerging securities markets. The risks of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which one or
more of the Funds have the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
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RATINGS
All debt obligations, including convertible bonds, purchased by the Fund are
rated investment grade by Moody's Investment Services, Inc. ("Moody's") ("Aaa,"
"Aa," "A" and "Baa") or Standard & Poor's Ratings Group ("S&P") ("AAA," "AA,"
"A" and "BBB"), or, if not rated, are determined to be of comparable quality by
Fleet. Debt securities rated "Baa" by Moody's or "BBB" by S&P are generally
considered to be investment grade securities although they may have speculative
characteristics and changes in economic conditions or circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
then is the case for higher rated obligations.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than 10
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Time deposits with a maturity longer
than seven days or that do not provide for payment within seven days after
notice will be limited to 10% of the Fund's net assets.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject the Fund to additional risk because such
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable
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to domestic branches of U.S. banks. Such investments may also subject the Fund
to investment risks similar to those accompanying direct investments in foreign
securities. See "Special Risk Considerations-- Foreign Securities." The Fund
will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet believes that the credit risk with
respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations" below.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
The Fund will not enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand upon notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 10% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with the investment limitations described
below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral,
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should the borrower of the securities fail financially. Any portfolio securities
purchased with cash collateral would also be subject to possible depreciation.
Loans will generally be short-term, will be made only to borrowers deemed by
Fleet to be of good standing and only when, in Fleet's judgment, the income to
be earned from the loan justifies the attendant risks. The Fund currently
intends to limit the lending of its portfolio securities so that, at any given
time, securities loaned by the Fund represent not more than one-third of the
value of its total assets.
INVESTMENT COMPANY SECURITIES
The Fund may invest in securities issued by other investment companies which
invest in high quality, short-term debt securities and which determine their net
asset value per share based on the amortized cost or penny-rounding method.
Investments in other investment companies will cause the Fund (and, indirectly,
the Fund's shareholders) to bear proportionately the costs incurred in
connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Fund within the limits prescribed
by the Investment Company Act of 1940, as amended, (the "1940 Act"). The Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, or any other investment companies
advised by Fleet.
REITS
The Fund may invest up to 10% of its net assets in real estate investment
trusts ("REITs"). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of a REIT's
investments. In addition, equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, are not diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital. See
"Taxes."
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COVERED CALL OPTIONS
To further increase return on its portfolio securities and in accordance
with its investment objective and policies, the Fund may engage in writing
covered call options (options on securities owned by the Fund) and may enter
into closing purchase transactions with respect to such options. Such options
must be listed on a national securities exchange and issued by the Options
Clearing Corporation. The aggregate value of the securities subject to options
written by the Fund may not exceed 25% of the value of its net assets. By
writing a covered call option, the Fund foregoes the opportunity to profit from
an increase in the market price of the underlying security above the exercise
price, except insofar as the premium represents such a profit. The Fund will not
be able to sell the underlying security until the option expires or is exercised
or the Fund effects a closing purchase transaction by purchasing an option of
the same series. Such options would normally be written only on underlying
securities as to which Fleet does not anticipate significant short-term capital
appreciation. See "Derivative Securities" below.
AMERICAN AND EUROPEAN DEPOSITORY RECEIPTS
The Fund may invest in ADRs and EDRs. ADRs are receipts issued in registered
form by a U.S. bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. EDRs are receipts issued in Europe
typically by non-U.S. banks or trust companies and foreign branches of U.S.
banks that evidence ownership of foreign or U.S. securities. ADRs may be listed
on a national securities exchange or may be traded in the over-the-counter
market. EDRs are designed for use in European exchange and over-the-counter
markets. ADRs and EDRs traded in the over-the-counter market which do not have
an active or substantial secondary market will be considered illiquid and
therefore will be subject to the Fund's limitation with respect to such
securities. ADR prices are denominated in U.S. dollars although the underlying
securities are denominated in a foreign currency. Investments in ADRs and EDRs
involve risks similar to those accompanying direct investments in foreign
securities. Certain of these risks are described above under "Special Risk
Considerations--Foreign Securities."
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Fund may buy and sell securities denominated in currencies other
than the U.S. dollar, and may receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Fund from time to time may enter into
foreign currency exchange transactions to convert the U.S. dollar to foreign
currencies, to convert foreign currencies to the U.S. dollar and to convert
foreign currencies to other foreign currencies. The Fund either enters into
these transactions on a spot (I.E. cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another--for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen--at a future
date and at a specified price. Typically, the other party to a currency exchange
contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, such
contracts are rolled over in a manner consistent with a more long-term currency
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decision. Because there is a risk of loss to the Fund if the other party does
not complete the transaction, forward foreign currency exchange contracts will
be entered into only with parties approved by Galaxy's Board of Trustees.
The Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency--for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S.
dollars--at a future date and at a specified price in anticipation of a decline
in the value of the currency sold short relative to the currency that the Fund
has contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash or other liquid assets equal in value to the fluctuating market value of
the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the Statement of
Additional Information relating to the Fund for additional information regarding
foreign currency exchange transactions.
CONVERTIBLE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
invest in convertible securities. Convertible securities are fixed income
securities which may be exchanged or converted into a predetermined number of
shares of the issuer's underlying common stock at the option of the holder
during a specified time period. Convertible securities in which the Fund may
invest may take the form of convertible preferred stock and convertible bonds or
debentures.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Convertible securities are senior to equity securities and
therefore have a claim to the assets of the issuer prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same issuer.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in Fleet's opinion,
the investment characteristics of the underlying common shares will assist the
Fund in achieving its investment objective. Otherwise, the Fund will hold or
trade the convertible securities. In selecting convertible securities for the
Fund, Fleet evaluates the investment characteristics of the convertible security
as a fixed income instrument, and the investment potential of the underlying
equity security for capital appreciation. In evaluating these matters with
respect to a particular convertible security, Fleet considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
purchase certain "derivative" securities. Derivative securities are instruments
that derive their value from the performance
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of underlying assets, interest or currency exchange rates, or indices, and
include, but are not limited to, covered call options and foreign currency
exchange contracts.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Fund will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Fund, and will determine, in connection with its day-to-day
management of the Fund, how such securities will be used in furtherance of the
Fund's investment objective. It is possible, however, that Fleet's evaluations
will prove to be inaccurate or incomplete and, even when accurate and complete,
it is possible that the Fund will, because of the risks discussed above, incur
loss as a result of its investments in derivative securities. See "Investment
Objectives and Policies--Derivative Securities" in the Statement of Additional
Information relating to the Fund for additional information.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if Fleet
believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio rate of 100% or
more is considered high although the rate of turnover will not be a limiting
factor on making portfolio decisions. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expenses and other transaction
costs, which must be ultimately borne by the Fund's shareholders. High portfolio
turnover may result in the realization of substantial net capital gains;
distributions derived from such gains will be treated as ordinary income for
federal income tax purposes. See "Financial Highlights" and "Taxes--Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information relating to the Fund under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) the Fund may lend portfolio securities against collateral
consisting of cash
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or securities which are consistent with its permitted investments, where the
value of the collateral is equal at all times to at least 100% of the value
of the securities loaned.
2. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase agreements
in accordance with its investment policies and in amounts not in excess of
10% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the Fund's total assets at the time
of such borrowing. The Fund will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other securities
which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of the Fund's
total assets would be invested in such issuer, except that up to 25% of the
value of its total assets may be invested without regard to this limitation.
In addition, the Fund may not purchase any securities which would cause 25%
or more of the value of its total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, the Fund intends to limit
any borrowings (including reverse repurchase agreements) to not more than 10% of
the value of its total assets at the time of such borrowing.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. The Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
10% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered to be
illiquid if Fleet has determined, in accordance with guidelines established by
the Board of Trustees, that an adequate trading market exists for such
securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
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PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). The net asset value per share is determined on each
day on which the Exchange is open for trading. Currently, the holidays which
Galaxy observes are New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value per share for purposes of pricing sales and
redemptions is calculated separately for each series of shares by dividing the
value of all securities and other assets attributable to a particular series of
shares of the Fund, less the liabilities attributable to the shares of that
series of the Fund, by the number of outstanding shares of that series of the
Fund.
The assets in the Fund which are traded on a recognized stock exchange are
valued at the last sale price on the securities exchange on which such
securities are primarily traded or at the last sale price on the national
securities market. Securities quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by Fleet under the
supervision of Galaxy's Board of Trustees. An option is generally valued at the
last sale price or, in the absence of a last sale price, the last offer price.
Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except when an occurrence subsequent
to the time a value was so established is likely to have changed such value,
then the fair value of those securities will be determined through consideration
of other factors by or under the direction of the Board of Trustees. A security
which is listed or traded on more than one exchange is valued at the quotation
on the exchange determined to be the primary market for such security. For
valuation purposes, quotations of foreign securities in foreign currency are
converted to U.S. dollars equivalent at the prevailing market rate on the day of
valuation.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by
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Institutions. The Institution is responsible for transmitting to FD Distributors
orders for purchases of Trust Shares and for wiring required funds in payment to
Galaxy's custodian on a timely basis. FD Distributors is responsible for
transmitting such orders to Galaxy's transfer agent for execution. Beneficial
ownership of Trust Shares will be recorded by the Institution and reflected in
the account statements it provides to its Customers. Confirmations of purchases
and redemptions of Trust Shares will be sent to the appropriate Institution.
Purchases of Trust Shares will be effected only on days on which FD
Distributors, Galaxy's custodian and the purchasing Institution are open for
business ("Business Days").
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that the Fund's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If an Institution accepts a purchase
order from its Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Fund and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts (including defined contribution plans). Investors should contact their
Institution (in the case of employer-sponsored defined contribution plans, their
employer) for further information concerning the types of eligible Customer
accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirements with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by their customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Funds may also be available for purchase through
different types of retirement plans offered by an Institution to its Customers.
Information pertaining to such plans is available directly from the Institution.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge
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its Customers' accounts for redemption services. Information relating to such
redemption services and charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day will normally be wired on the following Business
Day to the Institution. Payment for redemption orders received on a non-Business
Day will normally be wired to the Institution on the next Business Day. However,
in both cases Galaxy reserves the right to wire redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. The Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon sixty days
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared and paid
quarterly. Dividends on each share of the Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
16
<PAGE>
The policy of the Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional Trust Shares.
(Federal income taxes for distributions to an IRA or a qualified retirement plan
are deferred under the Code.) Such ordinary income distributions will qualify
for the dividends received deduction for corporations to the extent of the total
qualifying dividends received by the Fund from domestic corporations for the
taxable year.
Distribution by the Fund of "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, of the
Fund is taxable to shareholders as long-term capital gain, regardless of how
long the shareholder has held shares and whether such gains are received in cash
or reinvested in additional Trust Shares. Such long-term capital gain will
constitute 20% or 28% rate gain, depending upon the Fund's holding period for
the assets the sale of which generated the gain. Such distributions are not
eligible for the dividends received deduction.
The dividends received deduction is not available for dividends attributable
to distributions made by a REIT to the Fund. In addition, distributions paid by
REITs often include a "return of capital." The Code requires a REIT to
distribute at least 95% of its taxable income to investors. In many cases,
however, because of "non-cash" expenses such as property depreciation, an equity
REIT's cash flow will exceed its taxable income. The REIT may distribute this
excess cash to offer a more competitive yield. This portion of the distribution
is deemed a return of capital and is generally not taxable to shareholders.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying shares of the Fund on or just before the
record date of a dividend or capital gain distribution, you should be aware that
the amount of the forthcoming distribution payment, although in effect a return
of capital, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
17
<PAGE>
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients and
manages the other investment portfolios of Galaxy: the Money Market, Government,
U.S. Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Institutional Government Money Market Fund, Equity
Growth, Equity Income, International Equity, Asset Allocation, Small Company
Equity, MidCap Equity, Small Cap Value, Growth and Income, Strategic Equity,
Short-Term Bond, Intermediate Government Income, High Quality Bond, Corporate
Bond, Tax-Exempt Bond, New Jersey Municipal Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond Fund and Rhode Island
Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Fund,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of .75% of the average daily net assets of the Fund.
Fleet may from time to time, in its discretion, waive all or a portion of
the advisory fees payable by the Fund in order to help maintain a competitive
expense ratio and may from time to time allocate a portion of its advisory fees
to Fleet Bank or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders. For the fiscal year ended October 31, 1997,
Fleet received advisory fees (after fee waivers) at the effective annual rate of
.75% of the Fund's average daily net assets. During the fiscal year ended
October 31, 1997, Fleet reimbursed the Fund for certain operating expenses,
which reimbursement may be revised or discontinued at any time.
The Fund's portfolio manager, G. Jay Evans, is primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. Evans has been
with Fleet and its predecessors since 1978, is a Senior Vice President, and has
been the Fund's portfolio manager since the spring of 1993.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission ("SEC"), financial
institutions that are affiliated with Fleet or that have sold shares of the
Funds, if Fleet believes that the quality of the transaction and the commission
are comparable to what they would be with other qualified brokerage firms.
18
<PAGE>
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which agree to provide shareholder support services that are banks
or bank affiliates are subject to such banking laws and regulations. Should
legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Fund,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Fund's method of operation would not
affect the Fund's net asset value per share or result in financial loss to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For services provided to the Fund, Investor Services Group
is entitled to receive administration fees, computed daily and paid monthly, at
the annual rate of .09% of the first $2.5 billion of the combined average daily
net assets of the Fund and the other portfolios offered by Galaxy (collectively,
the "Portfolios"), .085% of the next $2.5 billion of combined average daily net
assets and .075% of combined average daily net assets over $5 billion. In
addition, Investor Services Group also receives a separate annual fee from each
Portfolio for certain fund accounting services. From time to time, Investor
Services Group may waive voluntarily all or a portion of the administration fee
payable to it by the Fund. For the fiscal year ended October 31, 1997, the Fund
paid administration fees to Investor Services Group at the effective annual rate
of .082% of the Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in the Fund: Class C shares (Trust Shares), Class
C - Special Series 1 shares (Retail A Shares) and Class C - Special 2 shares
(Retail B Shares), each series representing interests in the Fund. The Fund is
classified as a diversified company under the 1940 Act. The Board of Trustees
has also authorized the issuance of additional classes and series of shares
representing interests in other portfolios of Galaxy. For information regarding
the Fund's Retail Shares and these other portfolios, which are offered through
separate prospectuses, contact FD Distributors at 1-800-628-0414.
19
<PAGE>
Trust Shares, Retail A Shares and Retail B Shares in the Fund bear their pro
rata portion of all operating expenses paid by the Fund except as follows.
Holders of the Fund's Retail A Shares bear the fees that are paid to
Institutions under Galaxy's Shareholder Services Plan described below and
holders of the Fund's Retail B Shares bear the fees described in the prospectus
for such Shares that are paid under Galaxy's Distribution and Services Plan at
an annual rate of up to .95% of the average daily net asset value of the Fund's
outstanding Retail B Shares. Currently, these payments are not made with respect
to the Fund's Trust Shares. In addition, Trust Shares, Retail A Shares and
Retail B Shares in the Fund bear differing transfer agency expenses.
Standardized yield and total return quotations are computed separately for each
series of shares. The differences in the expenses paid by the respective series
will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end sales charge
of 3.75%. Retail B Shares of the Fund are sold with a maximum contingent
deferred sales charge of 5.0% and automatically convert to Retail A Shares of
the Fund six years after the date of purchase. Retail A Shares and Retail B
Shares have certain exchange and other privileges which are not available with
respect to Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class, and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to such investment portfolio as are declared in the discretion of
Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.50% of the average daily net asset value of the Fund's outstanding Retail A
Shares beneficially owned by customers. Institutions may receive up to one-half
of this fees for providing one or more of the following services to such
Customers: aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with FD Distributors; processing
dividend payments from the Fund; providing sub-accounting with respect to Retail
A Shares or the information necessary for sub-accounting; and providing periodic
mailings to Customers. Institutions may also receive up to one-half of this fee
for providing one or more of these additional services to such Customers:
providing Customers with information as to their positions in Retail A Shares;
responding to Customer inquiries; and providing a service to invest the assets
of Customers in Retail A Shares. These services are described more fully in the
Statement of Additional Information under "Shareholder Services Plan."
20
<PAGE>
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may entered into agreements with one or more
entities, including affiliates of Fleet, pursuant to which such entities agree
to perform certain sub-account and administrative functions ("Sub-Account
Services") on a per account basis with respect to Trust Shares of the Fund held
by defined contribution plans, including: maintaining records reflecting
separately with respect to each plan participant's sub-account all purchases and
redemptions of Trust Shares and the dollar value of Trust Shares in each
sub-account; crediting to each participant's sub-account all dividends and
distributions with respect to that sub-account; and transmitting to each
participant a periodic statement regarding the sub-account as well as any proxy
materials, reports and other material Fund communications. Such entities are
compensated by Investor Services Group for the Sub-Account Services and in
connection therewith the transfer agency fees payable by Trust Shares of the
Fund to Investor Services Group have been increased by an amount equal to these
fees. In substance, therefore, the holders of Trust Shares of the Fund
indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as custodian of the Fund's assets. Chase Manhattan
may employ sub-custodians for the Fund for the purpose of providing custodial
services for the Fund's foreign assets held outside the United States. First
Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-owned
subsidiary of First Data Corporation, serves as the Fund's transfer and dividend
disbursing agent. Services performed by these entities for the Fund are
described in the Statement of Additional Information. Communications to Investor
Services Group should be directed to Investor Services Group at P.O. Box 5108,
4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Fund. Galaxy bears
the expenses incurred in the Fund's operations. Such expenses include: taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration,
21
<PAGE>
shareholder servicing, Rule 12b-1 distribution, fund accounting and custody
fees; charges of the transfer agent and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; costs of independent
pricing services; costs of shareholder reports and meetings; and any
extraordinary expenses. The Fund also pays for brokerage fees and commissions in
connection with the purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds, the S&P 500, an unmanaged index of groups of common
stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES or publications of a local or regional nature may also be
used in comparing the performance of the Fund. Performance data will be
calculated separately for Trust Shares, Retail A Shares and Retail B Shares of
the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and analyzing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividends and capital gain distributions made by the Fund during the period
are reinvested in Fund shares.
The performance of the Fund will fluctuate and any quotation of performance
should not be considered as representative of the future performance of the
Fund. Since yields fluctuate, yield data cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Trust Shares of the Fund will not be
included in performance calculations.
22
<PAGE>
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of the Fund or (b) 67% or more of
the shares of the Fund present at a meeting if more than 50% of the outstanding
shares of the Fund are represented at the meeting in person or by proxy.
23
<PAGE>
GALAXY
EQUITY VALUE
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-264 15031 (3/98)
<PAGE>
TRUST
THE GALAXY FUND
EQUITY GROWTH FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY........................................................... 2
FINANCIAL HIGHLIGHTS...................................................... 3
INVESTMENT OBJECTIVE AND POLICIES......................................... 5
In General.............................................................. 5
Special Risk Considerations............................................. 5
Other Investment Policies and Risk Considerations....................... 6
INVESTMENT LIMITATIONS.................................................... 12
PRICING OF SHARES......................................................... 14
HOW TO PURCHASE AND REDEEM SHARES......................................... 14
Distributor............................................................. 14
Purchase of Shares...................................................... 15
Redemption of Shares.................................................... 16
DIVIDENDS AND DISTRIBUTIONS............................................... 16
<CAPTION>
PAGE
----
<S> <C>
TAXES..................................................................... 16
Federal................................................................. 16
State and Local......................................................... 17
MANAGEMENT OF THE FUND.................................................... 17
Investment Adviser...................................................... 18
Authority to Act as Investment Adviser.................................. 18
Administrator........................................................... 19
DESCRIPTION OF GALAXY AND ITS SHARES...................................... 19
Shareholder Services Plan............................................... 20
Agreements for Sub-Account Services..................................... 21
CUSTODIAN AND TRANSFER AGENT.............................................. 21
EXPENSES.................................................................. 21
PERFORMANCE REPORTING..................................................... 22
MISCELLANEOUS............................................................. 23
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares"), which
represent interests in the EQUITY GROWTH FUND (the "Fund") offered by Galaxy.
The Fund's investment objective is to seek long-term capital appreciation.
The Fund attempts to achieve this objective by investing, under normal market
and economic conditions, at least 75% of its total assets in common stock,
preferred stock, common stock warrants and securities convertible into common
stock of companies that the Fund's investment adviser believes have
above-average earnings potential.
This Prospectus describes Trust Shares in the Fund. Trust Shares are offered
to investors maintaining qualified accounts primarily at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue two additional series of shares in the Fund,
Retail A Shares and Retail B Shares (Retail A Shares and Retail B Shares are
referred to herein collectively as "Retail Shares"). Retail Shares are offered
under a separate prospectus primarily to individuals, corporations or other
entities purchasing either for their own accounts or for the accounts of others
and to FIS Securities, Inc., Fleet Brokerage Corporation, Fleet Securities Inc.,
Fleet Enterprises Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks and other qualified banks, savings and loan associations and
broker/dealers on behalf of their customers. Trust Shares, Retail A Shares and
Retail B Shares represent equal pro rata interests in the Fund, except they bear
different expenses which reflect the difference in the range of services
provided to them. See "Financial Highlights," "Management of the Fund" and
"Description of Galaxy and Its Shares" herein.
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
FEBRUARY 28, 1998
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Trust Shares and (ii) the operating
expenses for Trust Shares of the Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
EQUITY
GROWTH
SHAREHOLDER TRANSACTION EXPENSES FUND
- ---------------------------------------------------------------------- ------
<S> <C>
Sales Load............................................................ None
Sales Load on Reinvested Dividends.................................... None
Deferred Sales Load................................................... None
Redemption Fees....................................................... None
Exchange Fees......................................................... None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------
<S> <C>
Advisory Fees......................................................... .75%
12b-1 Fees............................................................ None
Other Expenses........................................................ .25%
------
Total Fund Operating Expenses......................................... 1.00%
------
------
</TABLE>
- ---------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Growth Fund.................................................... $10 $31 $54 $120
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly. The information contained in the Expense Summary and
Example is based on expenses incurred by the Fund during the last fiscal year,
restated to reflect the expenses which the Fund expects to incur during the
current fiscal year on its Trust Shares. For more complete descriptions of these
costs and expenses, see "Management of the Fund" and "Description of Galaxy and
Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information relating
to the Fund. Any fees that are charged by affiliates of Fleet or other
institutions directly to their customer accounts for services related to an
investment in Trust Shares of the Fund are in addition to and not reflected in
the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy is also
authorized to issue two additional series of Shares in the Fund, Retail A Shares
and Retail B Shares. As described below under "Description of Galaxy and Its
Shares," Trust Shares, Retail A Shares and Retail B Shares represent equal pro
rata interests in the Fund, except that (i) effective October 1, 1994 Retail A
Shares of the Fund bear the expenses incurred under Galaxy's Shareholder
Services Plan at an annual rate of up to .30% of the average daily net asset
value of the Fund's outstanding Retail A Shares, (ii) Retail B Shares of the
Fund bear the expenses incurred under Galaxy's Distribution and Services Plan
for Retail B Shares at an annual rate of up to .95% of the average daily net
asset value of the Fund's outstanding Retail B Shares, and (iii) Trust Shares,
Retail A Shares and Retail B Shares bear differing transfer agency expenses.
The financial highlights presented below have been audited by Coopers &
Lybrand L.L.P., Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Fund dated October 31,
1997 (the "Annual Report"). Such financial highlights should be read in
conjunction with the financial statements and notes thereto contained in the
Annual Report and incorporated by reference into the Statement of Additional
Information relating to the Fund. Information in the financial highlights for
periods prior to the fiscal year ended October 31, 1994 reflects the investment
results of both Trust Shares and Retail A Shares of the Fund (Retail A Shares of
the Fund were first offered during the fiscal period ended October 31, 1991).
More information about the performance of the Fund is also contained in the
Annual Report, which may be obtained without charge by contacting Galaxy at its
telephone number or address provided above.
3
<PAGE>
EQUITY GROWTH FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------
YEAR ENDED
1997 1996 1995 1994 OCTOBER 31,(2) PERIOD ENDED
----------------------------------------- ------------------- OCTOBER 31,
TRUST SHARES 1993 1992 1991(1)(2)
----------------------------------------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 20.39 $ 17.30 $ 14.19 $ 13.76 $ 12.90 $ 11.99 $ 10.00
-------- -------- -------- -------- -------- -------- ------------
Income from Investment Operations:
Net investment income(3)(4)........... 0.16 0.17 0.20 0.18 0.15 0.17 0.16
Net realized and unrealized gain
(loss) on investments................. 6.06 3.40 3.28 0.47 0.95 0.91 1.97
-------- -------- -------- -------- -------- -------- ------------
Total from Investment Operations:.... 6.22 3.57 3.48 0.65 1.10 1.08 2.13
-------- -------- -------- -------- -------- -------- ------------
Less Dividends:
Dividends from net investment income.. (0.16) (0.18) (0.20) (0.16) (0.15) (0.17) (0.14)
Dividends from net realized capital
gains................................. (1.28) (0.30) (0.17) (0.06) (0.09) -- --
-------- -------- -------- -------- -------- -------- ------------
Total Dividends:..................... (1.44) (0.48) (0.37) (0.22) (0.24) (0.17) (0.14)
-------- -------- -------- -------- -------- -------- ------------
Net increase (decrease) in net asset
value.................................. 4.78 3.09 3.11 0.43 0.86 0.91 1.99
-------- -------- -------- -------- -------- -------- ------------
Net Asset Value, End of Period.......... $ 25.17 $ 20.39 $ 17.30 $ 14.19 $ 13.76 $ 12.90 $ 11.99
-------- -------- -------- -------- -------- -------- ------------
-------- -------- -------- -------- -------- -------- ------------
Total Return............................ 32.16% 21.03% 25.08% 4.80% 8.58% 9.10% 21.39%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $745,537 $562,419 $420,016 $362,094 $427,298 $224,630 $92,224
Ratios to average net assets:
Net investment income including
reimbursement/waiver.................. 0.72% 0.92% 1.31% 1.27% 1.20% 1.37% 1.46%(6)
Operating expenses including
reimbursement/waiver.................. 0.95% 0.98% 1.00% 0.93% 0.97% 0.95% 0.83%(6)
Operating expenses excluding
reimbursement/waiver.................. 0.95% 0.98% 1.00% 0.93% 0.97% 0.95% 0.83%(6)
Portfolio Turnover Rate................. 66% 36% 14% 18% 16% 22% 16%(5)
Average Commission Rate Paid(7)......... $ 0.0601 $ 0.0615 N/A N/A N/A N/A N/A
</TABLE>
- ---------
(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Trust and Retail
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Trust Shares for the years ended
October 31, 1997, 1996, 1995 and 1994 was $0.16, $0.17, $0.20 and $0.18,
respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1993
and 1992 and for the period ended October 31, 1991 was $0.15, $0.17 and
$0.16, respectively.
(5) Not Annualized.
(6) Annualized.
(7) Required for fiscal years beginning on or after September 1, 1995.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek long-term capital appreciation.
The Fund attempts to achieve its investment objective by investing, under normal
market and economic conditions, at least 75% of its total assets in a broadly
diversified portfolio of equity securities such as common stock, preferred
stock, common stock warrants and securities convertible into common stock of
companies that Fleet Investment Advisors Inc. ("Fleet"), the Fund's investment
adviser, believes will increase future earnings to a level above the average
earnings of similar issuers. Such companies often retain their earnings to
finance current and future growth and, for this reason, generally pay little or
no dividends. Equity securities in which the Fund invests are selected based on
analysis of trends in industries and companies, earning power, growth features,
quality and depth of management, marketing and manufacturing skills, financial
conditions and other investment criteria. By investing in convertible
securities, the Fund will seek the opportunity, through the conversion feature,
to participate in the capital appreciation of the common stock into which the
securities are convertible. See "Other Investment Policies and Risk
Considerations-- Convertible Securities" below.
The Fund may invest up to 20% of its total assets in foreign securities
either directly or indirectly through the purchase of American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs"). In addition, the
Fund may invest in securities issued by foreign branches of U.S. banks and
foreign banks. See "Special Risk Considerations--Foreign Securities" and "Other
Investment Policies and Risk Considerations--American and European Depository"
below. The Fund may also purchase put options and call options and write covered
call options. See "Other Investment Policies and Risk Considerations--Options"
and "Other Investment Policies and Risk Considerations--Derivative Securities"
below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in Fleet's opinion, prevailing market or
economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Fund.
Fleet will use its best efforts to achieve the Fund's investment objective,
although its achievement cannot be assured. The investment objective of the Fund
may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program.
SPECIAL RISK CONSIDERATIONS
MARKET RISK
The Fund invests primarily in equity securities. As with other mutual funds
that invest primarily in equity securities, the Fund is subject to market risks.
That is, the possibility exists that common stock will decline over short or
even extended periods of time and both the U.S. and certain foreign equity
markets
5
<PAGE>
tend to be cyclical, experiencing both periods when stock prices generally
increase and periods when stock prices generally decrease.
INTEREST RATE RISK
To the extent that the Fund invests in fixed income securities, its holdings
of debt securities are sensitive to changes in interest rates and the interest
rate environment. Generally, the prices of bonds and other debt securities
fluctuate inversely with interest rate change.
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs, as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
prices of the Fund's securities in their local markets. Conversely, a decrease
in the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange-rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in countries with emerging economies or
emerging securities markets. The risks of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which the
Fund has the power to utilize. Some may be employed on a regular basis; others
may not be used at all. Accordingly, reference to any particular method or
technique carries no implication that it will be utilized or, if it is, that it
will be successful.
RATINGS
All debt obligations, including convertible bonds, purchased by the Fund are
rated investment grade by Moody's Investors Service, Inc. ("Moody's") ("Aaa,"
"Aa," "A" and "Baa") or Standard & Poor's Ratings Group ("S&P") ("AAA," "AA,"
"A" and "BBB"), or, if not rated, are determined to be of
6
<PAGE>
comparable quality by Fleet. Debt securities rated "Baa" by Moody's or "BBB" by
S&P are generally considered to be investment grade securities although they may
have speculative characteristics and changes in economic conditions or
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case for higher rated debt securities.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than 10
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Time deposits with a maturity longer
than seven days or that do not provide for payment within seven days after
notice will be limited to 10% of the Fund's net assets.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject the Fund to additional risk because such
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Such investments may also subject
the Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations-- Foreign Securities." The
Fund will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet believes that the credit risk with
respect to the instrument is minimal.
7
<PAGE>
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations" below.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
The Fund will not enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand upon notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 10% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with the investment limitations described
below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by Fleet to be of good standing and only when, in Fleet's
judgment, the income to be earned from the loan justifies the attendant risks.
The Fund currently intends to limit the lending of its
8
<PAGE>
portfolio securities so that, at any given time, securities loaned by the Fund
represent not more than one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Fund may invest in securities issued by other investment companies which
invest in high quality, short-term debt securities and which determine their net
asset value per share based on the amortized cost or penny-rounding method.
Investments in other investment companies will cause the Fund (and, indirectly,
the Fund's shareholders) to bear proportionately the costs incurred in
connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Fund within the limits prescribed
by the Investment Company Act of 1940, as amended, (the "1940 Act"). The Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, or any other investment companies
advised by Fleet.
REITS
The Fund may invest up to 10% of its net assets in real estate investment
trusts ("REITs"). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of a REIT's
investments. In addition, equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, are not diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital. See
"Taxes".
OPTIONS
The Fund may purchase put options and call options on securities and
securities indices. A put option gives the buyer the right to sell, and the
writer the obligation to buy, the underlying security at the stated exercise
price at any time prior to the expiration of the option. A call option gives the
buyer the right to buy the underlying security at the stated exercise price at
any time prior to the expiration of the option.
9
<PAGE>
Options involving securities indices provide the holder with the right to make
or receive a cash settlement upon exercise of the option based on movements in
the relevant index.
The Fund may also write covered call options on securities which it owns and
may enter into closing purchase transactions with respect to such options.
Writing a covered call option means that the Fund owns the underlying security
subject to call at the stated exercise price at all times during the option
period.
By writing a covered call option, the Fund forgoes the opportunity to profit
from an increase in the market price of the underlying security above the
exercise price, except insofar as the premium represents such a profit. The Fund
will not be able to sell the underlying security until the option expires or is
exercised or the Fund effects a closing purchase transaction by purchasing an
option of the same series. Such options would normally be written only on
underlying securities as to which Fleet does not anticipate significant
short-term capital appreciation.
All options must be listed on a national securities exchange and issued by
the Options Clearing Corporation. The aggregate value of options purchased by
the Fund may not exceed 5%, and the aggregate value of covered call options
written by the Fund may not exceed 25%, of the value of the Fund's net assets.
See "Derivative Securities" below.
AMERICAN AND EUROPEAN DEPOSITORY RECEIPTS
The Fund may invest in ADRs and EDRs. ADRs are receipts issued in registered
form by a U.S. bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. EDRs are receipts issued in Europe
typically by non-U.S. banks or trust companies and foreign branches of U.S.
banks that evidence ownership of foreign or U.S. securities. ADRs may be listed
on a national securities exchange or may be traded in the over-the-counter
market. EDRs are designed for use in European exchange and over-the-counter
markets. ADRs and EDRs traded in the over-the-counter market which do not have
an active or substantial secondary market will be considered illiquid and
therefore will be subject to the Fund's limitation with respect to such
securities. ADR prices are denominated in U.S. dollars although the underlying
securities are denominated in a foreign currency. Investments in ADRs and EDRs
involve risks similar to those accompanying direct investments in foreign
securities. Certain of these risks are described above under "Special Risk
Considerations--Foreign Securities."
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Fund may buy and sell securities denominated in currencies other
than the U.S. dollar, and may receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Fund from time to time may enter into
foreign currency exchange transactions to convert the U.S. dollar to foreign
currencies, to convert foreign currencies to the U.S. dollar and to convert
foreign currencies to other foreign currencies. The Fund either enters into
these transactions on a spot (I.E. cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another--for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen--at a future
date and at a specified price. Typically, the other party to a currency exchange
contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits
10
<PAGE>
of a security to be considered separately from the currency risk. By separating
the asset and the currency decision, it is possible to focus on the
opportunities presented by the security apart from the currency risk. Although
forward foreign currency exchange contracts are of short duration, generally
between one and twelve months, such contracts are rolled over in a manner
consistent with a more long-term currency decision. Because there is a risk of
loss to the Fund if the other party does not complete the transaction, forward
foreign currency exchange contracts will be entered into only with parties
approved by Galaxy's Board of Trustees.
The Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency--for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S.
dollars--at a future date and at a specified price in anticipation of a decline
in the value of the currency sold short relative to the currency that the Fund
has contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash or other liquid assets equal in value to the fluctuating market value of
the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the Statement of
Additional Information relating to the Fund for additional information regarding
foreign currency exchange transactions.
CONVERTIBLE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
invest in convertible securities. Convertible securities are fixed income
securities which may be exchanged or converted into a predetermined number of
shares of the issuer's underlying common stock at the option of the holder
during a specified time period. Convertible securities in which the Fund may
invest may take the form of convertible preferred stock and convertible bonds or
debentures.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Convertible securities are senior to equity securities and
therefore, have a claim to the assets of the issuer prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar non-convertible securities of the same issuer.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in Fleet's opinion,
the investment characteristics of the underlying common stock will assist the
Fund in achieving its investment objective. Otherwise, the Fund will hold or
trade the convertible securities. In selecting convertible securities for the
Fund, Fleet evaluates the investment characteristics of the convertible security
as a fixed income instrument, and the investment potential of the underlying
equity security for capital appreciation. In evaluating these matters with
respect to a particular convertible security, Fleet considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
11
<PAGE>
DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
purchase certain "derivative" securities. Derivative securities are instruments
that derive their value from the performance of underlying assets, interest or
currency exchange rates, or indices, and include, but are not limited to,
options and foreign currency exchange contract.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Fund will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Fund, and will determine, in connection with its day-to-day
management of the Fund, how such securities will be used in furtherance of the
Fund's investment objective. It is possible, however, that Fleet's evaluations
will prove to be inaccurate or incomplete and, even when accurate and complete,
it is possible that the Fund will, because of the risks discussed above, incur
loss as a result of its investments in derivative securities. See "Investment
Objectives and Policies--Derivative Securities" in the Statement of Additional
Information relating to the Fund for additional information.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if Fleet
believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio rate of 100% or
more is considered high, although the rate of turnover will not be a limiting
factor on making portfolio decisions. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expenses and other transaction
costs, which must be ultimately borne by the Fund's shareholders. High portfolio
turnover may result in the realization of substantial net capital gains;
distributions derived from such gains will be treated as ordinary income for
federal income tax purposes. See "Financial Highlights" and "Taxes--Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information relating to the Fund, under "Investment Objectives and Policies."
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The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) the Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 33% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase agreements
in accordance with its investment policies and in amounts not in excess of
33% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 33% of the value of the Fund's total assets at the time
of such borrowing. The Fund will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
non-negotiable time deposits and other securities which are not readily
marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of the Fund's
total assets would be invested in such issuer, except that up to 25% of the
value of its total assets may be invested without regard to this limitation.
In addition, the Fund may not purchase any securities which would cause 25%
or more of the value of its total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, the Fund intends to limit
any borrowings (including reverse repurchase agreements) to not more than 33% of
the value of its total assets at the time of such borrowing.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. The Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
10% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered to be
illiquid if Fleet has determined, in accordance with guidelines established by
the Board of Trustees, that an adequate trading market exists for such
securities.
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If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). The net asset value per share is determined on each
day on which the Exchange is open for trading. Currently, the holidays which
Galaxy observes are New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value per share for purposes of pricing sales and
redemptions is calculated separately for each series of shares by dividing the
value of all securities and other assets attributable to a particular series of
shares of the Fund, less the liabilities attributable to the shares of that
series of the Fund, by the number of outstanding shares of that series of the
Fund.
The assets in the Fund which are traded on a recognized stock exchange are
valued at the last sale price on the securities exchange on which such
securities are primarily traded or at the last sale price on the national
securities market. Securities quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by Fleet under the
supervision of Galaxy's Board of Trustees. An option is generally valued at the
last sale price or, in the absence of a last sale price, the last offer price.
Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except when an occurrence subsequent
to the time a value was so established is likely to have changed such value,
then the fair value of those securities will be determined through consideration
of other factors by or under the direction of the Board of Trustees. A security
which is listed or traded on more than one exchange is valued at the quotation
on the exchange determined to be the primary market for such security. For
valuation purposes, quotations of foreign securities in foreign currency are
converted to U.S. dollars equivalent at the prevailing market rate on the day of
valuation.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
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PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that the Fund's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If an Institution accepts a purchase
order from its Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Fund and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts (including defined contribution plans). Investors should contact their
Institution (or, in the case of employer-sponsored defined contribution plans,
their employer) for further information concerning the types of eligible
Customer accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirements with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by their Customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by an Institution to its Customers.
Information pertaining to such plans is available directly from the Institution.
On a Business Day when the Exchange closes early due to a partial holding or
otherwise, Galaxy will advance the time at which purchase orders must be
received in order to be processed on that Business day.
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REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day will normally be wired on the following Business
Day to the Institution. Payment for redemption orders received on a non-Business
Day will normally be wired to the Institution on the next Business Day. However,
in both cases Galaxy reserves the right to wire redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. The Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon sixty days'
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared and paid
quarterly. Dividends of each share of the Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
The policy of the Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary
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income to the Fund's shareholders who are not currently exempt from federal
income taxes, whether such dividends are received in cash or reinvested in
additional Trust Shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) Such ordinary income
distributions will qualify for the dividends received deduction for corporations
to the extent of the total qualifying dividends received by the Fund from
domestic corporations for the taxable year.
Distribution by the Fund of "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, of the
Fund, is taxable to shareholders as long-term capital gain, regardless of how
long the shareholder has held shares and whether such gains are received in cash
or reinvested in additional Trust Shares. Such long-term capital gain will
contitute 20% or 28% rate gain, depending upon the Fund's holding period for the
assets the sale of which generated the gain. Such distributions are not eligible
for the dividends received deduction.
The dividends received deduction is not available for dividends attributable
to distributions made by a REIT to the Fund. In addition, distributions paid by
REITs often include a "return of capital." The Code requires a REIT to
distribute at least 95% of its taxable income to investors. In many cases,
however, because of "non-cash" expenses such as property depreciation, an equity
REIT's cash flow will exceed its taxable income. The REIT may distribute this
excess cash to offer a more competitive yield. This portion of the distribution
is deemed a return of capital and is generally not taxable to shareholders.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying shares of the Fund on or just before the
record date of a dividend or capital gain distribution, you should be aware that
the amount of the forthcoming distribution payment, although in effect a return
of capital to the shareholder, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
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INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with its total assets of approximately $85.5 billion at December
31, 1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients, and
manages the other investment portfolios of Galaxy: the Money Market, Government,
U.S. Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Institutional Government Money Market, Equity Value,
Equity Income, International Equity, Asset Allocation, Small Company Equity,
MidCap Equity, Small Cap Value, Growth and Income, Strategic Equity, Short-Term
Bond, Intermediate Government Income, High Quality Bond, Corporate Bond,
Tax-Exempt Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Fund,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
an annual rate of .75% of the average daily net assets of the Fund.
Fleet may from time to time, in its discretion, waive all or a portion of
the advisory fees payable by the Fund in order to help maintain a competitive
expense ratio and may from time to time allocate a portion of its advisory fees
to Fleet Bank or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders. For the fiscal year ended October 31, 1997,
Fleet received advisory fees (after fee waivers) at the effective annual rate of
.75% of the Fund's average daily net assets. During the fiscal year ended
October 31, 1997, Fleet reimbursed the Fund for certain operating expenses,
which reimbursements may be revised or discontinued at any time.
The Fund's portfolio manager, Robert G. Armknecht, is primarily responsible
for the day-to-day management of the Fund's investment portfolio. Mr. Armknecht,
an Executive Vice President, has been with Fleet and its predecessor since 1989
and has been the Fund's portfolio manager since its inception.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission ("SEC"), financial
institutions that are affiliated with Fleet or that have sold shares of the
Funds, if Fleet believes that the quality of the transaction and the commission
are comparable to what they would be with other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian
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to such an investment company or from purchasing shares of such a company as
agent for and upon the order of customers. Fleet, the custodian and Institutions
which agree to provide shareholder support services that are banks or bank
affiliates are subject to such banking laws and regulations. Should legislative,
judicial or administrative action prohibit or restrict the activities of such
companies in connection with their services to the Fund, Galaxy might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is anticipated, however, that any
resulting change in the Fund's method of operation would not affect the Fund's
net asset value per share or result in financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Fund, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of the combined
average daily net assets of the Fund and the other portfolios offered by Galaxy
(collectively, the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive all or a portion of the administration fee
payable to it by the Fund. For the fiscal year ended October 31, 1997, the Fund
paid Investor Services Group administration fees at the effective annual rate of
.082% of the Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify and
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in the Fund: Class H--Series 1 shares (Trust
Shares), Class H--Series 2 shares (Retail A Shares) and Class H--Series 3 shares
(Retail B Shares), each series representing interests in the Fund. The Fund is
classified as a diversified company under the 1940 Act. The Board of Trustees
has also authorized the issuance of additional classes and series of shares
representing interests in other portfolios of Galaxy. For information regarding
the Fund's Retail Shares and these other portfolios, which are offered through
separate prospectuses, contact FD Distributors at 1-800-628-0414.
Trust Shares, Retail A Shares and Retail B Shares in the Fund bear their pro
rata portion of all operating expenses paid by the Fund except as follows.
Holders of the Fund's Retail A Shares bear the fees that are paid to
Institutions under Galaxy's Shareholder Services Plan described below and
holders of the Fund's Retail B Shares bear the fees described in the prospectus
for such shares that are paid under Galaxy's Distribution and Services Plan at
an annual rate of up to .95% of the average daily net asset value of the Fund's
outstanding Retail B Shares. In addition, Trust Shares, Retail A Shares and
Retail B Shares in the Fund bear differing transfer agency expenses.
Standardized yield and total return quotations are
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computed separately for each series of shares. The differences in the expenses
paid by the respective series will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end sales charge
of 3.75%. Retail B Shares are sold with a maximum contingent deferred sales
charge of 5.0% and automatically convert to Retail A Shares of the Fund six
years after the date of purchase. Retail A Shares and Retail B Shares have
certain exchange and other privileges which are not available with respect to
Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class, and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to such investment portfolio as are declared in the discretion of
Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.50% of the average daily net asset value of the Fund's outstanding Retail A
Shares beneficially owned by Customers. Institutions may receive up to one-half
of this fee for providing one or more of the following services to such
Customers: aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with FD Distributors; processing
dividend payments from the Fund; providing sub-accounting with respect to Retail
A Shares or the information necessary for sub-accounting; and providing periodic
mailings to Customers. Institutions may also receive up to one-half of this fee
for providing one or more of these additional services to such Customers:
providing Customers with information as to their positions in Retail A Shares;
responding to Customer inquiries; and providing a service to invest the assets
of Customers in Retail A Shares. These services are described more fully in the
Statement of Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any
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such fees would be in addition to any amounts which may be received by an
Institution under the Shareholder Services Plan. Under the terms of each
servicing agreement entered into with Galaxy, Institutions are required to
provide to their Customers a schedule of any fees that they may charge in
connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including: maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Fund to Investor Services Group have
been increased by an amount equal to these fees. In substance, therefore, the
holders of Trust Shares of the Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as custodian of the Fund's assets. Chase Manhattan
may employ sub-custodians for the Fund for the purpose of providing custodial
services for the Fund's foreign assets held outside the United States. First
Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-owned
subsidiary of First Data Corporation, serves as the Fund's transfer and dividend
disbursing agent. Services performed by these entities for the Fund are
described in the Statement of Additional Information. Communications to Investor
Services Group should be directed to Investor Services Group at P.O. Box 5108,
4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Fund. Galaxy bears
the expenses incurred in the Fund's operations. Such expenses include: taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, Rule 12b-1 distribution, fund accounting and custody fees; charges of
the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholder reports and meetings; and any extraordinary expenses. The
Fund also pays for brokerage fees and commissions in connection with the
purchase of portfolio securities.
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PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds, the S&P 500, an unmanaged index of groups of common
stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES or publications of a local or regional nature may also be
used in comparing the performance of the Fund. Performance data will be
calculated separately for Trust Shares, Retail A Shares and Retail B Shares of
the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and analyzing the result on a semi-annual basis. The Fund may
also advertise its "effective yield," which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividends and capital gain distributions made by the Fund during the period
are reinvested in Fund shares.
The performance of the Fund will fluctuate and any quotation of performance
should not be considered as representative of the future performance of the
Fund. Since yields fluctuate, yield data cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Trust Shares of the Fund will not be
included in performance calculations.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
22
<PAGE>
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
23
<PAGE>
GALAXY
EQUITY GROWTH
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-265 15033 (3/98)
<PAGE>
TRUST
THE GALAXY FUND
EQUITY INCOME FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY........................................................... 2
FINANCIAL HIGHLIGHTS...................................................... 3
INVESTMENT OBJECTIVE AND POLICIES......................................... 5
In General.............................................................. 5
Special Risk Considerations............................................. 5
Other Investment Policies and Risk Considerations....................... 6
INVESTMENT LIMITATIONS.................................................... 12
PRICING OF SHARES......................................................... 14
HOW TO PURCHASE AND REDEEM SHARES......................................... 14
Distributor............................................................. 14
Purchase of Shares...................................................... 15
Redemption of Shares.................................................... 16
DIVIDENDS AND DISTRIBUTIONS............................................... 16
TAXES..................................................................... 16
Federal................................................................. 16
State and Local......................................................... 17
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT OF THE FUND.................................................... 17
Investment Adviser...................................................... 18
Authority to Act as Investment Adviser.................................. 18
Administrator........................................................... 19
DESCRIPTION OF GALAXY AND ITS SHARES...................................... 19
Shareholder Services Plan............................................... 20
Agreements for Sub-Account Services..................................... 20
CUSTODIAN AND TRANSFER AGENT.............................................. 21
EXPENSES.................................................................. 21
PERFORMANCE REPORTING..................................................... 21
MISCELLANEOUS............................................................. 22
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, current
performance, redemptions, exchanges and
other shareholder services, call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares"), which
represent interests in the EQUITY INCOME FUND (the "Fund") offered by Galaxy.
The Fund's investment objective is to seek current income and capital
appreciation. The Fund attempts to achieve this objective by investing, under
normal market and economic conditions, at least 75% of its total assets in
common stock and securities convertible into common stock that offer income
potential.
This Prospectus describes Trust Shares in the Fund. Trust Shares are offered
to investors maintaining qualified accounts at bank and trust institutions,
including institutions affiliated with Fleet Financial Group, Inc., and to
participants in employer-sponsored defined contribution plans. Galaxy is also
authorized to issue an additional series of shares in the Fund ("Retail A
Shares"), which are offered under a separate prospectus primarily to
individuals, corporations or other entities purchasing either for their own
accounts or for the accounts of others and to FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers on behalf of
their customers. Trust Shares and Retail A Shares represent equal pro rata
interests in the Fund, except they bear different expenses which reflect the
difference in the range of services provided to them. See "Financial
Highlights," "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
FEBRUARY 28, 1998
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Trust Shares and (ii) the operating
expenses for Trust Shares of the Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
EQUITY
INCOME
SHAREHOLDER TRANSACTION EXPENSES FUND
- -------------------------------------------------- --------
<S> <C>
Sales Load........................................ None
Sales Load on Reinvested Dividends................ None
Deferred Sales Load............................... None
Redemption Fees................................... None
Exchange Fees..................................... None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- --------------------------------------------------
<S> <C>
Advisory Fees..................................... .75%
12b-1 Fees........................................ None
Other Expenses.................................... .27%
--------
Total Fund Operating Expenses..................... 1.02%
--------
--------
</TABLE>
- ---------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Income Fund................................ $10 $32 $55 $122
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly. The information contained in the Expense Summary and
Example is based on expenses incurred by the Fund during the last fiscal year,
restated to reflect the expenses which the Fund expects to incur during the
current fiscal year on its Trust Shares. For more complete descriptions of these
costs and expenses, see "Management of the Fund" and "Description of Galaxy and
Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information relating
to the Fund. Any fees that are charged by affiliates of Fleet or other
institutions directly to their customer accounts for services related to an
investment in Trust Shares of the Fund are in addition to and not reflected in
the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy is also
authorized to issue an additional series of Shares in the Fund, Retail A Shares.
As described below under "Description of Galaxy and Its Shares," Trust Shares
and Retail A Shares represent equal pro rata interests in the Fund except that
(i) effective October 1, 1994 Retail A Shares of the Fund bear the expenses
incurred under Galaxy's Shareholder Services Plan at an annual rate of up to
.30% of the average daily net asset value of the Fund's outstanding Retail A
Shares, and (ii) Trust Shares and Retail A Shares bear differing transfer agency
expenses.
The financial highlights presented below have been audited by Coopers &
Lybrand L.L.P., Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Fund dated October 31,
1997 (the "Annual Report"). Such financial highlights should be read in
conjunction with the financial statements and notes thereto contained in the
Annual Report and incorporated by reference into the Statement of Additional
Information relating to the Fund. Information in the financial highlights for
periods prior to the fiscal year ended October 31, 1994 reflect the investment
results of both Trust Shares and Retail A Shares of the Fund. (Retail A Shares
of the Fund were first offered during the fiscal year ended October 31, 1992).
More information about the performance of the Fund is also contained in the
Annual Report, which may be obtained without charge by contacting Galaxy at its
telephone number or address provided above.
3
<PAGE>
EQUITY INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------
YEAR ENDED PERIOD
1997 1996 1995 1994 OCTOBER 31,(2) ENDED
--------------------------------------- ------------------ OCTOBER 31,
TRUST SHARES 1993 1992 1991(1,2)
--------------------------------------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 16.93 $ 14.99 $ 12.75 $ 12.85 $ 11.85 $ 11.29 $10.00
-------- -------- ------- ------- -------- ------- -----------
Income from Investment Operations:
Net investment income(3,4)............ 0.38 0.37 0.36 0.31 0.30 0.30 0.29
Net realized and unrealized gain
(loss) on investments................ 3.35 2.48 2.45 0.07 1.09 0.76 1.26
-------- -------- ------- ------- -------- ------- -----------
Total from Investment Operations:... 3.73 2.85 2.81 0.38 1.39 1.06 1.55
-------- -------- ------- ------- -------- ------- -----------
Less Dividends:
Dividends from net investment
income............................... (0.38) (0.37) (0.36) (0.29) (0.28) (0.30) (0.26)
Dividends from net realized capital
gains................................ (1.44) (0.54) (0.21) (0.19) (0.11) (0.20) --
-------- -------- ------- ------- -------- ------- -----------
Total Dividends:.................... (1.82) (0.91) (0.57) (0.48) (0.39) (0.50) (0.26)
-------- -------- ------- ------- -------- ------- -----------
Net increase (decrease) in net asset
value.................................. 1.91 1.94 2.24 (0.10) 1.00 0.56 1.29
-------- -------- ------- ------- -------- ------- -----------
Net Asset Value, End of Period.......... $ 18.84 $ 16.93 $ 14.99 $ 12.75 $ 12.85 $ 11.85 $11.29
-------- -------- ------- ------- -------- ------- -----------
-------- -------- ------- ------- -------- ------- -----------
Total Return............................ 23.80% 19.65% 22.81% 3.02% 11.85% 9.71% 15.61%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $119,505 $106,094 $87,819 $78,880 $123,970 $21,778 $7,096
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 2.14% 2.32% 2.60% 2.49% 2.34% 2.84% 2.72%(6)
Operating expenses including
reimbursement/waiver................. 0.95% 0.94% 0.98% 1.07% 1.16% 1.03% 0.85%(6)
Operating expenses excluding
reimbursement/waiver................. 0.97% 0.94% 1.00% 1.07% 1.22% 1.54% 1.39%(6)
Portfolio Turnover Rate................. 37% 45% 21% 31% 27% 18% 77%(5)
Average Commission Rate Paid(7)......... $ 0.0598 $ 0.0620 N/A N/A N/A N/A N/A
</TABLE>
- ---------
(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Trust and Retail
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Trust Shares for the years ended
October 31, 1997, 1996, 1995 and 1994 was $0.38, $0.37, $0.36 and $0.31,
respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1993
and 1992 and for the period ended October 31, 1991 was $0.29, $0.25 and
$0.23, respectively.
(5) Not Annualized.
(6) Annualized.
(7) Required for fiscal years beginning on or after September 1, 1995.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek current income and capital
appreciation. The Fund attempts to achieve its investment objective by
investing, under normal market and economic conditions, at least 75% of its
total assets in common stock and securities convertible into common stock that
offer income potential. Factors generally considered in selecting portfolio
securities include current income and prospects for dividend growth and capital
appreciation. However, the Fund's portfolio can be expected to include
securities that offer only growth potential or only income potential, as well as
securities that combine both these elements.
The Fund may invest up to 20% of its total assets in foreign securities
either directly or indirectly through the purchase of American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs"). In addition, the
Fund may invest in securities issued by foreign branches of U.S. Banks and
foreign banks. See "Special Risk Considerations" and "Other Investment Policies
and Risk Considerations--American and European Depository Receipts" below. The
Fund may also purchase put options and call options and write covered call
options. See "Other Investment Policies and Risk Considerations-- Options" and
"Other Investment Policies and Risk Considerations--Derivative Securities"
below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of Fleet Investment Advisors
Inc. ("Fleet"), the Fund's investment adviser, prevailing market or economic
conditions warrant. See "Other Investment Policies and Risk Considerations"
below for information regarding additional investment policies of the Fund.
Fleet will use its best efforts to achieve the Fund's investment objective,
although its achievement cannot be assured. The investment objective of the Fund
may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program.
SPECIAL RISK CONSIDERATIONS
MARKET RISK
The Fund invests primarily in equity securities. As with other mutual funds
that invest primarily in equity securities, the Fund is subject to market risks.
That is, the possibility exists that common stocks will decline over short or
even extended periods of time and both the U.S. and certain foreign equity
markets tend to be cyclical, experiencing both periods when stock prices
generally increase and periods when stock prices generally decrease.
INTEREST RATE RISK
To the extent that the Fund invests in fixed income securities, its holdings
of such securities are sensitive to changes in interest rates and the interest
rate environment. Generally, the prices of bonds and other debt securities
fluctuate inversely with interest rate change.
5
<PAGE>
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs, as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
prices of a Fund's securities in their local markets. Conversely, a decrease in
the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in countries with emerging economies or
emerging securities markets. The risks of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which the
Fund has the power to utilize. Some may be employed on a regular basis; others
may not be used at all. Accordingly, reference to any particular method or
technique carries no implication that it will be utilized or, if it is, that it
will be successful.
RATINGS
All debt obligations, including convertible bonds, purchased by the Fund are
rated investment grade by Moody's Investors Service, Inc. ("Moody's") ("Aaa,"
"Aa," "A" and "Baa") or Standard & Poor's Ratings Group ("S&P") ("AAA," "AA,"
"A" and "BBB"), or, if not rated, are determined to be of comparable quality by
Fleet. Debt securities rated "Baa" by Moody's or "BBB" by S&P are generally
considered to be investment grade securities although they may have speculative
characteristics and changes in economic conditions or circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
then is the case for higher rated debt securities.
6
<PAGE>
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than 10
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Time deposits with a maturity longer
than seven days or that do not provide for payment within seven days after
notice will be limited to 10% of the Fund's net assets.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject the Fund to additional risk because such
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Such investments may also subject
the Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations-- Foreign Securities." The
Fund will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet believes that the credit risk with
respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are
7
<PAGE>
direct lending arrangements between the purchaser and the issuer and there may
be no active secondary market. However, in the case of variable and floating
rate obligations with a demand feature, the Fund may demand payment of principal
and accrued interest at a time specified in the instrument or may resell the
instrument to a third party. In the event that an issuer of a variable or
floating rate obligation defaulted on its payment obligation, the Fund might be
unable to dispose of the note because of the absence of a secondary market and
could, for this or other reasons, suffer a loss to the extent of the default.
The Fund may also purchase Rule 144A securities. See "Investment Limitations."
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
The Fund will not enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand upon notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 10% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with the investment limitations described
below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by Fleet to be of good standing and only when, in Fleet's
judgment, the income to be earned from the loan justifies the attendant risks.
The Fund currently intends to limit the lending of its portfolio securities so
that, at any given time, securities loaned by the Fund represent not more than
one-third of the value of its total assets.
8
<PAGE>
INVESTMENT COMPANY SECURITIES
The Fund may invest in securities issued by other investment companies which
invest in high quality, short-term debt securities and which determine their net
asset value per share based on the amortized cost or penny-rounding method.
Investments in other investment companies will cause the Fund (and, indirectly,
the Fund's shareholders) to bear proportionately the costs incurred in
connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Fund within the limits prescribed
by the Investment Company Act of 1940, as amended, (the "1940 Act"). The Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, or any other investment companies
advised by Fleet.
REITS
The Fund may invest up to 10% of its net assets in real estate investment
trusts ("REITs"). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of a REIT's
investments. In addition, equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, are not diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital. See
"Taxes".
OPTIONS
The Fund may purchase put options and call options on securities and
securities indices. A put option gives the buyer the right to sell, and the
writer the obligation to buy, the underlying security at the stated exercise
price at any time prior to the expiration of the option. A call option gives the
buyer the right to buy the underlying security at the stated exercise price at
any time prior to the expiration or the option. Options involving securities
indices provide the holder with the right to make or receive a cash settlement
upon exercise of the option based on movements in the relevant index.
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The Fund may also write covered call options on securities which it owns and
may enter into closing purchase transactions with respect to such options.
Writing a covered call option means that the Fund owns the underlying security
subject to call at the stated exercise price at all times during the option
period.
By writing a covered call option, the Fund forgoes the opportunity to profit
from an increase in the market price of the underlying security above the
exercise price, except insofar as the premium represents such a profit. The Fund
will not be able to sell the underlying security until the option expires or is
exercised or the Fund effects a closing purchase transaction by purchasing an
option of the same series. Such options would normally be written only on
underlying securities as to which Fleet does not anticipate significant
short-term capital appreciation.
All options must be listed on a national securities exchange and issued by
the Options Clearing Corporation. The aggregate value of options purchased by
the Fund may not exceed 5%, and the aggregate value of covered call options
written by the Fund may not exceed 25%, of the value of the Fund's net assets.
See "Derivative Securities" below.
AMERICAN AND EUROPEAN DEPOSITORY RECEIPTS
The Fund may invest in ADRs and EDRs. ADRs are receipts issued in registered
form by a U.S. bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. EDRs are receipts issued in Europe
typically by non-U.S. banks or trust companies and foreign branches of U.S.
banks that evidence ownership of foreign or U.S. securities. ADRs may be listed
on a national securities exchange or may be traded in the over-the-counter
market. EDRs are designed for use in European exchange and over-the-counter
markets. ADRs and EDRs traded in the over-the-counter market which do not have
an active or substantial secondary market will be considered illiquid and
therefore will be subject to the Fund's limitation with respect to such
securities. ADR prices are denominated in U.S. dollars although the underlying
securities are denominated in a foreign currency. Investments in ADRs and EDRs
involve risks similar to those accompanying direct investments in foreign
securities. Certain of these risks are described above under "Special Risk
Considerations--Foreign Securities."
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Fund may buy and sell securities denominated in currencies other
than the U.S. dollar, and may receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Fund from time to time may enter into
foreign currency exchange transactions to convert the U.S. dollar to foreign
currencies, to convert foreign currencies to the U.S. dollar and to convert
foreign currencies to other foreign currencies. The Fund either enters into
these transactions on a spot (I.E. cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another--for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen--at a future
date and at a specified price. Typically, the other party to a currency exchange
contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and
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twelve months, such contracts are rolled over in a manner consistent with a more
long-term currency decision. Because there is a risk of loss to the Fund if the
other party does not complete the transaction, forward foreign currency exchange
contracts will be entered into only with parties approved by Galaxy's Board of
Trustees.
The Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency--for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S.
dollars--at a future date and at a specified price in anticipation of a decline
in the value of the currency sold short relative to the currency that the Fund
has contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash or other liquid assets equal in value to the fluctuating market value of
the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the Statement of
Additional Information relating to the Fund for additional information regarding
foreign currency exchange transactions.
CONVERTIBLE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
invest in convertible securities. Convertible securities are fixed income
securities which may be exchanged or converted into a predetermined number of
shares of the issuer's underlying common stock at the option of the holder
during a specified time period. Convertible securities in which the Fund may
invest may take the form of convertible preferred stock and convertible bonds or
debentures.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Convertible securities are senior to equity securities and
therefore have a claim to the assets of the issuer prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar non-convertible securities of the same issuer.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in Fleet's opinion,
the investment characteristics of the underlying common stock will assist the
Fund in achieving its investment objective. Otherwise, the Fund will hold or
trade the convertible securities. In selecting convertible securities for the
Fund, Fleet evaluates the investment characteristics of the convertible security
as a fixed income instrument, and the investment potential of the underlying
equity security for capital appreciation. In evaluating these matters with
respect to a particular convertible security, Fleet considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
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DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
purchase certain "derivative" securities. Derivative securities are instruments
that derive their value from the performance of underlying assets, interest or
currency exchange rates, or indices, and include, but are not limited to,
options and foreign currency exchange contracts.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Fund will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Fund, and will determine, in connection with its day-to-day
management of the Fund, how such securities will be used in furtherance of the
Fund's investment objective. It is possible, however, that Fleet's evaluations
will prove to be inaccurate or incomplete and, even when accurate and complete,
it is possible that the Fund will, because of the risks discussed above, incur
loss as a result of its investments in derivative securities. See "Investment
Objectives and Policies--Derivative Securities" in the Statement of Additional
Information relating to the Fund for additional information.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if Fleet
believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover involves correspondingly greater brokerage commission expenses and
other transaction costs, which must be ultimately borne by the Fund's
shareholders. High portfolio turnover may result in the realization of
substantial net capital gains; distributions derived from such gains will be
treated as ordinary income for federal income tax purposes. See "Financial
Highlights" and "Taxes--Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information relating to the Fund under "Investment Objectives and Policies."
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The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) the Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that the Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 33% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase agreements
in accordance with its investment policies and in amounts not in excess of
33% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 33% of the value of the Fund's total assets at the time
of such borrowing. The Fund will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
non-negotiable time deposits and other securities which are not readily
marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of the Fund's
total assets would be invested in such issuer, except that up to 25% of the
value of its total assets may be invested without regard to this limitation.
In addition, the Fund may not purchase any securities which would cause 25%
or more of the value of its total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, the Fund intends to limit
any borrowings (including reverse repurchase agreements) to not more than 33% of
the value of its total assets at the time of such borrowing.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. The Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
10% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered to be
illiquid if Fleet has determined, in accordance with guidelines established by
the Board of Trustees, that an adequate trading market exists for such
securities.
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If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). The net asset value per share is determined on each
day on which the Exchange is open for trading. Currently, the holidays which
Galaxy observes are New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value per share for purposes of pricing sales and
redemptions is calculated separately for each series of shares by dividing the
value of all securities and other assets attributable to a particular series of
shares of the Fund, less the liabilities attributable to the shares of that
series of the Fund, by the number of outstanding shares of that series of the
Fund.
The assets in the Fund which are traded on a recognized stock exchange are
valued at the last sale price on the securities exchange on which such
securities are primarily traded or at the last sale price on the national
securities market. Securities quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by Fleet under the
supervision of Galaxy's Board of Trustees. An option is generally valued at the
last sale price or, in the absence of a last sale price, the last offer price.
Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except when an occurrence subsequent
to the time a value was so established is likely to have changed such value,
then the fair value of those securities will be determined through consideration
of other factors by or under the direction of the Board of Trustees. A security
which is listed or traded on more than one exchange is valued at the quotation
on the exchange determined to be the primary market for such security. For
valuation purposes, quotations of foreign securities in foreign currency are
converted to U.S. dollars equivalent at the prevailing market rate on the day of
valuation.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
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PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that the Fund's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If an Institution accepts a purchase
order from its Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Fund and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts (including defined contribution plans). Investors should contact their
Institution (in the case of employer-sponsored deferred contribution plans,
their employer) for further information concerning the types of eligible
Customer accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirements with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by their customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by an Institution to its Customers.
Information pertaining to such plans is available directly from the Institution.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day.
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REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day will normally be wired on the following Business
Day to the Institution. Payment for redemption orders received on a non-Business
Day will normally be wired to the Institution on the next Business Day. However,
in both cases Galaxy reserves the right to wire redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. The Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon sixty days
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared and paid
quarterly. Dividends on each share of the Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
The policy of the Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary
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income to the Fund's shareholders who are not currently exempt from federal
income taxes, whether such dividends are received in cash or reinvested in
additional Trust Shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) Such ordinary income
distributions will qualify for the dividends received deduction for corporations
to the extent of the total qualifying dividends received by the Fund from
domestic corporations for the taxable year.
Distribution by the Fund of "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, of the
Fund is taxable to shareholders as long-term capital gain, regardless of how
long the shareholder has held shares and whether such gains are received in cash
or reinvested in additional Trust Shares. Such long-term capital gain will
constitute 20% or 28% rate gain, depending upon the Fund's holding period for
the assets the sale of which generated the gain. Such distributions are not
eligible for the dividends received deduction.
The dividends received deduction is not available for dividends attributable
to distributions made by a REIT to the Fund. In addition, distributions paid by
a REIT often include a "return of capital." The Code requires a REIT to
distribute at least 95% of its taxable income to investors. In many cases,
however, because of "non-cash" expenses such as property depreciation, an equity
REIT's cash flow will exceed its taxable income. The REIT may distribute this
excess cash to offer a more competitive yield. This portion of the distribution
is deemed a return of capital and is generally not taxable to shareholders.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying shares of the Fund on or just before the
record date of a dividend or capital gain distribution, you should be aware that
the amount of the forthcoming distribution payment, although in effect a return
of capital, will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
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INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts,
02109, serves as the investment adviser to the Fund. Fleet is an indirect,
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients, and
manages the other investment portfolios of Galaxy: the Money Market, Government,
U.S. Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Institutional Government Money Market, Equity Value,
Equity Growth, International Equity, Asset Allocation, Growth and Income,
Strategic Equity, Small Company Equity, MidCap Equity, Small Cap Value,
Short-Term Bond, Intermediate Government Income, High Quality Bond, Corporate
Bond, Tax-Exempt Bond, New Jersey Municipal Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Fund,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
an annual rate of .75% of the average daily net assets of the Fund.
Fleet may from time to time, in its discretion, waive all or a portion of
the advisory fees payable by the Fund in order to help maintain a competitive
expense ratio and may from time to time allocate a portion of its advisory fees
to Fleet Bank or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders. For the fiscal year ended October 31, 1997,
Fleet received advisory fees (after fee waivers) at the effective annual rate of
.75% of the Fund's average daily net assets. During the fiscal year ended
October 31, 1997, Fleet reimbursed the Fund for certain operating expenses,
which reimbursement may be revised or discontinued at any time.
The Fund's portfolio manager, J. Edward Klisiewicz, is primarily responsible
for the day-to-day management of the Fund's investment portfolio. Mr.
Klisiewicz, a Senior Vice President of Fleet, has been with Fleet and its
predecessors since 1970 and has been the Fund's portfolio manager since its
inception.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission ("SEC"), financial
institutions that are affiliated with Fleet or that have sold shares of the
Funds, if Fleet believes that the quality of the transaction and the commission
are comparable to what they would be with other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the
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order of customers. Fleet, the custodian and Institutions which agree to provide
shareholder support services that are banks or bank affiliates are subject to
such banking laws and regulations. Should legislative, judicial or
administrative action prohibit or restrict the activities of such companies in
connection with their services to the Fund, Galaxy might be required to alter
materially or discontinue its arrangements with such companies and change its
method of operation. It is anticipated, however, that any resulting change in
the Fund's method of operation would not affect the Fund's net asset value per
share or result in financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Fund, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of the combined
average daily net assets of the Fund and the other portfolios offered by Galaxy
(collectively, the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily all or a portion of the
administration fee payable to it by the Fund, either voluntarily or pursuant to
applicable statutory expense limitations. For the fiscal year ended October 31,
1997, the Fund paid Investor Services Group administration fees at the effective
annual rate of .082% of the Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in the Fund: Class I - Series 1 shares (Trust
Shares) and Class I - Series 2 shares (Retail A Shares), both series
representing interests in the Fund. The Fund is classified as a diversified
company under the 1940 Act. The Board of Trustees has also authorized the
issuance of additional classes and series of shares representing interests in
other portfolios of Galaxy. For information regarding the Fund's Retail A Shares
and these other portfolios, which are offered through separate prospectuses,
contact FD Distributors at 1-800-628-0414.
Trust Shares and Retail A Shares in the Fund bear their pro rata portion of
all operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below. Currently, these payments are not
made with respect to the Fund's Trust Shares. In addition, Trust Shares and
Retail A Shares in the Fund bear differing transfer agency expenses.
Standardized yield and total return quotations are computed separately for each
series of shares. The difference in the expenses paid by the respective series
will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end sales charge
of 3.75% and have certain exchange and other privileges which are not available
with respect to Trust Shares.
19
<PAGE>
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class, and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to such investment portfolios as are declared in the discretion of
Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.50% of the average daily net asset value of the Fund's outstanding Retail A
Shares beneficially owned by Customers. Institutions may receive up to one-half
of this fee for providing one or more of the following services to such
Customers: aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with FD Distributors; processing
dividend payments from the Fund; providing sub-accounting with respect to Retail
A Shares or the information necessary for sub-accounting; and providing periodic
mailings to Customers. Institutions may also receive up to one-half of this fee
for providing one or more of these additional services to such Customers:
providing Customers with information as to their positions in Retail A Shares;
responding to Customer inquiries; and providing a service to invest the assets
of Customers in Retail A Shares. These services are described more fully in the
Statement of Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions
20
<PAGE>
("Sub-Account Services") on a per account basis with respect to Trust Shares of
the Fund held by defined contribution plans, including: maintaining records
reflecting separately with respect to each plan participant's sub-account all
purchases and redemptions of Trust Shares and the dollar value of Trust Shares
in each sub-account; crediting to each participant's sub-account all dividends
and distributions with respect to that sub-account; and transmitting to each
participant a periodic statement regarding the sub-account as well as any proxy
materials, reports and other material Fund communications. Such entities are
compensated by Investor Services Group for the Sub-Account Services and in
connection therewith the transfer agency fees payable by Trust Shares of the
Fund to Investor Services Group have been increased by an amount equal to these
fees. In substance, therefore, the holders of Trust Shares of the Fund
indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as custodian of the Fund's assets. Chase Manhattan
may employ sub-custodians for the Fund for the purpose of providing custodial
services for the Fund's foreign assets held outside the United States. First
Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-owned
subsidiary of First Data Corporation, serves as the Fund's transfer and dividend
disbursing agent. Services performed by these entities for the Funds are
described in the Statement of Additional Information. Communications to Investor
Services Group should be directed to Investor Services Group at P.O. Box 5108,
4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Fund. Galaxy bears
the expenses incurred in the Fund's operations. Such expenses include: taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, fund accounting and custody fees; charges of the transfer agent and
dividend disbursing agent; certain insurance premiums; outside auditing and
legal expenses; costs of independent pricing services; costs of shareholder
reports and meetings; and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions in connection with the purchase of portfolio
securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds, the S&P 500, an unmanaged index of groups of common
stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange.
21
<PAGE>
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES or publications of a local or regional nature may also be
used in comparing the performance of the Fund. Performance data will be
calculated separately for Trust Shares and Retail A Shares of the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield," which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividends and capital gain distributions made by the Fund during the period
are reinvested in Fund shares.
The performance of the Fund will fluctuate and any quotation of performance
should not be considered as representative of the future performance of the
Fund. Since yields fluctuate, yield data cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Trust Shares of the Fund will not be
included in performance calculations.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
22
<PAGE>
GALAXY
EQUITY INCOME
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-263 15029 (3/98)
<PAGE>
TRUST
THE GALAXY FUND
INTERNATIONAL EQUITY FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
BY FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY....................................................... 2
FINANCIAL HIGHLIGHTS.................................................. 3
INVESTMENT OBJECTIVE AND POLICIES..................................... 5
In General.......................................................... 5
Special Risk Considerations......................................... 6
Other Investment Policies and Risk Considerations................... 7
INVESTMENT LIMITATIONS................................................ 13
PRICING OF SHARES..................................................... 15
HOW TO PURCHASE AND REDEEM SHARES..................................... 15
Distributor......................................................... 15
Purchase of Shares.................................................. 16
Redemption of Shares................................................ 17
DIVIDENDS AND DISTRIBUTIONS........................................... 17
<CAPTION>
PAGE
----
<S> <C>
TAXES................................................................. 17
Federal............................................................. 17
State and Local..................................................... 19
MANAGEMENT OF THE FUND................................................ 19
Investment Adviser and Sub-Adviser.................................. 19
Authority to Act as Investment Adviser.............................. 20
Administrator....................................................... 21
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 21
Shareholder Services Plan........................................... 22
Agreements for Sub-Account Services................................. 23
CUSTODIAN AND TRANSFER AGENT.......................................... 23
EXPENSES.............................................................. 23
PERFORMANCE REPORTING................................................. 23
MISCELLANEOUS......................................................... 24
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance, call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares"), which
represent interests in the INTERNATIONAL EQUITY FUND (the "Fund") offered by
Galaxy.
The Fund's investment objective is to seek long-term capital appreciation.
The Fund attempts to achieve this objective by investing, under normal market
and economic conditions, at least 75% of its total assets in equity securities
of foreign issuers.
This Prospectus describes Trust Shares in the Fund. Trust Shares are offered
to investors maintaining qualified accounts at bank and trust institutions,
including institutions affiliated with Fleet Financial Group, Inc., and to
participants in employer-sponsored defined contribution plans. Galaxy is also
authorized to issue an additional series of shares in the Fund ("Retail A
Shares"), which are offered under a separate prospectus primarily to
individuals, corporations or other entities purchasing either for their own
accounts or for the accounts of others and to FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers on behalf of
their customers. Trust Shares and Retail A Shares represent equal pro rata
interests in the Fund, except they bear different expenses which reflect the
difference in the range of services provided to them. See "Financial
Highlights," "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates. Oechsle International Advisors, L.P. serves as the sub-adviser to
the Fund.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
FEBRUARY 28, 1998
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Trust Shares and (ii) the operating
expenses for Trust Shares of the Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
INTERNATIONAL
SHAREHOLDER TRANSACTION EXPENSES EQUITY FUND
- ---------------------------------------- ------------
<S> <C>
Sales Load.............................. None
Sales Load on Reinvested Dividends...... None
Deferred Sales Load..................... None
Redemption Fees......................... None
Exchange Fees........................... None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------
Advisory Fees (After Fee Waivers)....... .66%
------
12b-1 Fees.............................. None
Other Expenses.......................... .47%
------
Total Fund Operating Expenses (After Fee
Waivers)................................ 1.13%
------
------
</TABLE>
- ---------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
International Equity Fund............... $11 $35 $61 $135
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly. The information contained in the Expense Summary and
Example is based on expenses incurred by the Fund during the last fiscal year,
restated to reflect the expenses which the Fund expects to incur during the
current fiscal year on its Trust Shares. Without voluntary fee waivers by Fleet,
Advisory Fees would be .91% and Total Fund Operating Expenses would be 1.38% for
Trust Shares of the Fund. Fleet is under no obligation to waive fees and/or
reimburse expenses but has advised Galaxy that it intends to waive fees and/or
reimburse expenses during the current year to the extent necessary to maintain
the Fund's operating expenses at the level set forth in the above table. For
more complete descriptions of these costs and expenses, see "Management of the
Fund" and "Description of Galaxy and Its Shares" in this Prospectus and the
financial statements and notes incorporated by reference into the Statement of
Additional Information relating to the Fund. Any fees that are charged by
affiliates of Fleet or other institutions directly to their customer accounts
for services related to an investment in Trust Shares of the Fund are in
addition to and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy is also
authorized to issue an additional series of Shares in the Fund, Retail A Shares.
As described below under "Description of Galaxy and Its Shares," Trust Shares
and Retail A Shares represent equal pro rata interests in the Fund, except that
(i) effective October 1, 1994 Retail A Shares of the Fund bear the expenses
incurred under Galaxy's Shareholder Services Plan at an annual rate of up to
.30% of the average daily net asset value of the Fund's outstanding Retail A
Shares, and (ii) Trust Shares and Retail A Shares bear differing transfer agency
expenses.
The financial highlights presented below have been audited by Coopers &
Lybrand L.L.P., Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Fund dated October 31,
1997 (the "Annual Report"). Such financial highlights should be read in
conjunction with the financial statements and notes thereto contained in the
Annual Report and incorporated by reference into the Statement of Additional
Information relating to the Fund. Information in the financial highlights for
periods prior to the fiscal year ended October 31, 1994 reflects the results of
both Trust Shares and Retail A Shares of the Fund. More information about the
performance of the Fund is also contained in the Annual Report, which may be
obtained without charge by contacting Galaxy at its telephone number or address
provided above.
3
<PAGE>
INTERNATIONAL EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------
1997 1996 1995 1994 YEAR ENDED PERIOD ENDED
----------------------------------------- OCTOBER 31, OCTOBER 31,
TRUST SHARES 1993(2) 1992(1,2)
----------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 14.01 $ 12.98 $ 13.20 $ 12.13 $ 9.66 $ 10.00
-------- -------- -------- -------- ------------ ------------
Income from Investment Operations:
Net investment income(3)(,4).......... 0.08 0.17 0.16 0.06 0.02 0.06
Net realized and unrealized gain
(loss) on investments................ 2.12 1.30 (0.18) 1.02 2.51 (0.40)
-------- -------- -------- -------- ------------ ------------
Total from Investment Operations:... 2.20 1.47 (0.02) 1.08 2.53 (0.34)
-------- -------- -------- -------- ------------ ------------
Less Dividends:
Dividends from net investment income.. (0.20) (0.20) (0.04) (0.01) (0.06) --
Dividends from net realized capital
gains................................ (0.68) (0.24) (0.16) -- -- --
-------- -------- -------- -------- ------------ ------------
Total Dividends:.................... (0.88) (0.44) (0.20) (0.01) (0.06) --
-------- -------- -------- -------- ------------ ------------
Net increase (decrease) in net asset
value.................................. 1.32 1.03 (0.22) 1.07 2.47 (0.34)
-------- -------- -------- -------- ------------ ------------
Net Asset Value, End of Period.......... $ 15.33 $ 14.01 $ 12.98 $ 13.20 $ 12.13 $ 9.66
-------- -------- -------- -------- ------------ ------------
-------- -------- -------- -------- ------------ ------------
Total Return............................ 16.60% 11.51% (0.02)% 8.91% 26.36% (3.40)%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $265,124 $172,561 $ 89,614 $ 82,350 $39,246 $12,584
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 0.57% 1.40% 1.36% 0.74% 0.37% 1.19%(6)
Operating expenses including
reimbursement/waiver................. 1.06% 1.08% 1.22% 1.43% 1.57% 1.61%(6)
Operating expenses excluding
reimbursement/waiver................. 1.32% 1.36% 1.48% 1.72% 2.04% 2.79%(6)
Portfolio Turnover Rate................. 45% 146% 48% 39% 29% 21%(5)
Average Commission Rate Paid(7)......... $ 0.0214 $ 0.0381 N/A N/A N/A N/A
</TABLE>
- ---------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Trust and Retail
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Trust Shares the years ended
October 31, 1997, 1996, 1995 and 1994 was $0.04, $0.13, $0.13 and $0.04,
respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the year ended October 31, 1993
and for the period ended October 31, 1992 was $0.00 and $0.00,
respectively.
(5) Not Annualized.
(6) Annualized.
(7) Required for fiscal years beginning on or after September 1, 1995.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek long-term capital appreciation.
The Fund attempts to achieve its investment objective by investing at least 75%
of its total assets in equity securities of foreign issuers. The Fund's assets
will be invested at all times in the securities of issuers located in at least
three different foreign countries. Although the Fund may earn income from
dividends, interest and other sources, current income will not be its primary
consideration. The Fund emphasizes established companies, although it may invest
in companies of varying sizes as measured by assets, sales and capitalization.
The Fund may invest in securities of issuers located in a variety of
different foreign regions and countries, including, but not limited to,
Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany,
Greece, Hong Kong, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, Thailand and the United Kingdom. More than 25% of the Fund's total
assets may be invested in the securities of issuers located in the same country.
Investment in a particular country of 25% or more of the Fund's total assets
will make the Fund's performance more dependent upon the political and economic
circumstances of a particular country than a mutual fund that is more widely
diversified among issuers in different countries. Criteria for determining the
appropriate distribution of investments among various countries and regions
include prospects for relative economic growth, expected levels of inflation,
government policies influencing business conditions, the outlook for currency
relationships, and the range of investment opportunities available to
international investors. Under normal market and economic conditions, no more
than 20% of the Fund's net assets will be invested in the aggregate in the
securities of issuers located in countries with emerging economies or emerging
securities markets.
The Fund invests in common stock and may invest in other securities with
equity characteristics, consisting of trust or limited partnership interests,
preferred stock, rights and warrants. The Fund may also invest in convertible
securities, consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock.
See "Other Investment Policies and Risk Considerations--Convertible Securities"
below. The Fund invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets,
and may invest in unlisted securities.
Securities issued in certain countries are currently accessible to the Fund
only through investment in other investment companies that are specifically
authorized to invest in such securities. The limitations on the Fund's
investment in other investment companies are described under "Other Investment
Policies and Risk Considerations--Investment Company Securities" below.
During temporary defensive periods in response to unusual and adverse
conditions affecting the equity markets, or to meet anticipated day-to-day
operating expenses, the Fund's assets may be invested in short-term debt
instruments. In addition, when the Fund experiences large cash inflows from the
issuance of new shares or the sale of portfolio securities, and desirable equity
securities that are consistent with the Fund's investment objective are
unavailable in sufficient quantities, the Fund may hold short-term investments
for a limited time pending availability of suitable equity securities. The
short-term debt instruments in which the Fund may invest may be denominated in
foreign currencies or U.S. dollars, and include foreign and domestic: (i)
short-term debt securities, including short-term obligations of national
governments, their agencies, instrumentalities, authorities or political
subdivisions; (ii) commercial paper,
5
<PAGE>
including master notes; (iii) bank obligations, including negotiable
certificates of deposit, time deposits, bankers' acceptances, and Euro-currency
instruments and securities; and (iv) repurchase agreements.
Subject to applicable securities regulations, the Fund may, for the purpose
of hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indices listed on foreign and domestic stock exchanges. In addition, the
Fund may invest up to 100% of its total assets in securities of foreign issuers
in the form of American Depository Receipts ("ADRs"), European Depository
Receipts ("EDRs") or Global Depository Receipts ("GDRs") as described under
"Other Investment Policies and Risk Considerations." Furthermore, the Fund may
purchase and sell securities on a when-issued basis. For temporary defensive
purposes, the Fund may also invest a major portion of its assets in securities
of U.S. issuers. See "Other Investment Policies and Risk Considerations" below
regarding additional investment policies of the International Equity Fund.
Fleet Investment Advisors Inc. ("Fleet"), the Fund's investment adviser, and
Oechsle International Advisors, L.P. ("Oechsle"), the Fund's sub-adviser, will
use their best efforts to achieve the Fund's investment objective, although its
achievement cannot be assured. The investment objective of the Fund may not be
changed without the approval of the holders of a majority of its outstanding
shares (as defined under "Miscellaneous"). Except as noted below under
"Investment Limitations," the Fund's investment policies may be changed without
shareholder approval. An investor should not consider an investment in the Fund
to be a complete investment program.
SPECIAL RISK CONSIDERATIONS
MARKET RISK
The Fund invests primarily in equity securities. As with other mutual funds
that invest primarily in equity securities, the Fund is subject to market risks.
That is, the possibility exists that common stocks will decline over short or
even extended periods of time and both the U.S. and certain foreign equity
markets tend to be cyclical, experiencing both periods when stock prices
generally increase and periods when stock prices generally decrease.
INTEREST RATE RISK
To the extent that the Fund invests in fixed income securities, its holdings
of debt securities are sensitive to changes in interest rates and the interest
rate environment. Generally, the prices of bonds and other debt securities
fluctuate inversely with interest rate change.
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs, as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
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Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
prices of the Fund's securities in their local markets. Conversely, a decrease
in the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in countries with emerging economies or
emerging securities markets. The risks of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which the
Fund has the power to utilize. Some may be employed on a regular basis; others
may not be used at all. Accordingly, reference to any particular method or
technique carries no implication that it will be utilized or, if it is, that it
will be successful.
RATINGS
The Fund may only purchase debt securities rated "A" or higher by Moody's
Investors Service Inc. ("Moody's") or Standard & Poor's Ratings Group ("S&P"),
or if unrated, determined by Fleet and/or Oechsle to be of comparable quality.
Issuers of commercial paper, bank obligations or repurchase agreements in which
the Fund invests must have, at the time of investment, outstanding debt rated A
or higher by Moody's or S&P, or, if such debt is not rated, the instrument
purchased must be determined to be of comparable quality.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than 10
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance
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can be given that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
Some of these instruments may be variable or floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Time deposits with a maturity longer
than seven days or that do not provide for payment within seven days after
notice will be limited to 10% of the Fund's net assets.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject the Fund to additional risk because such
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Such investments may also subject
the Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations--Foreign Securities." The
Fund will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet and/or Oechsle believes that the credit
risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations" below.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet and/or Oechsle under guidelines approved by Galaxy's Board
of Trustees. The Fund will not enter into repurchase agreements with Fleet or
Oechsle or any of their affiliates. Unless a repurchase agreement has a
remaining maturity of seven days or less or may be terminated on demand upon
notice of seven days
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or less, the repurchase agreement will be considered an illiquid security and
will be subject to the 10% limit described in Investment Limitation No. 3 under
"Investment Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with the investment limitations described
below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by Fleet and/or Oechsle to be of good standing and only when,
in Fleet's and/or Oechsle's judgment, the income to be earned from the loan
justifies the attendant risks. The Fund currently intends to limit the lending
of its portfolio securities so that, at any given time, securities loaned by the
Fund represent not more than one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Fund may invest in securities issued by other investment companies which
invest in high quality, short-term debt securities and which determine their net
asset value per share based on the amortized cost or penny-rounding method. The
Fund may also purchase shares of investment companies investing primarily in
foreign securities, including so-called "country funds." Country funds have
portfolios consisting exclusively of securities of issuers located in one
foreign country. Investments in other investment companies will cause the Fund
(and, indirectly, the Fund's shareholders) to bear proportionately the costs
incurred in connection with the investment companies' operations. Securities of
other investment companies will be acquired by the Fund within the limits
prescribed by the Investment Company Act of 1940, as amended, (the "1940 Act").
The Fund currently intends to limit its investments so that, as determined
immediately after a securities purchase is made: (a) not more than 5% of the
value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Fund, other investment portfolios of Galaxy, or any
other investment companies advised by Fleet or Oechsle.
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REITS
The Fund may invest up to 10% of its net assets in real estate investment
trusts ("REITs"). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of a REIT's
investment. In addition, equity REITs may be affected by changes in the value of
the underlying property owned by the REITs, while mortgage REITs may be affected
by the quality of credit extended. Equity and mortgage REITs are dependent upon
management skill, are not diversified and are subject to the risks of financing
projects. REITs are also subject to heavy cash flow dependency, defaults by
borrowers, self liquidation and the possibility of failing to qualify for
tax-free pass-through of income under the Internal Revenue Code and to maintain
exemption from the 1940 Act. REITs pays dividends to their shareholders based
upon available funds from operations. It is quite common for these dividends to
exceed a REIT's taxable earnings and profits resulting in the excess portion of
such dividends being designated as a return of capital. The Fund intends to
include the gross dividends from any investments in REITs in its periodic
distributions to its shareholders and, accordingly, a portion of its
distributions may also be designated as a return of capital. See "Taxes".
OPTIONS
COVERED CALL OPTIONS. To further increase return on its portfolio
securities and in accordance with its investment objective and policies, the
Fund may engage in writing covered call options (options on securities owned by
the Fund) and may enter into closing purchase transactions with respect to such
options. Such options must be listed on a national securities exchange and
issued by the Options Clearing Corporation. The aggregate value of the
securities subject to options written by the Fund may not exceed 25% of the
value of its net assets. By writing a covered call option, the Fund forgoes the
opportunity to profit from an increase in the market price of the underlying
security above the exercise price, except insofar as the premium represents such
a profit. The Fund will not be able to sell the underlying security until the
option expires or is exercised or the Fund effects a closing purchase
transaction by purchasing an option of the same series. Such options would
normally be written only on underlying securities as to which Fleet and/or
Oechsle does not anticipate significant short-term capital appreciation. See
"Derivative Securities" below.
OPTIONS ON FOREIGN STOCK INDICES. The Fund may, for the purpose of hedging
its portfolio, subject to applicable securities regulations, purchase and write
put and call options on foreign stock indices listed on foreign and domestic
stock exchanges. A stock index fluctuates with changes in the market values of
the stocks included in the index. Examples of foreign stock indices are the
Canadian Market Portfolio Index (Montreal Stock Exchange), The Financial
Times--Stock Exchange 100 (London Stock Exchange) and the Toronto Stock Exchange
Composite 300 (Toronto Stock Exchange).
Options on stock indices are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a stock index
gives the holder the right to receive a cash "exercise settlement amount" equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is
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less than (in the case of a call) the closing value of the underlying index on
the date of exercise, multiplied by (b) a fixed "index multiplier." Receipt of
this cash amount will depend upon the closing level of the stock index upon
which the option is based being greater than, in the case of a call, or less
than, in the case of a put, the exercise price of the option. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. The writer may offset its position in a stock index option prior to
expiration by entering into a closing transaction on an exchange or the option
may expire unexercised. For additional information relating to option trading
practices and related risks, see "Derivative Securities" below and in the
Statement of Additional Information relating to the Fund.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
The Fund may invest in ADRs, EDRs and GDRs. ADRs are receipts issued in
registered form by a U.S. bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. GDRs are
receipts structured similarly to EDRs and are marketed globally. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. GDRs are designed for trading in non-U.S. securities
markets. ADRs, EDRs and GDRs traded in the over-the-counter market which do not
have an active or substantial secondary market will be considered illiquid and
therefore will be subject to the Fund's limitation with respect to such
securities. ADR prices are denominated in U.S. dollars although the underlying
securities are denominated in a foreign currency. Investments in ADRs, EDRs and
GDRs involve risks similar to those accompanying direct investments in foreign
securities. Certain of these risks are described above under "Special Risk
Considerations--Foreign Securities."
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Fund may buy and sell securities denominated in currencies other
than the U.S. dollar, and may receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Fund from time to time may enter into
foreign currency exchange transactions to convert the U.S. dollar to foreign
currencies, to convert foreign currencies to the U.S. dollar and to convert
foreign currencies to other foreign currencies. The Fund either enters into
these transactions on a spot (I.E. cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another--for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen--at a future
date and at a specified price. Typically, the other party to a currency exchange
contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, such
contracts are rolled over in a manner consistent with a more long-term currency
decision. Because there is a risk of loss to the Fund if the other party does
not complete the transaction, forward foreign currency exchange contracts will
be entered into only with parties approved by Galaxy's Board of Trustees.
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The Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency--for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S.
dollars--at a future date and at a specified price in anticipation of a decline
in the value of the currency sold short relative to the currency that the Fund
has contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash or other liquid assets equal in value to the fluctuating market value of
the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the Statement of
Additional Information relating to the Fund for additional information regarding
foreign currency exchange transactions.
CONVERTIBLE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
invest in convertible securities. Convertible securities are fixed income
securities which may be exchanged or converted into a predetermined number of
shares of the issuer's underlying common stock at the option of the holder
during a specified time period. Convertible securities in which the Fund may
invest may take the form of convertible preferred stock and convertible bonds or
debentures.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Convertible securities are senior to equity securities and
therefore have a claim to the assets of the issuer prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same issuer.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than nonconvertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in Fleet's and/or
Oechsle's opinion, the investment characteristics of the underlying common stock
will assist the Fund in achieving its investment objective. Otherwise, the Fund
will hold or trade the convertible securities. In selecting convertible
securities for the Fund, Fleet and/or Oechsle evaluates the investment
characteristics of the convertible security as a fixed income instrument, and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, Fleet and/or Oechsle considers numerous factors, including
the economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.
DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
purchase certain "derivative" securities. Derivative securities are instruments
that derive their value from the performance of underlying assets, interest or
currency exchange rates, or indices, and include, but are not limited to,
covered call options, options on foreign stock indices and foreign currency
exchange contracts.
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Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Fund will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
Fleet and/or Oechsle will evaluate the risks presented by the derivative
securities purchased by the Fund, and will determine, in connection with their
day-to-day management of the Fund, how such securities will be used in
furtherance of the Fund's investment objective. It is possible, however, that
Fleet's and/or Oechsle's evaluations will prove to be inaccurate or incomplete
and, even when accurate and complete, it is possible that the Fund will, because
of the risks discussed above, incur loss as a result of its investments in
derivative securities. See "Investment Objectives and Policies--Derivative
Securities" in the Statement of Additional Information relating to the Fund for
additional information.
WHEN-ISSUED TRANSACTIONS
The Fund may purchase eligible securities on a "when-issued" basis.
When-issued transactions, which involve a commitment by the Fund to purchase or
sell particular securities with payment and delivery taking place at a future
date (perhaps one or two months later), permit the Fund to lock in a price or
yield on a security it owns or intends to purchase, regardless of future changes
in interest rates. When-issued transactions involve the risk, however, that the
yield or price obtained in a transaction may be less favorable than the yield or
price available in the market when the securities delivery takes place.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if Fleet
and/or Oechsle believes that such a disposition is consistent with the Fund's
investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold such investments. A portfolio
rate of 100% or more is considered high although the rate of turnover will not
be a limiting factor on making portfolio decisions. A high rate of portfolio
turnover involves correspondingly greater brokerage commission expenses and
other transaction costs, which must be ultimately borne by the Fund's
shareholders. High portfolio turnover may result in the realization of
substantial net capital gains; distributions derived from such gains will be
treated as ordinary income for federal income tax purposes. See "Financial
Highlights" and "Taxes--Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information relating to the Fund under "Investment Objectives and Policies."
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The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) the Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that the Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 33% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase agreements
in accordance with its investment policies and in amounts not in excess of
33% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 33% of the value of the Fund's total assets at the time
of such borrowing. The Fund will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
securities which are restricted as to transfer in their principal market,
nonnegotiable time deposits and other securities which are not readily
marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of the Fund's
total assets would be invested in such issuer, except that up to 25% of the
value of its total assets may be invested without regard to this limitation.
In addition, the Fund may not purchase any securities which would cause 25%
or more of the value of the its total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however, that (a) there is
no limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, the Fund intends to limit
any borrowings (including reverse repurchase agreements) to not more than 33% of
the value of its total assets at the time of such borrowing.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. The Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
10% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered to be
illiquid if Fleet and/or Oechsle has determined, in
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accordance with guidelines established by the Board of Trustees, that an
adequate trading market exists for such securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). The net asset value per share is determined on each
day on which the Exchange is open for trading. Currently, the holidays which
Galaxy observes are New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value per share for purposes of pricing sales and
redemptions is calculated separately for each series of shares by dividing the
value of all securities and other assets attributable to a particular series of
shares of the Fund, less the liabilities attributable to the shares of that
series of the Fund, by the number of outstanding shares of that series of the
Fund.
The Fund's portfolio securities which are primarily traded on a domestic
exchange are valued at the last sale price on that exchange or, if there is no
recent sale, at the last current bid quotation. Portfolio securities which are
primarily traded on foreign securities exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
except when an occurrence subsequent to the time a value was so established is
likely to have changed such value, then the fair value of those securities may
be determined through consideration of other factors by or under the direction
of the Board of Trustees. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the primary
market for such security. Investments in debt securities having a maturity of 60
days or less are valued based upon the amortized cost method. All other
securities are valued at the last current bid quotation if market quotations are
available, or at fair value as determined in accordance with policies
established in good faith by Galaxy's Board of Trustees. For valuation purposes,
quotations of foreign securities in foreign currency are converted to U.S.
dollars equivalent at the prevailing market rate on the day of valuation. An
option is generally valued at the last sale price or, in the absence of a last
sale price, the last offer price.
Certain of the securities acquired by the Fund may be traded on foreign
exchanges or over-the-counter markets on days on which the Fund's net asset
value is not calculated. In such cases, the net asset value of the Fund's shares
may be significantly affected on days when investors can neither purchase nor
redeem shares of the Fund.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
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PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that the Fund's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If an Institution accepts a purchase
order from its Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Fund and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts (including defined contribution plans). Investors should contact their
Institution (in the case of employer-sponsored defined contribution plans, their
employer) for further information concerning the types of eligible Customer
accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirements with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by their customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by an Institution to its Customers.
Information pertaining to such plans is available directly from the Institution.
Trust Shares of the Fund described in this Prospectus may also be sold to
clients, partners and employees of Oechsle. On a Business Day when the Exchange
closes early due to a partial holiday or otherwise, Galaxy will advance the time
at which purchase orders must be received in order to be processed on that
Business Day.
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REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a business day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which purchase orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day will normally be wired on the following Business
Day to the Institution. Payment for redemption orders received on a non-Business
Day will normally be wired to the Institution on the next Business Day. However,
in both cases Galaxy reserves the right to wire redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. The Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon sixty days
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared and paid
annually. Dividends on each share of the Fund are determined in the same manner,
irrespective of series, but may differ in amount because of the difference in
the expenses paid by the respective series. Net realized capital gains are
distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
The policy of the Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary
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income to the Fund's shareholders who are not currently exempt from federal
income taxes, whether such dividends are received in cash or reinvested in
additional Trust Shares. (Federal income taxes for distributions to an IRA or a
qualified retirement plan are deferred under the Code.) Such ordinary income
distributions will qualify for the dividends received deduction for corporations
to the extent of the total qualifying dividends received by the Fund from
domestic corporations for the taxable year.
Distribution by the Fund of "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, of the
Fund is taxable to shareholders as long-term capital gain, regardless of how
long the shareholder has held shares and whether such gains are received in cash
or reinvested in additional Trust Shares. Such long-term capital gain will
constitute 20% or 28% rate gain, depending upon the Fund's holding period for
the assets the sale of which generated the gain. Such distributions are not
eligible for the dividends received deduction.
The dividends received deduction is not available for dividends attributable
to distributions made by a REIT to the Fund. In addition, distributions paid by
REITs often include a "return of capital." The Code requires a REIT to
distribute at least 95% of its taxable income to investors. In many cases,
however, because of "non-cash" expenses such as property depreciation, an equity
REIT's cash flow will exceed its taxable income. The REIT may distribute this
excess cash to offer a more competitive yield. This portion of the distribution
is deemed a return of capital and is generally not taxable to shareholders.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying shares of the Fund on or just before the
record date of a dividend, you should be aware that the amount of the
forthcoming dividend payment, although in effect a return of capital, generally
will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
It is expected that the Fund will be subject to foreign withholding taxes
with respect to income received from sources within foreign countries. So long
as more than 50% of the value of the Fund's total assets at the close of any
taxable year consists of stock or securities of foreign corporations, the Fund
may elect, for U.S. federal income tax purposes, to treat certain foreign taxes
paid by it, including generally any withholding taxes and other foreign income
taxes, as paid by its shareholders. If the Fund makes this election, the amount
of such foreign taxes paid by the Fund will be included in its shareholders'
income pro rata (in addition to taxable distributions actually received by
them), and each shareholder would be entitled either (a) to credit their
proportionate amount of such taxes against their U.S. federal income tax
liabilities, subject to certain limitations described in the Statement of
Additional Information, or (b) if they itemize their deductions, to deduct such
proportionate amount from their U.S. income should they so choose.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
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situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The applicable Statement of Additional Information
contains the names of and general background information concerning the
Trustees.
INVESTMENT ADVISER AND SUB-ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts,
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients, and
manages the other investment portfolios of Galaxy: the Money Market, Government,
U.S. Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Institutional Government Money Market, Equity Value,
Equity Growth, Equity Income, Asset Allocation, Small Company Equity, MidCap
Equity, Small Cap Value, Growth and Income, Strategic Equity, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut Municipal
Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records (except with respect to such
functions that have been delegated to Oechsle, the Fund's sub-adviser, as
described below).
For the services provided and expenses assumed with respect to the Fund,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
an annual rate of 1.15% of the first $50 million of the Fund's average daily net
assets, plus .95% of the next $50 million of such assets, plus .85% of net
assets in excess of $100 million.
Fleet may from time to time, in its discretion, waive all or a portion of
the advisory fees payable by the Fund in order to help maintain a competitive
expense ratio and may from time to time allocate a portion of its advisory fees
to Fleet Bank or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders. For the fiscal year ended October 31, 1997,
Fleet received advisory fees (after fee waivers) at the effective annual rate of
.68% of the Fund's average daily net assets. During the fiscal year ended
October 31, 1997 Fleet reimbursed the Fund for certain operating expenses, which
reimbursement may be revised or discontinued at any time.
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The advisory agreement between Galaxy and Fleet with respect to the Fund
provides that Fleet will provide a continuous investment program for the Fund,
including research and management with respect to all securities and investments
and cash equivalents in the Fund. In addition, the advisory agreement authorizes
Fleet to engage a sub-adviser to assist it in the performance of its services.
Pursuant to such authorization, Fleet has appointed Oechsle, a Delaware limited
partnership with principal offices at One International Place, Boston,
Massachusetts 02210, as the sub-adviser to the Fund. The general partner of
Oechsle is Oechsle Group, L.P., and the managing general partner of Oechsle
Group, L.P. is Walter Oechsle. Oechsle currently manages approximately $10.2
billion in assets.
Under its sub-advisory agreement with Fleet, Oechsle determines which
securities and other investments will be purchased, retained or sold for the
Fund; places orders for the Fund; manages the Fund's overall cash position; and
provides Fleet with foreign broker research and a quarterly review of
international economic and investment developments. Fleet, among other things,
assists and consults with Oechsle in connection with the Fund's continuous
investment program; approves lists of foreign countries recommended by Oechsle
for investment; reviews the investment policies and restrictions of the Fund and
recommends appropriate changes to the Board of Trustees; and provides the Board
of Trustees and Oechsle with information concerning relevant economic and
political developments.
For the services provided and the expenses assumed pursuant to the
sub-advisory agreement, Fleet pays a fee to Oechsle, computed daily and paid
quarterly, at the annual rate of .40% of the first $50 million of the Fund's
average daily net assets, plus .35% of average daily net assets in excess of $50
million. For the fiscal year ended October 31, 1997, Oechsle received
sub-advisory fees from Fleet at the effective annual rate of .36% of the Fund's
average daily net assets.
The Fund's portfolio managers, David von Hemert of Fleet and S. Dewey
Keesler, Jr. and Kathleen Harris of Oechsle, are primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. von Hemert, a
Senior Vice-President, has been with Fleet and its predecessors since 1980 and
has been managing the Fund since August 1994. Mr. Keesler, General Partner and
Portfolio Manager, has been with Oechsle since its founding in 1986. Ms. Harris
has been a Portfolio Manager at Oechsle since January 1995. Prior thereto, she
was Portfolio Manager and Investment Director for the State of Wisconsin
Investment Board and a Fund Manager and Equity Analyst for Northern Trust
Company.
Fleet and Oechsle are authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions, including, to the extent
permitted by law or order of the Securities and Exchange Commission ("SEC"),
financial institutions that are affiliated with Fleet or Oechsle or that have
sold shares of the Funds, if Fleet or Oechsle, as the case may be, believes that
the quality of the transaction and the commission are comparable to what they
would be with other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which agree to provide shareholder support
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services that are banks or bank affiliates are subject to such banking laws and
regulations. Should legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with their services to
the Fund, Galaxy might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is
anticipated, however, that any resulting change in the Fund's method of
operation would not affect the Fund's net asset value per share or result in
financial loss to any shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided by the Fund, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of the combined
average daily net assets of the Fund and the other portfolios offered by Galaxy
(collectively, the "Portfolios"), .085% of the next $2.5 billion of the combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily all or a portion of the
administration fee payable to it by the Fund. For the fiscal year ended October
31, 1997, the Fund paid Investor Services Group administration fees at the
effective annual rate of .082% of the Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in the Fund: Class G-Series 1 shares (Trust
Shares) and Class G-Series 2 shares (Retail A Shares), both series representing
interests in the Fund. The Fund is classified as a diversified company under the
1940 Act. The Board of Trustees has also authorized the issuance of additional
classes and series of shares representing interests in other portfolios of
Galaxy. For information regarding the Fund's Retail A Shares and these other
portfolios, which are offered through separate prospectuses, contact FD
Distributors at 1-800-628-0414.
Trust Shares and Retail A Shares in the Fund bear their pro rata portion of
all operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid under Galaxy's Shareholder Services
Plan described below. Currently, these payments are not made with respect to the
Fund's Trust Shares. In addition, Trust Shares and Retail A Shares in the Fund
bear differing transfer agency expenses. Standardized yield and total return
quotations are computed separately for each series of shares. The difference in
the expenses paid by the respective series will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end sales charge
of 3.75% and have certain exchange and other privileges which are not available
with respect to Trust Shares.
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Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class, and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to such investment portfolio as are declared in the discretion of
Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.50% of the average daily net asset value of the Fund's outstanding Retail A
Shares beneficially owned by Customers. Institutions may receive up to one-half
of this fee for providing one or more of the following services to such
Customers: aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with FD Distributors; processing
dividend payments from the Fund; providing sub-accounting with respect to Retail
A Shares or the information necessary for sub-accounting; and providing periodic
mailings to Customers. Institutions may also receive up to one-half of this fee
for providing one or more of these additional services to such Customers:
providing Customers with information as to their positions in Retail A Shares;
responding to Customer inquiries; and providing a service to invest the assets
of Customers in Retail A Shares. These services are described more fully in the
Statement of Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
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AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including: maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Fund to Investor Services Group have
been increased by an amount equal to these fees. In substance, therefore, the
holders of Trust Shares of the Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as custodian of the Fund's assets. Chase Manhattan
may employ sub-custodians for the Fund for the purpose of providing custodial
services for the Fund's foreign assets held outside the United States. First
Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-owned
subsidiary of First Data Corporation, serves as the Fund's transfer and dividend
disbursing agent. Services performed by these entities for the Fund are
described in the Statement of Additional Information. Communications to Investor
Services Group should be directed to Investor Services Group at P.O. Box 5108,
4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Fund. Galaxy bears
the expenses incurred in the Fund's operations. Such expenses include: taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, fund accounting and custody fees; charges of the transfer agent and
dividend disbursing agent; certain insurance premiums; outside auditing and
legal expenses; costs of independent pricing services; costs of shareholder
reports and meetings; and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions in connection with the purchase of portfolio
securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent
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service which monitors the performance of mutual funds, the S&P 500, an
unmanaged index of groups of common stocks, the Consumer Price Index, or the Dow
Jones Industrial Average, a recognized unmanaged index of common stocks of 30
industrial companies listed on the New York Stock Exchange. In addition, the
performance of the Fund may be compared to either the Morgan Stanley Capital
International Index or the FT World Actuaries Index.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES or publications of a local or regional nature may also be
used in comparing the performance of the Fund. Performance data will be
calculated separately for Trust Shares and Retail A Shares of the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividends and capital gain distributions made by the Fund during the period
are reinvested in Fund shares.
The performance of the Fund will fluctuate and any quotation of performance
should not be considered as representative of the future performance of the
Fund. Since yields fluctuate, yield data cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Trust Shares of the Fund will not be
included in performance calculations.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
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As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
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GALAXY
INTERNATIONAL EQUITY
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-266 15036 (3/98)
<PAGE>
TRUST
THE GALAXY FUND
SMALL COMPANY EQUITY FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
BY FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY....................................................... 2
FINANCIAL HIGHLIGHTS.................................................. 3
INVESTMENT OBJECTIVES AND POLICIES.................................... 5
In General.......................................................... 5
Special Risk Considerations......................................... 6
Other Investment Policies and Risk Considerations................... 6
INVESTMENT LIMITATIONS................................................ 13
PRICING OF SHARES..................................................... 14
HOW TO PURCHASE AND REDEEM SHARES..................................... 15
Distributor......................................................... 15
Purchase of Shares.................................................. 15
Redemption of Shares................................................ 16
DIVIDENDS AND DISTRIBUTIONS........................................... 16
TAXES................................................................. 17
Federal............................................................. 17
State and Local..................................................... 18
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT OF THE FUND................................................ 18
Investment Adviser.................................................. 18
Authority to Act as Investment Adviser.............................. 19
Administrator....................................................... 19
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 19
Shareholder Services Plan........................................... 20
Agreements for Sub-Account Services................................. 21
CUSTODIAN AND TRANSFER AGENT.......................................... 21
EXPENSES.............................................................. 22
PERFORMANCE REPORTING................................................. 22
MISCELLANEOUS......................................................... 23
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance, call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares"), which
represent interests in the SMALL COMPANY EQUITY FUND (the "Fund") offered by
Galaxy.
The Fund's investment objective is to seek capital appreciation. The Fund
attempts to achieve this objective by investing primarily in the securities of
companies with market value capitalizations of $750 million or less that the
Fund's investment adviser believes represent the potential for significant
capital appreciation. Under normal market and economic conditions, the Fund will
invest at least 65% of its assets in the equity securities of companies with
market value capitalizations of $750 million or less.
This Prospectus describes Trust Shares in the Fund. Trust Shares are offered
to investors maintaining qualified accounts at bank and trust institutions,
including institutions affiliated with Fleet Financial Group, Inc., and to
participants in employer-sponsored defined contribution plans. Galaxy is also
authorized to issue two additional series of shares in the Fund, Retail A Shares
and Retail B Shares (Retail A Shares and Retail B Shares are referred to herein
collectively as "Retail Shares"). Retail Shares are offered under a separate
prospectus primarily to individuals, corporations or other entities purchasing
either for their own accounts or for the accounts of others and to FIS
Securities, Inc., Fleet Brokerage Securities, Inc., Fleet Securities, Inc.,
Fleet Enterprises Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks and other qualified banks, savings and loans associations
and broker/dealers on behalf of their customers. Trust Shares, Retail A Shares
and Retail B Shares represent equal pro rata interests in the Fund, except they
bear different expenses which reflect the difference in the range of services
provided to them. See "Financial Highlights," "Management of the Fund" and
"Description of Galaxy and Its Shares" herein.
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------
FEBRUARY 28, 1998
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Trust Shares and (ii) the operating
expenses for Trust Shares of the Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
SMALL
COMPANY
EQUITY
SHAREHOLDER TRANSACTION EXPENSES FUND
- ---------------------------------------- ------
<S> <C>
Sales Load.............................. None
Sales Load on Reinvested Dividends...... None
Deferred Sales Load..................... None
Redemption Fees......................... None
Exchange Fees........................... None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------
Advisory Fees........................... .75%
12b-1 Fees.............................. None
Other Expenses.......................... .41%
------
Total Fund Operating Expenses........... 1.16%
------
------
</TABLE>
- ---------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Small Company Equity Fund............... $12 $36 $63 $138
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly. The information contained in the Expense Summary and
Example is based on expenses incurred by the Fund during the last fiscal year,
restated to reflect the expenses which the Fund expects to incur during the
current fiscal year on its Trust Shares. For more complete descriptions of these
costs and expenses, see "Management of the Fund" and "Description of Galaxy and
Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information relating
to the Fund. Any fees that are charged by affiliates of Fleet or other
institutions directly to their customer accounts for services related to an
investment in Trust Shares of the Fund are in addition to and not reflected in
the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy is also
authorized to issue two additional series of shares in the Fund, Retail A Shares
and Retail B Shares. As described below under "Description of Galaxy and Its
Shares," Trust Shares, Retail A Shares and Retail B Shares represent equal pro
rata interests in the Fund, except that (i) effective October 1, 1994 Retail A
Shares of the Fund bear the expenses incurred under Galaxy's Shareholder
Services Plan at an annual rate not to exceed .30% of the average daily net
asset value of the Fund's outstanding Retail A Shares, (ii) Retail B Shares of
the Fund bear the expenses incurred under Galaxy's Distribution and Services
Plan for Retail B Shares at an annual rate not to exceed .95% of the average
daily net asset value of the Fund's outstanding Retail B Shares, and (iii) Trust
Shares, Retail A Shares and Retail B Shares bear differing transfer agency
expenses.
The financial highlights presented below have been audited by Coopers &
Lybrand L.L.P., Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Fund dated October 31,
1997 (the "Annual Report"). Such financial highlights should be read in
conjunction with the financial statements and notes thereto contained in the
Annual Report and incorporated by reference into the Statement of Additional
Information relating to the Fund. Information in the financial highlights for
periods prior to the fiscal year ended October 31, 1994 reflects the investment
results of both Trust Shares and Retail A Shares of the Fund. More information
about the performance of the Fund is also contained in the Annual Report, which
may be obtained without charge by contacting Galaxy at its telephone number or
address provided above.
3
<PAGE>
SMALL COMPANY EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------
YEAR PERIOD
1997 1996 1995 1994 ENDED ENDED
--------------------------------------------- OCTOBER 31, OCTOBER 31,
TRUST SHARES 1993(2) 1992(1,2)
--------------------------------------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 20.20 $ 16.38 $ 12.36 $ 12.41 $ 8.79 $ 10.00
--------- --------- --------- --------- ------------- -------------
Income from Investment Operations:
Net investment income (loss)(3,4)..... (0.11) (0.09) (0.04) -- (0.04) (0.03)
Net realized and unrealized gain
(loss) on investments................ 3.61 4.08 4.25 -- 3.66 (1.18)
--------- --------- --------- --------- ------------- -------------
Total from Investment Operations:... 3.50 3.99 4.21 -- 3.62 (1.21)
--------- --------- --------- --------- ------------- -------------
Less Dividends:
Dividends from net investment
income............................... -- -- -- -- -- --
Dividends from net realized capital
gains................................ (2.38) (0.17) (0.19) (0.05) -- --
--------- --------- --------- --------- ------------- -------------
Total Dividends:.................... (2.38) (0.17) (0.19) (0.05) -- --
--------- --------- --------- --------- ------------- -------------
Net increase (decrease) in net asset
value.................................. 1.12 3.82 4.02 (0.05) 3.62 (1.21)
--------- --------- --------- --------- ------------- -------------
Net Asset Value, End of Period.......... $ 21.32 $ 20.20 $ 16.38 $ 12.36 $ 12.41 $ 8.79
--------- --------- --------- --------- ------------- -------------
--------- --------- --------- --------- ------------- -------------
Total Return............................ 19.59% 24.69% 34.73% 0.02% 41.18% (12.10)%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $ 310,751 $ 174,990 $ 94,831 $ 66,462 $ 55,683 $ 29,072
Ratios to average net assets:
Net investment income (loss) including
reimbursement/waiver................. (0.65)% (0.60)% (0.37)% (0.35)% (0.66)% (0.63)%(6)
Operating expenses including
reimbursement/waiver................. 1.09% 1.14% 1.12% 1.27% 1.18% 1.06%(6)
Operating expenses excluding
reimbursement/waiver................. 1.12% 1.14% 1.12% 1.27% 1.22% 1.33%(6)
Portfolio Turnover Rate................. 69% 82% 54% 35% 57% 87%(5)
Average Commission Rate Paid(7)......... $ 0.0576 $ 0.0531 N/A N/A N/A N/A
</TABLE>
- ---------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Trust and Retail
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income (loss) per share before reimbursement/waiver of fees
by Fleet and/or the Fund's administrator for Trust Shares for the years
ended October 31, 1997, 1996, 1995 and 1994 was $(0.11), $(0.09), $(0.04)
and $0.00, respectively.
(4) Net investment income (loss) per share before reimbursement/waiver of fees
by Fleet and/or the Fund's administrator for the year ended October 31,
1993 and for the period ended October 31, 1992 was $(0.04) and $(0.05),
respectively.
(5) Not Annualized.
(6) Annualized.
(7) Required for fiscal years beginning on or after September 1, 1995.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to seek capital appreciation. The Fund
attempts to achieve its investment objective by investing primarily in the
securities of companies with market value capitalizations of $750 million or
less ("Small Capitalization Securities") that Fleet Investment Advisors Inc.
("Fleet"), the Fund's investment adviser, believes represent the potential for
significant capital appreciation.
Small Capitalization Securities in which the Fund may invest include common
stock, preferred stock, securities convertible into common stock, rights and
warrants. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in the equity securities of companies with
market value capitalizations of $750 million or less. For temporary defensive
purposes, the Fund may also invest in corporate debt obligations.
The issuers of Small Capitalization Securities tend to be companies which
are smaller or newer than those listed on the New York or American Stock
Exchanges. As a result, Small Capitalization Securities are primarily traded on
the over-the-counter market, although they may also be listed for trading on the
New York or American Stock Exchanges. Because the issuers of Small
Capitalization Securities tend to be smaller or less well-established companies,
they may have limited product lines, markets or financial resources. As a
result, Small Capitalization Securities are often less marketable and may
experience a higher level of price volatility than the securities of larger or
more well-established companies.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through American Depository Receipts ("ADRs") and
European Depository Receipts ("EDRs"). See "Special Risk Considerations--Foreign
Securities" and "Other Investment Policies and Risk Considerations--American and
European Depository Receipts" below.
The Fund may purchase put options and call options and write covered call
options as a hedge against changes resulting from market conditions and in the
value of the securities held in the Fund or which it intends to purchase and
where the transactions are economically appropriate for the reduction of risks
inherent in the ongoing management of the Fund. See "Other Investment Policies
and Risk Considerations--Options" and "Other Investment Policies and Risk
Considerations--Derivative Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of Fleet, prevailing market or
economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Fund.
Fleet will use its best efforts to achieve the Fund's investment objective,
although its achievement cannot be assured. The investment objective of the Fund
may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program.
5
<PAGE>
SPECIAL RISK CONSIDERATIONS
MARKET RISK
The Fund invests primarily in equity securities. As with other mutual funds
that invest primarily in equity securities, the Fund is subject to market risks.
That is, the possibility exists that common stocks will decline over short or
even extended periods of time and both the U.S. and certain foreign equity
markets tend to be cyclical, experiencing both periods when stock prices
generally increase and periods when stock prices generally decrease.
INTEREST RATE RISK
To the extent that the Fund invests in fixed income securities, its holdings
of such securities are sensitive to changes in interest rates and the interest
rate environment. Generally, the prices of bonds and other debt securities
fluctuate inversely with interest rate change.
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs, as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
prices of the Fund's securities in their local markets. Conversely, a decrease
in the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange-rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in countries with emerging economies or
emerging securities markets. The risks of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which the
Fund has the power to utilize. Some may be employed on a regular basis; others
may not be used at all. Accordingly, reference to any particular method or
technique carries no implication that it will be utilized or, if it is, that it
will be successful.
6
<PAGE>
RATINGS
All debt obligations, including convertible bonds, purchased by the Fund are
rated investment grade by Moody's Investors Service, Inc. ("Moody's") ("Aaa,"
"Aa," "A" and "Baa") or Standard & Poor's Ratings Group ("S&P") ("AAA," "AA,"
"A" and "BBB"), or, if not rated, are determined to be of comparable quality by
Fleet. Debt securities rated "Baa" by Moody's or "BBB" by S&P are generally
considered to be investment grade securities although they may have speculative
characteristics and changes in economic conditions or circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case for higher rated debt obligations.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than 10
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Time deposits with a maturity longer
than seven days or that do not provide for payment within seven days after
notice will be limited to 10% of the Fund's net assets.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject the Fund to additional risk because such
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable
7
<PAGE>
to domestic branches of U.S. banks. Such investments may also subject the Fund
to investment risks similar to those accompanying direct investments in foreign
securities. See "Special Risk Considerations-- Foreign Securities." The Fund
will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet believes that the credit risk with
respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations" below.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
The Fund will not enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand upon notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 10% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with the investment limitations described
below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral,
8
<PAGE>
should the borrower of the securities fail financially. Any portfolio securities
purchased with cash collateral would also be subject to possible depreciation.
Loans will generally be short-term, will be made only to borrowers deemed by
Fleet to be of good standing and only when, in Fleet's judgment, the income to
be earned from the loan justifies the attendant risks. The Fund currently
intends to limit the lending of its portfolio securities so that, at any given
time, securities loaned by the Fund represent not more than one-third of the
value of its total assets.
INVESTMENT COMPANY SECURITIES
The Fund may invest in securities issued by other investment companies which
invest in high quality, short-term debt securities and which determine their net
asset value per share based on the amortized cost or penny-rounding method.
Investments in other investment companies will cause the Fund (and, indirectly,
the Fund's shareholders) to bear proportionately the costs incurred in
connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Fund within the limits prescribed
by the Investment Company Act of 1940, as amended, (the "1940 Act"). The Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, or any other investment companies
advised by Fleet.
REITS
The Fund may invest up to 10% of its net assets in real estate investment
trusts ("REITs"). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of a REIT's
investments. In addition, equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, are not diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital. See
"Taxes."
9
<PAGE>
OPTIONS
The Fund may purchase put options and call options on securities and
securities indices. A put option gives the buyer the right to sell, and the
writer the obligation to buy, the underlying security at the stated exercise
price at any time prior to the expiration of the option. A call option gives the
buyer the right to buy the underlying security at the stated exercise price at
any time prior to the expiration of the option. Options involving securities
indices provide the holder with the right to make or receive a cash settlement
upon exercise of the option based on movements in the relevant index.
The Fund may also write covered call options on securities which it owns and
may enter into closing purchase transactions with respect to such options.
Writing a covered call option means that the Fund owns the underlying security
subject to call at the stated exercise price at all times during the option
period.
By writing a covered call option, the Fund forgoes the opportunity to profit
from an increase in the market price of the underlying security above the
exercise price, except insofar as the premium represents such a profit. The Fund
will not be able to sell the underlying security until the option expires or is
exercised or the Fund effects a closing purchase transaction by purchasing an
option of the same series. Such options would normally be written only on
underlying securities as to which Fleet does not anticipate significant
short-term capital appreciation.
All options must be listed on a national securities exchange and issued by
the Options Clearing Corporation. The aggregate value of options purchased by
the Fund may not exceed 5%, and the aggregate value of covered call options
written by the Fund may not exceed 25%, of the value of the Fund's net assets.
See "Derivative Securities" below.
AMERICAN AND EUROPEAN DEPOSITORY RECEIPTS
The Fund may invest in ADRs and EDRs. ADRs are receipts issued in registered
form by a U.S. bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. EDRs are receipts issued in Europe
typically by non-U.S. banks or trust companies and foreign branches of U.S.
banks that evidence ownership of foreign or U.S. securities. ADRs may be listed
on a national securities exchange or may be traded in the over-the-counter
market. EDRs are designed for use in European exchange and over-the-counter
markets. ADRs and EDRs traded in the over-the-counter market which do not have
an active or substantial secondary market will be considered illiquid and
therefore will be subject to the Fund's limitation with respect to such
securities. ADR prices are denominated in U.S. dollars although the underlying
securities are denominated in a foreign currency. Investments in ADRs and EDRs
involve risks similar to those accompanying direct investments in foreign
securities. Certain of these risks are described above under "Special Risk
Considerations--Foreign Securities."
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Fund may buy and sell securities denominated in currencies other
than the U.S. dollar, and may receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Fund from time to time may enter into
foreign currency exchange transactions to convert the U.S. dollar to foreign
currencies, to convert foreign currencies to the U.S. dollar and to convert
foreign currencies to other foreign currencies. The Fund either enters into
these transactions on a spot (I.E. cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency
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for another--for example, to exchange a certain amount of U.S. dollars for a
certain amount of Japanese yen--at a future date and at a specified price.
Typically, the other party to a currency exchange contract will be a commercial
bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, such
contracts are rolled over in a manner consistent with a more long-term currency
decision. Because there is a risk of loss to the Fund if the other party does
not complete the transaction, forward foreign currency exchange contracts will
be entered into only with parties approved by Galaxy's Board of Trustees.
The Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency--for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S.
dollars--at a future date and at a specified price in anticipation of a decline
in the value of the currency sold short relative to the currency that the Fund
has contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash or other liquid assets equal in value to the fluctuating market value of
the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the Statement of
Additional Information relating to the Fund for additional information regarding
foreign currency exchange transactions.
CONVERTIBLE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
invest in convertible securities. Convertible securities are fixed income
securities which may be exchanged or converted into a predetermined number of
shares of the issuer's underlying common stock at the option of the holder
during a specified time period. Convertible securities in which the Fund may
invest may take the form of convertible preferred stock and convertible bonds or
debentures.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Convertible securities are senior to equity securities and
therefore have a claim to the assets of the issuer prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar non-convertible securities of the same issuer.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in Fleet's opinion,
the investment characteristics of the underlying common shares will assist the
Fund in achieving its investment objective. Otherwise, the Fund will hold or
trade the convertible securities. In
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selecting convertible securities for the Fund, Fleet evaluates the investment
characteristics of the convertible security as a fixed income instrument, and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, Fleet considers numerous factors, including the economic
and political outlook, the value of the security relative to other investment
alternatives, trends in the determinants of the issuer's profits, and the
issuer's management capability and practices.
DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
purchase certain "derivative" securities. Derivative securities are instruments
that derive their value from the performance of underlying assets, interest or
currency exchange rates, or indices, and include, but are not limited to,
options and foreign currency exchange contracts.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest or exchange rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that the Fund will be unable to sell a derivative security
when it wants because of lack of market depth or market disruption; pricing risk
that the value of a derivative security will not correlate exactly to the value
of the underlying assets, rates or indices on which it is based; and operations
risk that loss will occur as a result of inadequate systems and controls, human
error or otherwise. Some derivative securities are more complex than others, and
for those instruments that have been developed recently, data are lacking
regarding their actual performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Fund, and will determine, in connection with its day-to-day
management of the Fund, how such securities will be used in furtherance of the
Fund's investment objective. It is possible, however, that Fleet's evaluations
will prove to be inaccurate or incomplete and, even when accurate and complete,
it is possible that the Fund will, because of the risks discussed above, incur
loss as a result of its investments in derivative securities. See "Investment
Objectives and Policies--Derivative Securities" in the Statement of Additional
Information relating to the Fund for additional information.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if Fleet
believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover involves correspondingly greater brokerage commission expenses and
other transaction costs, which must be ultimately borne by the Fund's
shareholders. High portfolio turnover may result in the realization of
substantial net capital gains; distributions derived from such gains will be
treated as ordinary income for federal income tax purposes. See "Financial
Highlights" and "Taxes--Federal."
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INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information relating to the Fund under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) the Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that the Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 33% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase agreements
in accordance with its investment policies and in amounts not in excess of
33% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 33% of the value of the Fund's total assets at the time
of such borrowing. The Fund will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
non-negotiable time deposits and other securities which are not readily
marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of the Fund's
total assets would be invested in such issuer, except that up to 25% of the
value of its total assets may be invested without regard to this limitation.
In addition, the Fund may not purchase any securities which would cause 25%
or more of the value of its total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, the Fund intends to limit
any borrowings (including reverse repurchase agreements) to not more than 33% of
the value of its total assets at the time of such borrowing.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public.
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Rule 144A establishes a "safe harbor" from the registration requirements of the
1933 Act for resales of certain securities to qualified institutional buyers.
The Fund's investment in Rule 144A securities could have the effect of
increasing the level of illiquidity of the Fund during any period that qualified
institutional buyers were no longer interested in purchasing these securities.
For purposes of the 10% limitation on purchases of illiquid instruments
described under Investment Limitation No. 3 above, Rule 144A securities will not
be considered to be illiquid if Fleet has determined, in accordance with
guidelines established by the Board of Trustees, that an adequate trading market
exists for such securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). Net asset value per share is determined on each day on
which the Exchange is open for trading. Currently, the holidays which Galaxy
observes are New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Net asset value per share for purposes of pricing sales and
redemptions is calculated separately for each series of shares by dividing the
value of all securities and other assets attributable to a particular series of
shares of the Fund, less the liabilities attributable to the shares of that
series of the Fund, by the number of outstanding shares of that series of the
Fund.
The assets in the Fund which are traded on a recognized stock exchange are
valued at the last sale price on the securities exchange on which such
securities are primarily traded or at the last sale price on the national
securities market. Securities quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by Fleet under the
supervision of Galaxy's Board of Trustees. An option is generally valued at the
last sale price or, in the absence of a last sale price, the last offer price.
Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except when an occurrence subsequent
to the time a value was so established is likely to have changed such value,
then the fair value of those securities will be determined through consideration
of other factors by or under the direction of the Board of Trustees. A security
which is listed or traded on more than one exchange is valued at the quotation
on the exchange determined to be the primary market for such security. For
valuation purposes, quotations of foreign securities in foreign currency are
converted to U.S. dollars equivalent at the prevailing market rate on the day of
valuation.
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HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collaterally as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that the Fund's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If an Institution accepts a purchase
order from its Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Fund and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts (including defined contribution plans). Investors should contact their
Institution (or, in the case of employer-sponsored defined contribution plans,
their employer) for further information concerning the types of eligible
Customer accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirements with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by their Customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
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Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by an Institution to its Customers.
Information pertaining to such plans is available directly from the Institution.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day will normally be wired on the following Business
Day to the Institution. Payment for redemption orders received on a non-Business
Day will normally be wired to the Institution on the next Business Day. However,
in both cases Galaxy reserves the right to wire redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. The Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon sixty days'
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared and paid
quarterly. Dividends on each share of the Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
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TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
The policy of the Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional Trust Shares.
(Federal income taxes for distributions to an IRA or a qualified retirement plan
are deferred under the Code). Such ordinary income distributions will qualify
for the dividends received deduction for corporations to the extent of the total
qualifying dividends received by the Fund from domestic corporations for the
taxable year.
Distribution by the Fund of "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, of the
Fund, is taxable to shareholders as long-term capital gain, regardless of how
long the shareholder has held shares and whether such gains are received in cash
or reinvested in additional Trust Shares. Such long-term capital gain will
constitute 20% or 28% rate gain, depending upon the Fund's holding period for
the assets the sale of which generated the gain. Such distributions are not
eligible for the dividends received deduction.
The dividends received deduction is not available for dividends attributable
to distributions made by a REIT to the Fund. In addition, distributions paid by
REITs often include a "return of capital." The Code requires a REIT to
distribute at least 95% of its taxable income to investors. In many cases,
however, because of "non-cash" expenses such as property depreciation, an equity
REIT's cash flow will exceed its taxable income. The REIT may distribute this
excess cash to offer a more competitive yield. This portion of the distribution
is deemed a return of capital and is generally not taxable to shareholders.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying shares of the Fund on or just before the
record date of a dividend or capital gain distribution, you should be aware that
the amount of the forthcoming distribution payment, although in effect a return
of capital, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
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STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts,
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients and
manages the other investment portfolios of Galaxy: the Money Market, Government,
U.S. Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Institutional Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Asset Allocation, MidCap
Equity, Small Cap Value, Growth and Income, Strategic Equity, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut Municipal
Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Fund,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
an annual rate of .75% of the average daily net assets of the Fund.
Fleet may from time to time, in its discretion, waive all or a portion of
the advisory fees payable by the Fund in order to help maintain a competitive
expense ratio and may from time to time allocate a portion of its advisory fees
to Fleet Bank or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders. For the fiscal year ended October 31, 1997,
Fleet received advisory fees at the effective annual rate of .75% of the Fund's
average daily net assets. During the fiscal year ended October 31, 1997, Fleet
reimbursed the Fund for certain operating expenses, which reimbursement may be
revised or discontinued at any time.
The Fund's portfolio manager, Stephen D. Barbaro, is primarily responsible
for the day-to-day management of the Fund's investment portfolio. Mr. Barbaro, a
Vice President and Senior Portfolio Manager, has been with Fleet and its
predecessors since 1976 and has been the Fund's portfolio manager since its
inception.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission ("SEC"), financial
institutions that are affiliated with Fleet or that have sold shares of the
Funds, if Fleet
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believes that the quality of the transaction and the commission are comparable
to what they would be with other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which agree to provide shareholder support services that are banks
or bank affiliates are subject to such banking laws and regulations. Should
legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Fund,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Fund's method of operation would not
affect the Fund's net asset value per share or result in financial loss to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Fund, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of the combined
average daily net assets of the Fund and the other portfolios offered by Galaxy
(collectively, the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily all or a portion of the
administration fee payable to it by the Fund. For the fiscal year ended October
31, 1997, the Fund paid Investor Services Group administration fees at the
effective annual rate of .082% of the Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in the Fund: Class K - Series 1 shares (Trust
Shares), Class K - Series 2 shares (Retail A Shares) and Class K - Series 3
Shares (Retail B Shares), each series representing interests in the Fund. The
Fund is classified as a diversified company under the 1940 Act. The Board of
Trustees has also authorized the issuance of additional classes and series of
shares representing interests in other portfolios
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of Galaxy. For information regarding the Fund's Retail Shares and these other
portfolios, which are offered through separate prospectuses, contact FD
Distributors at 1-800-628-0414.
Trust Shares, Retail A Shares and Retail B Shares in the Fund bear their pro
rata portion of all operating expenses paid by the Fund except as follows.
Holders of the Fund's Retail A Shares bear the fees that are paid to
Institutions under Galaxy's Shareholder Services Plan described below and
holders of the Fund's Retail B Shares bear the fees described in the prospectus
for such shares that are incurred under Galaxy's Distribution and Services Plan
at an annual rate of up to .95% of the average daily net asset value of the
Fund's outstanding Retail B Shares. In addition, Trust Shares, Retail A Shares
and Retail B Shares in the Fund bear differing transfer agency expenses.
Standardized yield and total return quotations are computed separately for each
series of shares. The differences in the expenses paid by the respective series
will affect performance.
Retail A Shares of the Fund are sold with a maximum front-end sales charge
of 3.75%. Retail B Shares are sold with a maximum contingent deferred sales
charge of 5.00% and automatically convert to Retail A Shares of the Fund six
years after the date of purchase. Retail A Shares and Retail B Shares have
certain exchange and other privileges which are not available with respect to
Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class (irrespective of series
designation), and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such investment portfolio as are
declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.50% of the average daily net asset value of the Fund's outstanding Retail A
Shares beneficially owned by Customers. Institutions may received up to one-half
of this fee for providing one or more of the following services to such
Customers: aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with FD Distributors; processing
dividend payments from the Fund; providing sub-accounting with respect to Retail
A Shares or the information necessary for sub-accounting; and providing periodic
mailings to Customers. Institutions may also receive up to one-half of this fee
for providing one or more of these additional services to such Customers:
providing Customers with information as to their positions in
20
<PAGE>
Retail A Shares; responding to Customer inquiries; and providing a service to
invest the assets of Customers in Retail A Shares. These services are described
more fully in the Statement of Additional Information under "Shareholder
Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including: maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Fund to Investor Services Group have
been increased by an amount equal to these fees. In substance, therefore, the
holders of Trust Shares of the Fund directly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as custodian of the Fund's assets. Chase Manhattan
may employ sub-custodians for the Fund for the purpose of providing custodial
services for the Fund's foreign assets held outside the United States. First
Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-owned
subsidiary of First Data Corporation, serves as the Fund's transfer and dividend
disbursing agent. Services performed by these entities for the Fund are
described in the Statement of Additional Information relating to the Fund.
Communications to Investor Services Group should be directed to Investor
Services Group at P.O. Box 5108, 4400 Computer Drive, Westboro, Massachusetts
01581-5108.
21
<PAGE>
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Fund. Galaxy bears
the expenses incurred in the Fund's operations. Such expenses include: taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, Rule 12b-1 distribution, fund accounting and custody fees; charges of
the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholder reports and meetings; and any extraordinary expenses. The
Fund also pays for brokerage fees and commissions in connection with the
purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance and yield of the Fund may be quoted and compared to that of other
mutual funds with similar investment objectives and to stock or other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds, the S&P 500, an unmanaged index of
groups of common stocks, the Consumer Price Index, or the Dow Jones Industrial
Average, a recognized unmanaged index of common stocks of 30 industrial
companies listed on the New York Stock Exchange.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES or publications of a local or regional nature may also be
used in comparing the performance of the Fund. Performance data will be
calculated separately for Trust Shares, Retail A Shares and Retail B Shares of
the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield," which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividends and capital gain distributions made by the Fund during the period
are reinvested in Fund shares.
The performance of the Fund will fluctuate and any quotation of performance
should not be considered as representative of the future performance of the
Fund. Since yields fluctuate, yield data
22
<PAGE>
cannot necessarily be used to compare an investment in the Fund's shares with
bank deposits, savings accounts and similar investment alternatives which often
provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that performance data are generally functions of
the kind and quality of the instruments held in a portfolio, portfolio maturity,
operating expenses, and market conditions. Any additional fees charged by
Institutions with respect to accounts of Customers that have invested in Trust
Shares of the Fund will not be included in performance calculations.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
23
<PAGE>
GALAXY
SMALL COMPANY EQUITY
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-267 15035 (3/98)
<PAGE>
TRUST
THE GALAXY FUND
ASSET ALLOCATION FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 4
INVESTMENT OBJECTIVE AND POLICIES..................................... 6
In General.......................................................... 6
Special Risk Considerations......................................... 7
Other Investment Policies and Risk Considerations................... 7
INVESTMENT LIMITATIONS................................................ 15
PRICING OF SHARES..................................................... 16
HOW TO PURCHASE AND REDEEM SHARES..................................... 17
Distributor......................................................... 17
Purchase of Shares.................................................. 17
Redemption of Shares................................................ 18
DIVIDENDS AND DISTRIBUTIONS........................................... 19
TAXES................................................................. 19
Federal............................................................. 19
State and Local..................................................... 20
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT OF THE FUND................................................ 20
Investment Adviser.................................................. 20
Authority to Act as Investment Adviser.............................. 21
Administrator....................................................... 21
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 22
Shareholder Services Plan........................................... 23
Agreements for Sub-Account Services................................. 23
CUSTODIAN AND TRANSFER AGENT.......................................... 24
EXPENSES.............................................................. 24
PERFORMANCE REPORTING................................................. 24
MISCELLANEOUS......................................................... 25
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance, call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares"), which
represent interests in the ASSET ALLOCATION FUND (the "Fund") offered by Galaxy.
The Fund's investment objective is to seek a high total return by providing
both a current level of income that is greater than that produced by the popular
stock market averages as well as long-term growth in the value of the Fund's
assets. Due to the Fund's expenses, however, net income distributed to
shareholders may be less than that of the averages. The Fund attempts to achieve
this objective and at the same time reduce volatility by allocating its assets
in varying amounts among short-term obligations, common stocks, preferred stocks
and bonds.
This Prospectus describes Trust Shares in the Fund. Trust Shares are offered
to investors maintaining qualified accounts primarily at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue two additional series of shares in the Fund,
Retail A Shares and Retail B Shares (Retail A Shares and Retail B Shares are
referred to herein collectively as "Retail Shares"). Retail Shares are offered
under a separate prospectus primarily to individuals, corporations or other
entities purchasing either for their own accounts or for the accounts of others
and to FIS Securities, Inc., Fleet Brokerage Securities, Inc., Fleet Securities,
Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its affiliates,
their correspondent banks and other qualified banks, savings and loan
associations and broker/dealers on behalf of their customers. Trust Shares,
Retail A Shares and Retail B Shares represent equal pro rata interests in the
Fund, except they bear different expenses which reflect the difference in the
range of services provided to them. See "Financial Highlights," "Management of
the Fund" and "Description of Galaxy and Its Shares" herein.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
------------------------
FEBRUARY 28, 1998
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Trust Shares and (ii) the operating
expenses for Trust Shares of the Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES ASSET ALLOCATION FUND
- ------------------------------------------------------------ ---------------------
<S> <C>
Sales Load.................................................. None
Sales Load on Reinvested Dividends.......................... None
Deferred Sales Load......................................... None
Redemption Fees............................................. None
Exchange Fees............................................... None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ------------------------------------------------------------
Advisory Fees............................................... .75%
12b-1 Fees.................................................. None
Other Expenses.............................................. .47%
------
Total Fund Operating Expenses............................... 1.22%
------
------
</TABLE>
- ---------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Asset Allocation Fund................... $12 $38 $66 $145
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly. The information contained in the Expense Summary and
Example is based on expenses incurred by the Fund during the last fiscal year,
restated to reflect the expenses which the Fund expects to incur during the
current fiscal year on its Trust Shares. For more complete descriptions of these
costs and expenses, see "Management of the Fund" and "Description of Galaxy and
Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information relating
to the Fund. Any fees that are charged by affiliates of Fleet or other
institutions directly to their customer accounts for services related to an
investment in Trust Shares of the Fund are in addition to and not reflected in
the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy is also
authorized to issue two additional series of shares in the Fund, Retail A Shares
and Retail B Shares. As described below under "Description of Galaxy and Its
Shares," Trust Shares, Retail A Shares and Retail B Shares represent equal pro
rata interests in the Fund, except that (i) effective October 1, 1997 Retail A
Shares of the Fund bear the expenses incurred under Galaxy's Shareholder
Services Plan at an annual rate of up to .30% of the average daily net asset
value of the Fund's outstanding Retail A Shares, (ii) Retail B Shares of the
Fund bear the expenses incurred under Galaxy's Distribution and Services Plan
for Retail B Shares at an annual rate of up to .95% of the average daily net
asset value of the Fund's outstanding Retail B Shares and (iii) Trust Shares,
Retail A Shares and Retail B Shares bear differing transfer agency expenses.
The financial highlights presented below have been audited by Coopers &
Lybrand L.L.P., Galaxy's independent accountants, whose report is contained in
Galaxy's Annual Report to Shareholders relating to the Fund dated October 31,
1997 (the "Annual Report"). Such financial highlights should be read in
conjunction with the financial statements and notes thereto contained in the
Annual Report and incorporated by reference into the Statement of Additional
Information relating to the Fund. Information in the financial highlights for
periods prior to the fiscal year ended October 31, 1994 reflects the investment
results of both Trust Shares and Retail A Shares of the Fund. More information
about the performance of the Fund is also contained in the Annual Report, which
may be obtained without charge by contacting Galaxy at its telephone numbers or
address provided above.
4
<PAGE>
ASSET ALLOCATION FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------
1997 1996 1995 1994 YEAR ENDED PERIOD ENDED
----------------------------------------- OCTOBER 31, OCTOBER 31,
TRUST SHARES 1993(2) 1992(1,2)
----------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 14.53 $ 12.83 $ 10.68 $ 11.15 $ 10.16 $ 10.00
-------- -------- -------- -------- ------------ ------------
Income from
Investment Operations:
Net investment income(3,4)............ 0.43 0.33 0.32 0.28 0.25 0.15
Net realized and unrealized gain
(loss) on investments................ 2.42 1.83 2.16 (0.49) 0.99 0.13
-------- -------- -------- -------- ------------ ------------
Total from Investment Operations:... 2.85 2.16 2.48 (0.21) 1.24 0.28
-------- -------- -------- -------- ------------ ------------
Less Dividends:
Dividends from net investment
income............................... (0.40) (0.33) (0.33) (0.26) (0.25) (0.12)
Dividends from net realized capital
gains................................ (0.51) (0.13) -- -- -- --
-------- -------- -------- -------- ------------ ------------
Total Dividends:.................... (0.91) (0.46) (0.33) (0.26) (0.25) (0.12)
-------- -------- -------- -------- ------------ ------------
Net increase (decrease) in net asset
value.................................. 1.94 1.70 2.15 (0.47) 0.99 0.16
-------- -------- -------- -------- ------------ ------------
Net Asset Value, End of Period.......... $ 16.47 $ 14.53 $ 12.83 $ 10.68 $ 11.15 $ 10.16
-------- -------- -------- -------- ------------ ------------
-------- -------- -------- -------- ------------ ------------
Total Return............................ 20.42% 17.19% 23.68% (1.93)% 12.37% 2.85%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $171,741 $123,603 $ 76,771 $ 65,464 $92,348 $11,555
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 2.82% 2.52% 2.74% 2.70% 2.59% 2.80%(6)
Operating expenses including
reimbursement/waiver................. 1.21% 1.19% 1.26% 1.18% 1.14% 1.11%(6)
Operating expenses excluding
reimbursement/waiver................. 1.22% 1.21% 1.30% 1.18% 1.25% 2.39%(6)
Portfolio Turnover Rate................. 58% 48% 41% 23% 7% 2%(5)
Average Commission Rate Paid(7)......... $ 0.0609 $ 0.0635 N/A N/A N/A N/A
</TABLE>
- ---------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Trust and Retail
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Trust Shares for the years ended
October 31, 1997, 1996, 1995 and 1994 was $0.43, $0.33, $0.32 and $0.28,
respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the year ended October 31, 1993
and for the period ended October 31, 1992 was $0.24 and $0.08,
respectively.
(5) Not Annualized.
(6) Annualized.
(7) Required for fiscal years beginning on or after September 1, 1995.
5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The investment objective of the Fund is to seek a high total return by
providing both a current level of income that is greater than that provided by
the popular stock market averages as well as long-term growth in the value of
the Fund's assets. Fleet Investment Advisors Inc. ("Fleet") the Fund's
investment adviser, interprets the objective to refer to the Dow Jones
Industrial Average (of 30 companies listed on the New York Stock Exchange) and
the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500"). Due to
the Fund's expenses, net income distributed to shareholders may be less than
that of these averages.
The Fund attempts to achieve its investment objective and at the same time
reduce volatility by allocating its assets among short-term obligations, common
stock, preferred stock and bonds. The proportion of the Fund's assets invested
in each type of security will vary from time to time as a result of Fleet's
interpretation of economic and market conditions. However, at least 25% of the
Fund's total assets will at all times be invested in fixed-income senior
securities, including debt securities and preferred stocks. In selecting common
stock for purchase by the Fund, Fleet will analyze the potential for changes in
earnings and dividends for a foreseeable period.
The Fund may also invest up to 20% of its total assets in foreign
securities. Such foreign investments may be made directly, by purchasing
securities issued or guaranteed by foreign corporations, banks or governments or
their political subdivisions or instrumentalities, or by supranational banks or
other organizations, or indirectly by purchasing American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"). Examples of supranational
banks include the International Bank for Reconstruction and Development ("World
Bank"), the Asia Development Bank and the InterAmerican Development Bank.
Obligations of supranational banks may be supported by appropriated but unpaid
commitments of their member countries and there is no assurance that those
commitments will be undertaken or met in the future. See "Special Risk
Considerations--Foreign Securities" and "Other Investment Policies and Risk
Considerations--American and European Depository Receipts" below. The Fund may
purchase put options and call options and also invest in dollar-denominated high
quality debt obligations of U.S. corporations issued outside the United States.
The Fund may write covered call options, purchase asset-backed securities and
mortgage-backed securities and enter into foreign currency exchange
transactions. See "Other Investment Policies and Risk Considerations."
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of Fleet, prevailing market and
economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Fund.
Fleet will use its best efforts to achieve the Fund's investment objective,
although its achievement cannot be assured. The investment objective of the Fund
may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program.
6
<PAGE>
SPECIAL RISK CONSIDERATIONS
MARKET RISK
The Fund invests to a significant degree in equity securities. As with other
mutual funds that invest to a significant degree in equity securities, the Fund
is subject to market risks. That is, the possibility exists that common stocks
will decline over short or even extended periods of time and both the U.S. and
certain foreign equity markets tend to be cyclical, experiencing both periods
when stock prices generally increase and periods when stock prices generally
decrease.
INTEREST RATE RISK
To the extent that the Fund invests in fixed income securities, its holdings
of such securities are sensitive to changes in interest rates and the interest
rate environment. Generally, the prices of bonds and other debt securities
fluctuate inversely with interest rate change.
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs, as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
prices of the Fund's securities in their local markets. Conversely, a decrease
in the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in countries with emerging economies or
emerging securities markets. The risks of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which the
Fund has the power to utilize. Some may be employed on a regular basis; others
may not be used at all. Accordingly, reference to any particular method or
technique carries no implication that it will be utilized or, if it is, that it
will be successful.
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RATINGS
All debt obligations, including convertible bonds, purchased by the Fund are
rated investment grade by Moody's Investors Service, Inc. ("Moody's") ("Aaa,"
"Aa," "A" and "Baa") or Standard & Poor's Ratings Group ("S&P") ("AAA," "AA,"
"A" and "BBB"), or, if not rated, are determined to be of comparable quality by
Fleet. Debt securities rated "Baa" by Moody's or "BBB" by S&P are generally
considered to be investment grade securities although they may have speculative
characteristics and changes in economic conditions or circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case for higher rated debt obligations.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than 10
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Time deposits with a maturity longer
than seven days or that do not provide for payment within seven days after
notice will be limited to 10% of the Fund's net assets.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject the Fund to additional risk because such
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable
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to domestic branches of U.S. banks. Such investments may also subject the Fund
to investment risks similar to those accompanying direct investments in foreign
securities. See "Special Risk Considerations-- Foreign Securities." The Fund
will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet believes that the credit risk with
respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, a Fund might be unable to dispose of the note because of the absence
of a secondary market and could, for this or other reasons, suffer a loss to the
extent of the default. The Fund may also purchase Rule 144A securities. See
"Investment Limitations" below.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
The Fund will not enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand upon notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 10% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with the investment limitations described
below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral,
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should the borrower of the securities fail financially. Any portfolio securities
purchased with cash collateral would also be subject to possible depreciation.
Loans will generally be short-term, will be made only to borrowers deemed by
Fleet to be of good standing and only when, in Fleet's judgment, the income to
be earned from the loan justifies the attendant risks. The Fund currently
intends to limit the lending of its portfolio securities so that, at any given
time, securities loaned by the Fund represent not more than one-third of the
value of its total assets.
INVESTMENT COMPANY SECURITIES
The Fund may invest in securities issued by other investment companies which
invest in high quality, short-term debt securities and which determine their net
asset value per share based on the amortized cost or penny-rounding method.
Investments in other investment companies will cause the Fund (and, indirectly,
the Fund's shareholders) to bear proportionately the costs incurred in
connection with the investment companies' operations. Securities of other
investment companies will be acquired by the Fund within the limits prescribed
by the Investment Company Act of 1940, as amended, (the "1940 Act"). The Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made: (a) not more than 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of other investment companies as a group; (c) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund; and (d) not more than 10% of the outstanding voting stock of
any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, or any other investment companies
advised by Fleet.
REITS
The Fund may invest up to 10% of its net assets in real estate investment
trusts ("REITs"). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of a REIT's
investments. In addition, equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, are not diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital. See
"Taxes."
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OPTIONS
The Fund may purchase put options and call options on securities and
securities indices. A put option gives the buyer the right to sell, and the
writer the obligation to buy, the underlying security at the stated exercise
price at any time prior to the expiration of the option. A call option gives the
buyer the right to buy the underlying security at the stated exercise price at
any time prior to the expiration of the option. Options involving securities
indices provide the holder with the right to make or receive a cash settlement
upon exercise of the option based on movements in the relevant index.
The Fund may also write covered call options on securities which it owns and
may enter into closing purchase transactions with respect to such options.
Writing a covered call option means that the Fund owns the underlying security
subject to call at the stated exercise price at all times during the option
period.
By writing a covered call option, the Fund foregoes the opportunity to
profit from an increase in the market price of the underlying security above the
exercise price, except insofar as the premium represents such a profit. The Fund
will not be able to sell the underlying security until the option expires or is
exercised or the Fund effects a closing purchase transaction by purchasing an
option of the same series. Such options would normally be written only on
underlying securities as to which Fleet does not anticipate significant
short-term capital appreciation.
All options must be listed on a national securities exchange and issued by
the Options Clearing Corporation. The aggregate value of options purchased by
the Fund may not exceed 5%, and the aggregate value of covered call options
written by the Fund may not exceed 25%, of the value of the Fund's net assets.
See "Derivative Securities" below.
AMERICAN AND EUROPEAN DEPOSITORY RECEIPTS
The Fund may invest in ADRs and EDRs. ADRs are receipts issued in registered
form by a U.S. bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. EDRs are receipts issued in Europe
typically by non-U.S. banks or trust companies and foreign branches of U.S.
banks that evidence ownership of foreign or U.S. securities. ADRs may be listed
on a national securities exchange or may be traded in the over-the-counter
market. EDRs are designed for use in European exchange and over-the-counter
markets. ADRs and EDRs traded in the over-the-counter market which do not have
an active or substantial secondary market will be considered illiquid and
therefore will be subject to the Fund's limitation with respect to such
securities. ADR prices are denominated in U.S. dollars although the underlying
securities are denominated in a foreign currency. Investments in ADRs and EDRs
involve risks similar to those accompanying direct investments in foreign
securities. Certain of these risks are described above under "Special Risk
Considerations--Foreign Securities."
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Fund may buy and sell securities denominated in currencies other
than the U.S. dollar, and may receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Fund from time to time may enter into
foreign currency exchange transactions to convert the U.S. dollar to foreign
currencies, to convert foreign currencies to the U.S. dollar and to convert
foreign currencies to other foreign currencies. The Fund either enters into
these transactions on a spot (I.E. cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency
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for another--for example, to exchange a certain amount of U.S. dollars for a
certain amount of Japanese yen--at a future date and at a specified price.
Typically, the other party to a currency exchange contract will be a commercial
bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, such
contracts are rolled over in a manner consistent with a more long-term currency
decision. Because there is a risk of loss to the Fund if the other party does
not complete the transaction, forward foreign currency exchange contracts will
be entered into only with parties approved by Galaxy's Board of Trustees.
The Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency--for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S.
dollars--at a future date and at a specified price in anticipation of a decline
in the value of the currency sold short relative to the currency that the Fund
has contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash or other liquid assets equal in value to the fluctuating market value of
the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the Statement of
Additional Information relating to the Fund for additional information regarding
foreign currency exchange transactions.
ASSET-BACKED SECURITIES
The Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool of assets similar to one
another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the Statement of Additional
Information relating to the Fund.
MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities (including collateralized
mortgage obligations) that represent pools of mortgage loans assembled for sale
to investors by various governmental agencies and government-related
organizations, such as the Government National Mortgage Association, the Federal
National Mortgage Association, and the Federal Home Loan Mortgage Corporation.
Mortgage-backed securities provide a monthly payment consisting of interest and
principal payments. Additional payment may be made out of unscheduled repayments
of principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs that may be incurred.
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Prepayments of principal on mortgage-backed securities may tend to increase due
to refinancing of mortgages as interest rates decline. To the extent that the
Fund purchases mortgage-backed securities at a premium, mortgage foreclosures
and prepayments of principal by mortgagors (which may be made at any time
without penalty) may result in some loss of the Fund's principal investment to
the extent of the premium paid. The yield of the Fund, should it invest in
mortgage-backed securities, may be affected by reinvestment of prepayments at
higher or lower rates than the original investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
interest rates decline; as a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the values of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
MORTGAGE DOLLAR ROLLS
The Fund may enter into mortgage "dollar rolls" in which the Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date not exceeding 120 days.
During the roll period, the Fund loses the right to receive principal and
interest paid on the securities sold. However, the Fund would benefit to the
extent of any difference between the price received for the securities sold and
the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date of the forward purchase. Unless such
benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund compared with what such performance would
have been without the use of mortgage dollar rolls. All cash proceeds will be
invested in instruments that are permissible investments for the Fund. The Fund
will hold and maintain in a segregated account until the settlement date cash or
other liquid assets in an amount equal to the forward purchase price.
For financial reporting and tax purposes, the Fund proposes to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale. The Fund does not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom
the Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet's ability to predict correctly interest rates and mortgage
prepayments. For these reasons, there is no assurance that mortgage dollar rolls
can be successfully employed.
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CONVERTIBLE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
invest in convertible securities. Convertible securities are fixed income
securities which may be exchanged or converted into a predetermined number of
shares of the issuer's underlying common stock at the option of the holder
during a specified time period. Convertible securities in which the Fund may
invest may take the form of convertible preferred stock and convertible bonds or
debentures.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Convertible securities are senior to equity securities and
therefore have a claim to the assets of the issuer prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar non-convertible securities of the same issuer.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in Fleet's opinion,
the investment characteristics of the underlying common shares will assist the
Fund in achieving its investment objective. Otherwise, the Fund will hold or
trade the convertible securities. In selecting convertible securities for the
Fund, Fleet evaluates the investment characteristics of the convertible security
as a fixed income instrument, and the investment potential of the underlying
equity security for capital appreciation. In evaluating these matters with
respect to a particular convertible security, Fleet considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
purchase certain "derivative" securities. Derivative securities are instruments
that derive their value from the performance of underlying assets, interest or
currency exchange rates, or indices, and include, but are not limited to,
options, foreign currency exchange contracts and certain asset-backed and
mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Fund will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Fund, and will determine, in connection with its day-to-day
management of the Fund, how such securities will be used in furtherance of the
Fund's investment objective. It is possible, however, that Fleet's evaluations
will prove to
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be inaccurate or incomplete and, even when accurate and complete, it is possible
that the Fund will, because of the risks discussed above, incur loss as a result
of its investments in derivative securities. See "Investment Objectives and
Policies--Derivative Securities" in the Statement of Additional Information
relating to the Fund for additional information.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if Fleet
believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor on making portfolio decisions. A high rate of portfolio
turnover involves correspondingly greater brokerage commission expenses and
other transaction costs, which must be ultimately borne by the Fund's
shareholders. High portfolio turnover rate may result in the realization of
substantial net capital gains; distributions derived from such gains will be
treated as ordinary income for federal income tax purposes. See "Financial
Highlights" and Taxes--Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information relating to the Fund under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) the Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that the Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 33% of the value of its total assets
at the time of such borrowing (provided that the Fund may borrow pursuant to
reverse repurchase agreements in accordance with its investment policies and
in amounts not in excess of 33% of the value of its total assets at the time
of such borrowing); or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 33% of the value of the Fund's
total assets at the time of such borrowing. The Fund will not purchase
securities while borrowings (including reverse repurchase agreements) in
excess of 5% of its total assets are outstanding.
3. Invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
non-negotiable time deposits and other securities which are not readily
marketable.
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4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of the Fund's
total assets would be invested in such issuer, except that up to 25% of the
value of its total assets may be invested without regard to this limitation.
In addition, the Fund may not purchase any securities which would cause 25%
or more of the value of its total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry).
With respect to Investment Limitation No. 2 above, (a) the Fund intends to
limit any borrowings (including reverse repurchase agreements) to not more than
33% of the value of its total assets at the time of such borrowing, and (b)
mortgage dollar rolls entered into by the Fund that are not accounted for as
financings shall not constitute borrowings.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. The Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
10% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered to be
illiquid if Fleet has determined, in accordance with guidelines established by
the Board of Trustees, that an adequate trading market exists for such
securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). Net asset value per share is determined on each day on
which the Exchange is open for trading. Currently, the holidays which Galaxy
observes are New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Net asset value per share for purposes of pricing sales and
redemptions is calculated separately for each series of shares by dividing the
value of all securities and other assets attributable to a particular series of
shares of the Fund, less the liabilities attributable to the shares of that
series of the Fund, by the number of outstanding shares of that series of the
Fund.
The assets in the Fund which are traded on a recognized stock exchange are
valued at the last sale price on the securities exchange on which such
securities are primarily traded or at the last sale price on the national
securities market. Securities quoted on the NASD National Market System are also
valued at
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the last sale price. Other securities traded on over-the-counter markets are
valued on the basis of their closing over-the-counter bid prices. Securities for
which there were no transactions are valued at the average of the most recent
bid and asked prices. Investments in debt securities with remaining maturities
of 60 days or less are valued based upon the amortized cost method. Restricted
securities, securities for which market quotations are not readily available,
and other assets are valued at fair value by Fleet under the supervision of
Galaxy's Board of Trustees. An option is generally valued at the last sale price
or, in the absence of a last sale price, the last offer price.
Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except when an occurrence subsequent
to the time a value was so established is likely to have changed such value,
then the fair value of those securities will be determined through consideration
of other factors by or under the direction of the Board of Trustees. A security
which is listed or traded on more than one exchange is valued at the quotation
on the exchange determined to be the primary market for such security. For
valuation purposes, quotations of foreign securities in foreign currency are
converted to U.S. dollars equivalent at the prevailing market rate on the day of
valuation.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in employer
sponsored defined contribution plans (such institutions and plans are referred
to herein collectively as "Institutions"). Trust Shares sold to such investors
("Customers") will be held of record by Institutions. The Institution is
responsible for transmitting to FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that the Fund's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending
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Institution. If an Institution accepts a purchase order from its Customer on a
non-Business Day, the order will not be executed until it is received and
accepted by FD Distributors on a Business Day in accordance with the foregoing
procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Fund and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts (including defined contribution plans). Investors should contact their
Institution (in the case of employer-sponsored deferred contribution plans,
their employer) for further information concerning the types of eligible
Customer accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirements with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by their Customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by an Institution to its Customers.
Information pertaining to such plans is available directly from the Institution.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day will normally be wired on the following Business
Day to the Institution. Payment for redemption orders received on a non-Business
Day will normally be wired to the Institution on the next Business Day. However,
in both cases Galaxy reserves the right to wire redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. The Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon sixty days'
written notice, if the value of the account is less than $250 as a result of
redemptions.
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DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared and paid
quarterly. Dividends on each share of the Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
The policy of the Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional Trust Shares.
(Federal income taxes for distributions to an IRA or a qualified retirement plan
are deferred under the Code.) Such ordinary income distributions will qualify
for the dividends received deduction for corporations to the extent of the total
qualifying dividends received by the Fund from domestic corporations for the
taxable year.
Distribution by the Fund of "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, of the
Fund is taxable to shareholders as long-term capital gain, regardless of how
long the shareholder has held shares and whether such gains are received in cash
or reinvested in additional Trust Shares. Such long-term capital gain will
constitute 20% or 28% rate gain, depending upon the Fund's holding period for
the assets the sale of which generated the gain. Such distributions are not
eligible for the dividends received deduction.
The dividends received deduction is not available for dividends attributable
to distributions made by a REIT to the Fund. In addition, distributions paid by
REITs often include a "return of capital." The Code requires a REIT to
distribute at least 95% of its taxable income to investors. In many cases,
however, because of "non-cash" expenses such as property depreciation, an equity
REIT's cash flow will exceed its taxable income. The REIT may distribute this
excess cash to offer a more competitive yield. This portion of the distribution
is deemed a return of capital and is generally not taxable to shareholders.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and
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<PAGE>
paid by the Fund on December 31 of such year if such dividends are actually paid
during January of the following year.
If you are considering buying shares of the Fund on or just before the
record date of a dividend or capital gain distribution, you should be aware that
the amount of the forthcoming distribution payment, although in effect a return
of capital, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients and
manages the other investment portfolios of Galaxy: the Money Market, Government,
U.S. Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Institutional Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Small Company Equity, MidCap
Equity, Small Cap Value, Growth and Income, Strategic Equity, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut Municipal
Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Fund,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of .75% of the average daily net assets of the Fund.
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Fleet may from time to time, in its discretion, waive all or a portion of
the advisory fees payable by the Fund in order to help maintain a competitive
expense ratio and may from time to time allocate a portion of its advisory fees
to Fleet Bank or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders. For the fiscal year ended October 31, 1997,
Fleet received advisory fees at the effective annual rate of .75% of the Fund's
average daily net assets. During the fiscal year ended October 31, 1997, Fleet
reimbursed the Fund for certain operating expenses, which reimbursement may be
revised or discontinued at any time.
The Fund's co-portfolio managers, Donald Jones and David Lindsay, are
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Jones determines the allocation of the Fund's assets between
equity and fixed income investments and manages the equity portion of the Fund's
investment portfolio. Mr. Lindsay manages the fixed income portion of the Fund's
investment portfolio. Mr. Jones, who currently serves as a Vice President, has
been with Fleet and its predecessors as a portfolio manager since 1988 and has
been the Fund's portfolio manager since May 1, 1995. Mr. Lindsay, a Senior Vice
President, has been with Fleet and its predecessors since 1986. He has managed
the fixed income portion of the Fund's portfolio since January 1997.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission ("SEC"), financial
institutions that are affiliated with Fleet or that have sold shares of the
Funds, if Fleet believes that the quality of the transaction and the commission
are comparable to what they would be with other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which agree to provide shareholder support services that are banks
or bank affiliates are subject to such banking laws and regulations. Should
legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Fund,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Fund's method of operation would not
affect the Fund's net asset value per share or result in financial loss to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to
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the Fund, Investor Services Group is entitled to receive administration fees,
computed daily and paid monthly, at the annual rate of .09% of the first $2.5
billion of the combined average daily net assets of the Fund and the other
portfolios offered by Galaxy (collectively the "Portfolios"), .085% of the next
$2.5 billion of combined average daily net assets and .075% of combined average
daily net assets over $5 billion. In addition, Investor Services Group also
receives a separate annual fee from each Portfolio for certain fund accounting
services. From time to time, Investor Services Group may waive voluntarily all
or a portion of the administration fee payable to it by the Fund. For the fiscal
year ended October 31, 1997, the Fund paid Investor Services Group
administration fees at the effective annual rate of .082% of the Fund's average
daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in the Fund: Class N--Series 1 shares (Trust
Shares), Class N--Series 2 shares (Retail A Shares) and Class N--Series 3 shares
(Retail B Shares), each series representing interests in the Fund. The Fund is
classified as a diversified company under the 1940 Act. The Board of Trustees
has also authorized the issuance of additional classes and series of shares
representing interests in other portfolios of Galaxy. For information regarding
the Fund's Retail Shares and these other portfolios, which are offered through
separate prospectuses, contact FD Distributors at 1-800-628-0414.
Trust Shares, Retail A Shares and Retail B Shares in the Fund bear their pro
rata portion of all operating expenses paid by the Fund except as follows.
Holders of the Fund's Retail A Shares bear the fees that are paid to
Institutions under Galaxy's Shareholder Services Plan described below and
holders of the Fund's Retail B Shares bear the fees described in the prospectus
for such shares that are paid under Galaxy's Distribution and Services Plan at
an annual rate of up to .95% of the average daily net asset value of the Fund's
outstanding Retail B Shares. Trust Shares, Retail A Shares and Retail B Shares
in the Fund bear differing transfer agency expenses. Standardized yield and
total return quotations are computed separately for each series of shares. The
differences in the expenses paid by the respective series will affect their
performance.
Retail A Shares of the Fund are sold with a maximum front-end sales charge
of 3.75%. Retail B Shares are sold with a maximum contingent deferred sales
charge of 5.00% and automatically convert to Retail A Shares of the Fund six
years after the date of purchase. Retail A Shares and Retail B Shares have
certain exchange and other privileges which are not available with respect to
Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such investment portfolio as are declared in the discretion of Galaxy's Board of
Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
22
<PAGE>
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at the annual rate of up to
.50% of the average daily net asset value of the Fund's outstanding Retail A
Shares beneficially owned by its customers. Institutions may receive up to
one-half of this fee for providing one or more of the following services to such
Customers: aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with FD Distributors; processing
dividend payments from the Fund; providing sub-accounting with respect to Retail
A Shares or the information necessary for sub-accounting; and providing periodic
mailings to Customers. Institutions may also receive up to one-half of this fee
for providing one or more of these additional services to such Customers:
providing Customers with information as to their positions in Retail A Shares;
responding to Customer inquiries; and providing a service to invest the assets
of Customers in Retail A Shares. These services are described more fully in the
Statement of Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including: maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Fund to Investor Services Group have
been increased by an
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<PAGE>
amount equal to these fees. In substance, therefore, the holders of Trust Shares
of the Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as custodian of the Fund's assets. Chase Manhattan
may employ sub-custodians for the Fund for the purpose of providing custodial
services for the Fund's foreign assets held outside the United States. First
Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-owned
subsidiary of First Data Corporation, serves as the Fund's transfer and dividend
disbursing agent. Services performed by these entities for the Fund are
described in the Statement of Additional Information. Communications to Investor
Services Group should be directed to Investor Services Group at P.O. Box 5108,
4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Fund. Galaxy bears
the expenses incurred in the Fund's operations. Such expenses include: taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, Rule 12b-1 distribution, fund accounting and custody fees; charges of
the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholder reports and meetings; and any extraordinary expenses. The
Fund also pays for brokerage fees and commissions in connection with the
purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds, the S&P 500, an unmanaged index of groups of common
stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES or publications of a local or regional nature may also be
used in comparing the performance of the Fund. Performance data will be
calculated separately for Trust Shares, Retail A Shares and Retail B Shares of
the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share
24
<PAGE>
on the last day of the period, and annualizing the result on a semi-annual
basis. The Fund may also advertise its "effective yield," which is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested.
The Fund may also advertise its performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividends and capital gain distributions made by the Fund during the period
are reinvested in Fund shares.
The performance of the Fund will fluctuate and any quotation of performance
should not be considered as representative of the future performance of the
Fund. Since yields fluctuate, yield data cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Trust Shares of the Fund will not be
included in performance calculations.
The portfolio managers of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of the Fund (b) 67% or more of
the shares of the Fund present at a meeting if more than 50% of the outstanding
shares of the Fund are represented at the meeting in person or by proxy.
25
<PAGE>
GALAXY
ASSET ALLOCATION
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-262 15028 (3/98)
<PAGE>
TRUST
THE GALAXY FUND
SMALL CAP VALUE FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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EXPENSE SUMMARY....................................................... 2
FINANCIAL HIGHLIGHTS.................................................. 3
INVESTMENT OBJECTIVE AND POLICIES..................................... 5
Special Risk Considerations......................................... 6
Other Investment Policies and Risk Considerations................... 7
INVESTMENT LIMITATIONS................................................ 14
PRICING OF SHARES..................................................... 15
HOW TO PURCHASE AND REDEEM SHARES..................................... 16
Distributor......................................................... 16
Purchase of Shares.................................................. 16
Redemption of Shares................................................ 17
DIVIDENDS AND DISTRIBUTIONS........................................... 18
TAXES................................................................. 18
Federal............................................................. 18
State and Local..................................................... 19
<CAPTION>
PAGE
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MANAGEMENT OF THE FUND................................................ 19
Investment Adviser.................................................. 19
Authority to Act as Investment Adviser.............................. 20
Administrator....................................................... 20
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 21
Shareholder Service Plan............................................ 21
Agreements for Sub-Account Services................................. 22
CUSTODIAN AND TRANSFER AGENT.......................................... 22
EXPENSES.............................................................. 23
PERFORMANCE REPORTING................................................. 23
MISCELLANEOUS......................................................... 24
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THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, performance,
redemptions, exchanges and other
shareholder services or for current
performance, call 1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares"), which
represent interests in the SMALL CAP VALUE FUND (the "Fund") offered by Galaxy.
The Fund's investment objective is to provide long-term capital
appreciation. The Fund attempts to achieve this objective by investing, under
normal market and economic conditions, at least 65% of its total assets in
equity securities of companies that have a market value capitalization of up to
$1 billion.
This Prospectus describes Trust Shares in the Fund. Trust Shares are offered
to investors maintaining qualified accounts at bank and trust institutions,
including institutions affiliated with Fleet Financial Group, Inc., and to
participants in employer-sponsored defined contribution plans. Galaxy is also
authorized to issue an additional series of shares in the Fund ("Retail A
Shares"), which are offered under a separate prospectus primarily to
individuals, corporations or other entities purchasing either for their own
accounts or for the accounts of others and to FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loans associations and broker/dealers on behalf of
their customers. Trust Shares and Retail A Shares represent equal pro rata
interests in the Fund, except they bear different expenses which reflect the
difference in the range of services provided to them. See "Financial
Highlights," "Management of the Fund" and "Description of Galaxy and Its Shares"
herein.
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------
FEBRUARY 28, 1998
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Trust Shares and (ii) the operating
expenses for Trust Shares of the Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
SMALL CAP
SHAREHOLDER TRANSACTION EXPENSES VALUE FUND
- ------------------------------------------------------------ ------------
<S> <C>
Sales Load.................................................. None
Sales Load on Reinvested Dividends.......................... None
Deferred Sales Load......................................... None
Redemption Fees............................................. None
Exchange Fees............................................... None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ------------------------------------------------------------
<S> <C>
Advisory Fees............................................... .75%
12b-1 Fees.................................................. None
Other Expenses.............................................. .25%
------
Total Fund Operating Expenses............................... 1.00%
------
------
</TABLE>
- ---------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Small Cap Value Fund.................... $10 $31 $54 $120
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in Trust Shares of the
Fund will bear directly or indirectly. The information contained in the Expense
Summary and Example is based on the expenses incurred by the Fund during the
last fiscal year, restated to reflect the expenses which the Fund expects to
incur during the current fiscal year on its Trust Shares. For more complete
descriptions of these costs and expenses, see "Management of the Fund" and
"Description of Galaxy and Its Shares" in this Prospectus and the financial
statements and notes incorporated by reference into the Statement of Additional
Information relating to the Fund. Any fees that are charged by affiliates of
Fleet or other institutions directly to their customer accounts for services
related to an investment in Trust Shares of the Fund are in addition to and not
reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy is also
authorized to issue an additional series of Shares in the Fund, Retail A Shares,
which are offered under a separate prospectus. As described below under
"Description of Galaxy and Its Shares," Trust Shares and Retail A Shares
represent equal pro rata interests in the Fund, except that (i) Retail A Shares
of the Fund bear the expenses incurred under Galaxy's Shareholder Services Plan
at an annual rate of up to .30% of the average daily net asset value of the
Fund's outstanding Retail A Shares and (ii) Trust Shares and Retail A Shares
bear differing transfer agency expenses.
The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds, which was organized as
a Massachusetts business trust. On December 4, 1995, the Fund was reorganized as
a new portfolio of Galaxy. Prior to the reorganization, the Predecessor Fund
offered and sold two series of shares of beneficial interest that were similar
to the Fund's Trust Shares and Retail A Shares, respectively.
The financial highlights presented below set forth certain information
concerning (i) the investment results of the Small Cap Value Fund's Trust Shares
for the fiscal years ended October 31, 1997 and October 31, 1996 and (ii) the
investment results of the Predecessor Fund's Trust Shares (the series that is
similar to the Trust Shares of the Fund) for the fiscal years ended October 31,
1995 and October 31, 1994 and the fiscal period ended October 31, 1993. The
information about the Fund for the fiscal years ended October 31, 1997 and
October 31, 1996 has been audited by Coopers & Lybrand L.L.P., Galaxy's
independent accountants, whose report is contained in Galaxy's Annual Report to
Shareholders relating to the Fund dated October 31, 1997 (the "Annual Report").
The information about the Predecessor Fund for the fiscal years ended October
31, 1995 and October 31, 1994 and the fiscal period ended October 31, 1993 was
audited by other auditors. The financial highlights should be read in
conjunction with the financial statements and notes thereto contained in the
Annual Report and incorporated by reference into the Statement of Additional
Information relating to the Fund. More information about the performance of the
Fund is contained in the Annual Report which may be obtained without charge by
contacting Galaxy at its telephone number or address provided above.
3
<PAGE>
SMALL CAP VALUE FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31, PERIOD ENDED
-------------------------------------- OCTOBER 31,
1997 1996(2) 1995 1994 1993(1)
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 14.76 $ 12.71 $ 11.07 $ 11.21 $ 10.00
-------- -------- -------- -------- -------------
Income from
Investment Operations:
Net investment income(3,4,5,6)........ 0.01 10) 0.05 0.01 0.02 --
Net realized and unrealized
gain/(loss) on investments........... 5.74 2.97 2.21 0.17 1.21
-------- -------- -------- -------- -------------
Total from Investment Operations:... 5.75 3.02 2.22 0.19 1.21
-------- -------- -------- -------- -------------
Less Dividends:
Dividends from net investment
income(3)............................ -- (0.05) (0.01) (0.01) --
Dividends in excess of net investment
income............................... -- (0.01) -- -- --
Dividends from net realized capital
gains................................ (2.14) (0.91) (0.57) (0.32) --
-------- -------- -------- -------- -------------
Total Dividends(3).................. (2.14) (0.97) (0.58) (0.33) --
-------- -------- -------- -------- -------------
Net increase (decrease) in net asset
value.................................. 3.61 2.05 1.64 (0.14) 1.21
-------- -------- -------- -------- -------------
Net Asset Value, End of Period.......... $ 18.37 $ 14.76 $ 12.71 $ 11.07 $ 11.21
-------- -------- -------- -------- -------------
-------- -------- -------- -------- -------------
Total Return............................ 44.08% 25.22% 21.52% 1.86% 12.12%(8)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $189,257 $137,341 $121,364 $101,905 $ 100,382
Ratios to average net assets:
Net investment income including
reimbursement/ waiver................ 0.09% 0.45% 0.07% 0.15% 0.02%(7)
Operating expenses including
reimbursement/waiver................. 0.96% 1.05% 1.10% 1.06% 1.01%(7)
Operating expenses excluding
reimbursement/waiver................. 0.96% 1.06% 1.35% 1.34% 1.29%(7)
Portfolio Turnover Rate................. 52% 39% 32% 29% 29%(8)
Average Commission Rate Paid(9)......... $ 0.0577 $ 0.0559 N/A N/A N/A
</TABLE>
- ---------
(1) The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. The Predecessor
Fund began offering Investment Shares on February 12, 1993.
(2) On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy. Prior to the reorganization, the Predecessor Fund
offered and sold two series of shares, Investment Shares and Trust Shares,
that were similar to the Fund's Retail A and Trust Shares, respectively. In
connection with the reorganization, the shareholders of the Predecessor
Fund exchanged Investment Shares and Trust Shares for Retail A Shares and
Trust Shares, respectively, in the Fund.
(3) Represents less than $0.01 per share for the year 1993.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1997
and 1996 were $0.05 and $0.05, respectively.
(5) Net investment income per share before reimbursement/waiver of fees by
other parties for the years ended October 31, 1995 and 1994 and for the
period ended October 31, 1993 was $(0.03), $(0.01) and $0.00, respectively
(unaudited).
(6) Net investment income per share does not reflect the tax reclassifications
arising in the current period.
(7) Annualized.
(8) Not Annualized.
(9) Required for fiscal years beginning on or after September 1, 1995.
(10) The selected per share data was calculated using the weighted shares
outstanding method for the year.
4
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective is to provide long-term capital
appreciation. The Fund seeks to achieve its investment objective by investing,
under normal market and economic conditions, at least 65% of its total assets in
equity securities of companies that have a market value capitalization of up to
$1 billion.
Small capitalization stocks have historically been more volatile in price
than larger capitalization stocks, such as those included in the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500"). This is because, among
other things, smaller companies have a lower degree of liquidity in the equity
market and tend to have a greater sensitivity to changing economic conditions.
Further, in addition to exhibiting greater volatility, these stocks may, to some
degree, fluctuate independently of the stocks of large companies. That is, the
stock of small capitalization companies may decline in price as the prices of
large company stocks rise or vice versa. Therefore, investors should expect that
the Fund will be more volatile than, and may fluctuate independently of, broad
stock market indices such as the S&P 500.
The Fund may purchase convertible securities, including convertible
preferred stock, convertible bonds or debentures, units consisting of "usable"
bonds and warrants or a combination of the features of several of these
securities. See "Other Investment Policies and Risk Considerations--Convertible
Securities" below. The Fund may also buy and sell options and futures contracts
and utilize stock index futures contracts, options, swap agreements, indexed
securities, and options on futures contracts. See "Other Investment Policies and
Risk Considerations--Options and Futures Contracts", "Other Investment Policies
and Risk Considerations--Stock Index Futures, Swap Agreements, Indexed
Securities and Options" and "Other Investment Policies and Risk
Considerations--Derivative Securities" below.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs").
Securities of a foreign issuer may present greater risks in the form of
nationalization, confiscation, domestic marketability, or other national or
international restrictions. As a matter of practice, the Fund will not invest in
the securities of a foreign issuer if any such risk appears to Fleet Investment
Advisors Inc. ("Fleet"), the Fund's investment adviser, to be substantial. See
"Special Risk Considerations--Foreign Securities" and "Other Investment Policies
and Risk Considerations--American, European and Global Depository Receipts"
below.
As a temporary defensive measure, in such proportions as, in the judgment of
Fleet, prevailing market conditions warrant, the Fund may invest in: (i)
short-term money market instruments (such as those listed below under "Other
Investment Policies and Risk Considerations"); (ii) securities issued and/or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies, or instrumentalities; and (iii) repurchase agreements. Additional
information about the types of money market instruments and U.S. Government
obligations in which the Fund is permitted to invest is contained in the
Statement of Additional Information relating to the Fund. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the Fund.
Fleet will use its best efforts to achieve the Fund's investment objective,
although its achievement cannot be assured. The investment objective of the Fund
may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder
5
<PAGE>
approval. An investor should not consider an investment in the Fund to be a
complete investment program.
SPECIAL RISK CONSIDERATIONS
MARKET RISK
The Fund invests primarily in equity securities. As with other mutual funds
that invest primarily in equity securities, the Fund is subject to market risks.
That is, the possibility exists that common stocks will decline over short or
even extended periods of time and both the U.S. and certain foreign equity
markets tend to be cyclical, experiencing both periods when stock prices
generally increase and periods when stock prices generally decrease.
INTEREST RATE RISK
To the extent that the Fund invests in fixed income securities, its holdings
of such securities are sensitive to changes in interest rates and the interest
rate environment. Generally, the prices of bonds and other debt securities
fluctuate inversely with interest rate changes.
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs, as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividend or principal and
interest on foreign obligations.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
price of the Fund's securities in their local markets. Conversely, a decrease in
the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in countries with emerging economies or
emerging securities markets. The risks of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
6
<PAGE>
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which the
Fund has the power to utilize. Some may be employed on a regular basis; others
may not be used at all. Accordingly, reference to any particular method or
technique carries no implication that it will be utilized or, if it is, that it
will be successful.
RATINGS
The Fund may purchase convertible bonds rated "BB" or higher by Standard &
Poor's Ratings Group ("S&P") or Fitch IBCA, Inc. ("Fitch IBCA"), or "Ba" or
higher by Moody's Investor Services, Inc. ("Moody's"), at the time of
investment. See "Other Investment Policies and Risk Considerations-- Convertible
Securities" below for a discussion of the risks of investing in convertible
bonds rated either "BB" or "Ba". Short-term money market instruments purchased
by the Fund must be rated in one of the top two rating categories by a
nationally recognized statistical rating agency, such as S&P, Moody's or Fitch
IBCA.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in other "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than 10
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Investments in bank obligations are limited to the obligations of
financial institutions having more than $1 billion in total assets at the time
of purchase. Time deposits with a maturity longer than seven days or that do not
provide for payment within seven days after notice will be limited to 15% of the
Fund's net assets.
Banks are subject to extensive but different government regulation which may
limit the amount and types of their loans and the interest rates that may be
charged. In addition, the profitability of the banking
7
<PAGE>
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations" below.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
The Fund will not enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand upon notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 15% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement. Additional information regarding the Fund's policies with
respect to reverse repurchase agreements is contained in the Statement of
Additional Information relating to the Fund.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with the investment limitations described
below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral
8
<PAGE>
would also be subject to possible depreciation. Loans may be on a long-term or
short-term basis or both, will be made only to borrowers deemed by Fleet to be
of good standing and only when, in Fleet's judgment, the income to be earned
from the loan justifies the attendant risks. The Fund currently intends to limit
the lending of its portfolio securities so that, at any given time, securities
loaned by the Fund represent not more than one-third of the value of its total
assets.
INVESTMENT COMPANY SECURITIES
The Fund may invest in other investment companies primarily for the purpose
of investing its short-term cash which has not yet been invested in other
portfolio instruments. However, from time to time, on a temporary basis, the
Fund may invest exclusively in one other investment company similar to the Fund.
Investments in other investment companies will cause the Fund (and, indirectly,
the Fund's shareholders) to bear proportionately the costs incurred in
connection with the investment companies' operations. Except as provided above,
securities of other investment companies will be acquired by the Fund within the
limits prescribed by the Investment Company Act of 1940, as amended, (the "1940
Act"). The Fund currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Fund, other investment portfolios of Galaxy, or any
other investment companies advised by Fleet.
REITS
The Fund may invest up to 10% of its net assets in real estate investment
trusts ("REITs"). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of a REIT's
investments. In addition, equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, are not diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital. See
"Taxes".
9
<PAGE>
OPTIONS AND FUTURES CONTRACTS
The Fund may buy and sell options and futures contracts to manage its
exposure to changing interest rates, security prices and currency exchange
rates. The Fund may invest in options and futures based on any type of security,
index or currency, including options and futures based on foreign exchanges and
options not traded on exchanges. Some options and futures strategies, including
selling futures, buying puts, and writing calls, tend to hedge the Fund's
investments against price fluctuations. Other strategies, including buying
futures, writing puts, and buying calls, tend to increase market exposure.
Options and futures may be combined with each other or with forward contracts in
order to adjust the risk and return characteristics of the overall strategy.
Options and futures can be volatile investments and involve certain risks.
If Fleet applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures may lower the Fund's individual return. The
Fund could also experience losses if the prices of its options and futures
positions were poorly correlated with its other investments, or if it could not
close out its positions because of an illiquid secondary market. See the
Statement of Additional Information relating to the Fund for additional
information as to the Fund's policies on options and futures trading.
The Fund will not hedge more than 20% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. The Fund will
not buy futures or write puts whose underlying value exceeds 20% of its total
assets, and will not buy calls with a value exceeding 5% of its total assets.
STOCK INDEX FUTURES, SWAP AGREEMENTS, INDEXED SECURITIES AND OPTIONS
The Fund may utilize stock index futures contracts, options, swap
agreements, indexed securities, and options on futures contracts, subject to the
limitation that the value of these futures contracts, swap agreements, indexed
securities, and options will not exceed 20% of the Fund's total assets. The Fund
will not purchase options to the extent that more than 5% of the value of its
total assets would be invested in premiums on open put option positions. In
addition, the Fund does not intend to invest more than 5% of the market value of
its total assets in each of the following: futures contracts, swap agreements,
and indexed securities. When the Fund enters into a swap agreement, liquid
assets of the Fund equal to the value of the swap agreement will be segregated
by the Fund.
There are several risks accompanying the utilization of futures contracts.
Positions in futures contracts may be closed only on an exchange or board of
trade that furnishes a secondary market for such contracts. While the Fund plans
to utilize futures contracts only if there exists an active market for such
contracts, there is no guarantee that a liquid market will exist for the
contracts at a specified time. Furthermore, because by definition, futures
contracts look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements. This could result in a distortion of
the relationship between the index and the futures market. In addition, because
the futures market imposes less burdensome margin requirements than the
securities market, an increased amount of participation by speculators in the
futures market could result in price fluctuations.
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AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
The Fund may invest in ADRs, EDRs and GDRs. ADRs are receipts issued in
registered form by a U.S. bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. GDRs are
receipts structured similarly to EDRs and are marketed globally. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. GDRs are designed for trading in non-U.S. securities
markets. ADRs, EDRs and GDRs traded in the over-the-counter market which do not
have an active or substantial secondary market will be considered illiquid and
therefore will be subject to the Fund's limitation with respect to such
securities. ADR prices are denominated in U.S. dollars although the underlying
securities are denominated in a foreign currency. Investments in ADRs, EDRs and
GDRs involve risks similar to those accompanying direct investments in foreign
securities. Certain of these risks are described above under "Special Risk
Considerations--Foreign Securities."
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Fund may buy and sell securities denominated in currencies other
than the U.S. dollar, and may receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Fund from time to time may enter into
foreign currency exchange transactions to convert the U.S. dollar to foreign
currencies, to convert foreign currencies to the U.S. dollar and to convert
foreign currencies to other foreign currencies. The Fund either enters into
these transactions on a spot (I.E., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another--for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen--at a future
date and at a specified price. Typically, the other party to a currency exchange
contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, such
contracts are rolled over in a manner consistent with a more long-term currency
decision. Because there is a risk of loss to the Fund if the other party does
not complete the transaction, forward foreign currency exchange contracts will
be entered into only with parties approved by Galaxy's Board of Trustees.
The Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency--for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S.
dollars--at a future date and at a specified price in anticipation of a decline
in the value of the currency sold short relative to the currency that the Fund
has contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash or other
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liquid assets equal in value to the fluctuating market value of the currency as
to which the short position is being maintained. The value of the securities in
the segregated account will be adjusted at least daily to reflect changes in the
market value of the short position. See the Statement of Additional Information
relating to the Fund for additional information regarding foreign currency
exchange transactions.
CONVERTIBLE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
invest in convertible securities. Convertible securities are fixed income
securities which may be exchanged or converted into a predetermined number of
shares of the issuer's underlying common stock at the option of the holder
during a specified time period. Convertible securities may take the form of
convertible preferred stock, convertible bonds or debentures, units consisting
of "usable" bonds and warrants or a combination of the features of several of
these securities.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate bonds that can be used in whole
or in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock. When owned as part of a unit along with warrants, which
are options to buy the common stock, they function as convertible bonds, except
that the warrants generally will expire before the bond's maturity. Convertible
securities are senior to equity securities and therefore have a claim to the
assets of the issuer prior to the holders of common stock in the case of
liquidation. However, convertible securities are generally subordinated to
similar non-convertible securities of the same issuer. The interest income and
dividends from convertible bonds and preferred stocks provide a stable stream of
income with generally higher yields than common stocks, but lower than
non-convertible securities of similar quality. The Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stock in instances in which, in Fleet's opinion, the investment
characteristics of the underlying common shares will assist the Fund in
achieving its investment objective. Otherwise, the Fund will hold or trade the
convertible securities. In selecting convertible securities for the Fund, Fleet
evaluates the investment characteristics of the convertible security as a fixed
income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, Fleet considers numerous factors, including the
economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.
The Fund may invest in convertible bonds rated "BB" or higher by S&P or
Fitch IBCA, or "Ba" or higher by Moody's at the time of investment. Securities
rated "BB" by S&P or Fitch IBCA or "Ba" by Moody's provide questionable
protection of principal and interest in that such securities either have
speculative characteristics or are predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation. Debt obligations that are not rated, or determined to be, investment
grade are high-yield, high-risk bonds, typically subject to greater market
fluctuations, and securities in the lowest rating category may be in danger of
loss of income and principal due to an issuer's default. To a greater extent
than investment grade bonds, the value of lower-rated bonds tends to reflect
short-term corporate, economic, and market developments, as well as investor
perceptions of the issuer's credit quality. In addition, lower-rated bonds may
be more difficult to dispose of or to value than higher-rated, lower-yielding
bonds. Fleet will attempt to reduce the risks described above through
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diversification of the Fund's portfolio and by credit analysis of each issuer,
as well as by monitoring broad economic trends and corporate and legislative
developments. If a convertible bond is rated below "BB" or "Ba" after the Fund
has purchased it, the Fund is not required to eliminate the convertible bond
from its portfolio, but will consider appropriate action. The investment
characteristics of each convertible security vary widely, which allows
convertible securities to be employed for different investment objectives. The
Fund does not intend to invest in such lower-rated bonds during the current
fiscal year. A description of the rating categories of S&P, Moody's and Fitch
IBCA is contained in the Appendix to the Statement of Additional Information
relating to the Fund.
DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
purchase certain "derivative" securities. Derivative securities are instruments
that derive their value from the performance of underlying assets, interest or
currency exchange rates, or indices, and include, but are not limited to,
options, stock index futures and options, indexed securities and swap
agreements, and foreign currency exchange contracts.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest or exchange rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that the Fund will be unable to sell a derivative security
when it wants because of lack of market depth or market disruption; pricing risk
that the value of a derivative security will not correlate exactly to the value
of the underlying assets, rates or indices on which it is based; and operations
risk that loss will occur as a result of inadequate systems and controls, human
error or otherwise. Some derivative securities are more complex than others, and
for those instruments that have been developed recently, data are lacking
regarding their actual performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Fund, and will determine, in connection with its day-to-day
management of the Fund, how such securities will be used in furtherance of the
Fund's investment objective. It is possible, however, that Fleet's evaluations
will prove to be inaccurate or incomplete and, even when accurate and complete,
it is possible that the Fund will, because of the risks discussed above, incur
loss as a result of its investments in derivative securities. See "Investment
Objectives and Policies--Derivative Securities" in the Statement of Additional
Information relating to the Fund for additional information.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase eligible securities on a "when- issued" or "delayed
settlement" basis. When-issued transactions, which involve a commitment by the
Fund to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later), permit the Fund to
lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued and delayed settlement transactions involve
the risk, however, that the yield or price obtained in a transaction may be less
favorable than the yield or price available in the market when the securities
delivery takes place.
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The Fund may dispose of a commitment prior to settlement if Fleet deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if Fleet
believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio turnover rate
of 100% or more is considered high, although the rate of portfolio turnover will
not be a limiting factor in making portfolio decisions. A high rate of portfolio
turnover involves correspondingly greater brokerage commission expenses and
other transaction costs, which must be ultimately borne by the Fund's
shareholders. High portfolio turnover may result in the realization of
substantial net capital gains; distributions derived from such gains will be
treated as ordinary income for federal income tax purposes. See "Financial
Highlights" and "Taxes--Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information relating to the Fund under "Investment Objectives and Policies."
The Fund may not:
1. Borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an arrangement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund may
borrow up to one-third of the value of its total assets and pledge up to 10%
of the value of its total assets to secure such borrowings; or
2. With respect to 75% of the value of its total assets, invest more
than 5% in securities of any one issuer, other than cash, cash items, or
securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized
by such securities, or acquire more than 10% of the outstanding voting
securities of any one issuer.
The following investment limitation may be changed by Galaxy's Board of
Trustees without shareholder approval. Shareholders will be notified before any
material change in this limitation becomes effective:
3. The Fund may not invest more than 15% of its net assets in
securities subject to restrictions on resale under the Securities Act of
1933, as amended, (except for commercial paper issued under Section 4(2) of
the Securities Act of 1933, as amended, and certain other securities which
meet the criteria for liquidity as established by the Board of Trustees).
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In addition, the Fund may not purchase any securities which would cause 25%
or more of the value of its total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry; provided however that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
The Fund intends to invest in restricted securities. Restricted securities
are any securities in which the Fund may otherwise invest pursuant to its
investment objective and policies, but which are subject to restriction on
resale under federal securities law. The Fund will limit its investments in
illiquid securities, including certain restricted securities not determined by
the Board of Trustees to be liquid, non-negotiable fixed time deposits with
maturities over seven days, over-the-counter options, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of its net
assets.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. The Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
15% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered to be
illiquid if Fleet has determined, in accordance with guidelines established by
the Board of Trustees, that an adequate trading market exists for such
securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). Net asset value per share is determined on each day on
which the Exchange is open for trading. Currently, the holidays which Galaxy
observes are New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Net asset value per share for purposes of pricing sales and
redemptions is calculated separately for each series of shares by dividing the
value of all securities and other assets attributable to a particular series of
shares of the Fund, less the liabilities attributable to the shares of that
series of the Fund, by the number of outstanding Shares of that series of the
Fund.
The assets in the Fund which are traded on a recognized stock exchange are
valued at the last sale price on the securities exchange on which such
securities are primarily traded or at the last sale price on the national
securities market. Securities quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the
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average of the most recent bid and asked prices. Investments in debt securities
with remaining maturities of 60 days or less are valued based upon the amortized
cost method. Restricted securities, securities for which market quotations are
not readily available, and other assets are valued at fair value by Fleet under
the supervision of Galaxy's Board of Trustees. An option is generally valued at
the last sale price or, in the absence of a last sale price, the last offer
price.
Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except when an occurrence subsequent
to the time a value was so established is likely to have changed such value,
then the fair value of those securities will be determined through consideration
of other factors by or under the direction of the Board of Trustees. A security
which is listed or traded on more than one exchange is valued at the quotation
on the exchange determined to be the primary market for such security. For
valuation purposes, quotations of foreign securities in foreign currency are
converted to U.S. dollars equivalent at the prevailing market rate on the day of
valuation.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that the Fund's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If an Institution accepts a purchase
order from its Customer on a non-Business Day, the order
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will not be executed until it is received and accepted by FD Distributors on a
Business Day in accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Fund and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts (including defined contribution plans). Investors should contact their
Institution (or, in the case of employer-sponsored defined contribution plans,
their employer) for further information concerning the types of eligible
Customer accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirements with respect to Trust Shares, an Institution may impose such
requirements on the accounts maintained by its Customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by an Institution to its Customers.
Information pertaining to such plans is available directly from the Institution.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day will normally be wired on the following Business
Day to the Institution. Payment for redemption orders received on a non-Business
Day will normally be wired to the Institution on the next Business Day. However,
in both cases Galaxy reserves the right to wire redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. The Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon sixty days'
written notice, if the value of the account is less than $250 as a result of
redemptions.
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DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared and paid
quarterly. Net realized capital gains are distributed at least annually.
Dividends on each share of the Fund are determined in the same manner,
irrespective of series, but may differ in amount because of the difference in
the expenses paid by the respective series.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
The policy of the Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional Trust Shares.
(Federal income taxes for distributions to an IRA or a qualified retirement plan
are deferred under the Code.) Such ordinary income distributions will qualify
for the dividends received deduction for corporations to the extent of the total
qualifying dividends received by the Fund from domestic corporations for the
taxable year.
Distribution by the Fund of "net capital gains" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, of the
Fund, is taxable to shareholders as long-term capital gain, regardless of how
long the shareholder has held shares and whether such gains are received in cash
or reinvested in additional Trust Shares. Such long-term capital gain will
constitute 20% or 28% rate gain, depending upon the Fund's holding period for
the assets the sale of which generated the gain. Such distributions are not
eligible for the dividends received deduction.
The dividends received deduction is not available for dividends attributable
to distributions made by a REIT to the Fund. In addition, distributions paid by
REITs often include a "return of capital." The Code requires a REIT to
distribute at least 95% of its taxable income to investors. In many cases,
however, because of "non-cash" expenses such as property depreciation, an equity
REIT's cash flow will exceed its taxable income. The REIT may distribute this
excess cash to offer a more competitive yield. This portion of the distribution
is deemed a return of capital and is generally not taxable to shareholders.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
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If you are considering buying shares of the Fund on or just before the
record date of a dividend or capital gain distribution, you should be aware that
the amount of the forthcoming distribution payment, although in effect a return
of capital, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients and
manages the other investment portfolios of Galaxy: the Money Market, Government,
U.S. Treasury, Tax- Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Institutional Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Asset Allocation, Small
Company Equity, MidCap Equity, Growth and Income, Strategic Equity, Short-Term
Bond, Intermediate Government Income, High Quality Bond, Corporate Bond,
Tax-Exempt Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Fund,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of .75% of the average daily net assets of the Fund.
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Fleet may from time to time, in its discretion, waive all or a portion of
the advisory fees payable by the Fund in order to help maintain a competitive
expense ratio and may from time to time allocate a portion of its advisory fees
to Fleet Bank or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders. For the fiscal year through October 31,
1997, Fleet received advisory fees at the effective annual rate of .75% of the
Fund's average daily net assets. During the fiscal year ended October 31, 1997,
Fleet reimbursed the Fund for certain operating expenses, which reimbursement
may be revised or discontinued at any time.
The Fund's portfolio manager, Peter Larson, is primarily responsible for the
day-to-day management of the Fund's investment portfolio. Mr. Larson served as
the portfolio manager of the Predecessor Fund since its inception in 1992. Prior
to joining Fleet in 1995, he was associated with Shawmut Bank since 1963 and was
a Vice President in charge of its Small Cap Equity Management product since
1982.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission ("SEC"), financial
institutions that are affiliated with Fleet or that have sold shares of the
Funds, if Fleet believes that the quality of the transaction and the commission
are comparable to what they would be with other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which agree to provide shareholder support services that are banks
or bank affiliates are subject to such banking laws and regulations. Should
legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Fund,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Fund's method of operation would not
affect the Fund's net asset value per share or result in financial loss to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5180, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Fund, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of the combined
average daily net assets of the Fund and the other portfolios offered by Galaxy
(collectively, the "Portfolios"), .085% of the next $2.5 billion of combined
average daily assets and .075% of combined average daily net assets over $5
billion. In
20
<PAGE>
addition, Investor Services Group also receives a separate annual fee from each
Portfolio for certain fund accounting services. From time to time, Investor
Services Group may waive voluntarily all or a portion of the administration fee
payable to it by the Fund. For the fiscal year ended October 31, 1997, the Fund
paid Investor Services Group administration fees at the effective annual rate of
.082% of the Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in the Fund: Class X - Series 1 shares (Trust
Shares) and Class X - Series 2 shares (Retail A Shares), both series
representing interests in the Fund. The Fund is classified as a diversified
company under the 1940 Act. The Board of Trustees has also authorized the
issuance of additional classes and series of shares representing interests in
other portfolios of Galaxy. For information regarding the Fund's Retail A Shares
and these other portfolios, which are offered through separate prospectuses,
contact FD Distributors at 1-800-628-0414.
Trust Shares and Retail A Shares in the Fund bear their pro rata portion of
all operating expenses paid by the Fund except as follows. Holders of the Fund's
Retail A Shares bear the fees that are paid to Institutions under Galaxy's
Shareholder Services Plan described below. Currently, these payments are not
made with respect to the Fund's Trust Shares. In addition, Trust Shares and
Retail A Shares in the Fund bear differing transfer agency expenses.
Standardized yield and total return quotations are computed separately for each
series of shares. The difference in the expenses paid by the respective series
will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end sales charge
of 3.75% and have certain exchange and other privileges which are not available
with respect to Trust Shares.
Each share of Galaxy has a par value of $.001 per Share, represents an equal
proportionate interest in the related investment portfolio with other shares of
the same class, and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such investment portfolio as are
declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial
21
<PAGE>
owners of Retail A Shares and are intended to supplement the services provided
by Investor Services Group as administrator and transfer agent to the
shareholders of record of the Retail A Shares. The Plan provides that Galaxy
will pay fees for such services at an annual rate of up to .50% of the average
daily net asset value of the Fund's Retail A Shares beneficially owned by
Customers. Institutions may receive up to one-half of this fee for providing one
or more of the following services to such Customers: aggregating and processing
purchase and redemption requests and placing net purchase and redemption orders
with FD Distributors; processing dividend payments from the Fund; providing
sub-accounting with respect to Retail A Shares or the information necessary for
sub-accounting; and providing periodic mailings to Customers. Institutions may
also receive up to one-half of this fee for providing one or more of these
additional services to such Customers: providing Customers with information as
to their positions in Retail A Shares; responding to Customer inquiries; and
providing a service to invest the assets of Customers in Retail A Shares. These
services are described more fully in the Statement of Additional Information
relating to the Fund under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such affiliates agree to
perform certain sub-account and administrative functions ("Sub-Account
Services") on a per account basis with respect to Trust Shares of the Fund held
by defined contribution plans, including: maintaining records reflecting
separately with respect to each plan participant's sub-account all purchases and
redemptions of Trust Shares and the dollar value of Trust Shares in each
sub-account; crediting to each participant's sub-account all dividends and
distributions with respect to that sub-account; and transmitting to each
participant a periodic statement regarding the sub-account as well as any proxy
materials, reports and other material Fund communications. Such entities are
compensated by Investor Services Group for the Sub-Account Services and in
connection therewith the transfer agency fees payable by Trust Shares of the
Fund to Investor Services Group have been increased by an amount equal to these
fees. In substance, therefore, the holders of Trust Shares of the Fund
indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as custodian of the Fund's assets. Chase Manhattan
may employ sub-custodians for the Fund, for the purpose
22
<PAGE>
of providing custodial services for the Fund's foreign assets held outside the
United States. First Data Investor Services Group, Inc. ("Investor Services
Group"), a wholly-owned subsidiary of First Data Corporation, serves as the
Fund's transfer and dividend disbursing agent. Services performed by these
entities for the Fund are described in the Statement of Additional Information
relating to the Fund. Communications to Investor Services Group should be
directed to Investor Services Group at P.O. Box 5108, 4400 Computer Drive,
Westboro, Massachusetts 01581-5180.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Fund. Galaxy bears
the expenses incurred in the Fund's operations. Such expenses include: taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, fund accounting and custody fees; charges of the transfer agent and
dividend disbursing agent; certain insurance premiums; outside auditing and
legal expenses; costs of independent pricing services; costs of shareholder
reports and meetings; and any extraordinary expenses. The Fund also pays for
brokerage fees and commissions in connection with the purchase of portfolio
securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds, the S&P 500, an unmanaged index of groups of common
stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the Exchange.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES or publications of a local or regional nature may also be
used in comparing the performance of the Fund. Performance data will be
calculated separately for Trust Shares and Retail A Shares of the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield," which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
23
<PAGE>
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividends and capital gain distributions made by the Fund during the period
are reinvested in Fund shares.
The performance of the Fund will fluctuate and any quotation of performance
should not be considered as representative of the future performance. Since
yields fluctuate, yield data cannot necessarily be used to compare an investment
in the Fund's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that performance data are
generally functions of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
additional fees charged by Institutions with respect to accounts of Customers
that have invested in Trust Shares of the Fund will not be included in
performance calculations.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares or the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
24
<PAGE>
GALAXY
SMALL CAP VALUE
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-508 15003 (3/98)
<PAGE>
TRUST
THE GALAXY FUND
GROWTH AND INCOME FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY....................................................... 2
FINANCIAL HIGHLIGHTS.................................................. 3
INVESTMENT OBJECTIVE AND POLICIES..................................... 5
Special Risk Considerations......................................... 6
Other Investment Policies and Risk Considerations................... 7
INVESTMENT LIMITATIONS................................................ 14
PRICING OF SHARES..................................................... 15
HOW TO PURCHASE AND REDEEM SHARES..................................... 16
Distributor......................................................... 16
Purchase of Shares.................................................. 16
Redemption of Shares................................................ 17
DIVIDENDS AND DISTRIBUTIONS........................................... 18
TAXES................................................................. 18
Federal............................................................. 18
State and Local..................................................... 19
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT OF THE FUND................................................ 19
Investment Adviser.................................................. 19
Authority to Act as Investment Adviser.............................. 20
Administrator....................................................... 20
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 21
Shareholder Services Plan........................................... 22
Agreements for Sub-Account Services................................. 22
CUSTODIAN AND TRANSFER AGENT.......................................... 23
EXPENSES.............................................................. 23
PERFORMANCE REPORTING................................................. 23
MISCELLANEOUS......................................................... 24
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, current
redemptions, exchanges and other
shareholder services or for current
performance call 1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares"), which
represent interests in the GROWTH AND INCOME FUND (the "Fund") offered by
Galaxy.
The Fund's investment objective is to provide a relatively high total return
through long-term capital appreciation and current income. The Fund attempts to
achieve this objective by investing primarily in common stocks of companies
believed to have prospects for above-average growth and dividends or of
companies where significant fundamental changes are taking place. Under normal
market and economic conditions, the Fund will invest at least 65% of its assets
in common stocks, preferred stocks, common stock warrants and securities
convertible into common stock.
This Prospectus describes Trust Shares in the Fund. Trust Shares are offered
to investors maintaining qualified accounts at bank and trust institutions,
including institutions affiliated with Fleet Financial Group, Inc., and to
participants in employer-sponsored defined contribution plans. Galaxy is also
authorized to issue two additional series of shares in the Fund, Retail A Shares
and Retail B Shares (Retail A Shares and Retail B Shares are referred to herein
collectively as "Retail Shares"). Retail Shares are offered under a separate
prospectus primarily to individuals, corporations or other entities purchasing
either for their own accounts or for the accounts of others and to FIS
Securities, Inc., Fleet Brokerage Securities, Inc., Fleet Securities, Inc.,
Fleet Enterprises, Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks and other qualified banks, savings and loans associations
and broker/dealers on behalf of their customers. Trust Shares, Retail A Shares
and Retail B Shares represent equal pro rata interests in the Fund, except they
bear different expenses which reflect the difference in the range of services
provided to them. See "Financial Highlights," "Management of the Fund" and
"Description of Galaxy and Its Shares" herein.
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------
FEBRUARY 28, 1998
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Trust Shares and (ii) the operating
expenses for Trust Shares of the Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
GROWTH
AND
INCOME
SHAREHOLDER TRANSACTION EXPENSES FUND
- ---------------------------------------------------------------------- ------
<S> <C>
Sales Load............................................................ None
Sales Load on Reinvested Dividends.................................... None
Deferred Sales Load................................................... None
Redemption Fees....................................................... None
Exchange Fees......................................................... None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------
<S> <C>
Advisory Fees......................................................... .75%
12b-1 Fees............................................................ None
Other Expenses........................................................ .32%
------
Total Fund Operating Expenses......................................... 1.07%
------
------
</TABLE>
- ---------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth and Income Fund................................................ $11 $33 $58 $128
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in Trust Shares of the
Fund will bear directly or indirectly. The information contained in the Expense
Summary and Example is based on expenses incurred by the Fund during the last
fiscal year, restated to reflect the expenses the Fund expects to incur during
the current fiscal year on its Trust Shares. For more complete descriptions of
these costs and expenses, see "Management of the Fund" and "Description of
Galaxy and Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statement of Additional Information relating
to the Fund. Any fees that are charged by affiliates of Fleet or other
institutions directly to their customer accounts for services related to an
investment in Trust Shares of the Fund are in addition to and not reflected in
the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in the Fund. Galaxy is also
authorized to issue two additional series of Shares in the Fund, Retail A Shares
and Retail B Shares. As described below under "Description of Galaxy and Its
Shares," Trust Shares, Retail A Shares and Retail B Shares represent equal pro
rata interests in the Fund, except that (i) Retail A Shares of the Fund bear the
expenses incurred under Galaxy's Shareholder Services Plan at an annual rate of
up to .30% of the average daily net asset value of the Fund's outstanding Retail
A Shares, (ii) Retail B Shares of the Fund bear the expenses incurred under
Galaxy's Distribution and Services Plan for Retail B Shares at an annual rate of
up to .95% of the average daily net asset value of the Fund's outstanding Retail
B Shares, and (iii) Trust Shares, Retail A Shares and Retail B Shares bear
differing transfer agency expenses.
The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds, which was organized as
a Massachusetts business trust. On December 4, 1995, the Predecessor Fund was
reorganized as a new portfolio of Galaxy. Prior to the reorganization, the
Predecessor Fund offered and sold two series of shares of beneficial interest
that were similar to the Fund's Trust Shares and Retail A Shares, respectively.
The financial highlights presented below set forth certain information
concerning (i) the investment results of the Fund's Trust Shares for the fiscal
years ended October 31, 1997 and October 31, 1996 and (ii) the investment
results of the Predecessor Fund's Trust Shares (the series that is similar to
the Trust Shares of the Fund) for the fiscal years ended October 31, 1995 and
October 31, 1994 and the fiscal period ended October 31, 1993. The information
about the Fund for the fiscal years ended October 31, 1997 and October 31, 1996
has been audited by Coopers & Lybrand L.L.P., Galaxy's independent accountants,
whose report is contained in Galaxy's Annual Report to Shareholders relating to
the Fund dated October 31, 1997 (the "Annual Report"). The information about the
Predecessor Fund for the fiscal years ended October 31, 1995 and October 31,
1994 and the fiscal period ended October 31, 1993 was audited by other auditors.
The financial highlights should be read in conjunction with the financial
statements and notes thereto contained in the Annual Report and incorporated by
reference into the Statement of Additional Information relating to the Fund.
More information about the performance of the Fund is contained in the Annual
Report which may be obtained without charge by contacting Galaxy at its
telephone number or address provided above.
3
<PAGE>
GROWTH AND INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, PERIOD ENDED
----------------------------------------- OCTOBER 31,
1997 1996(2) 1995 1994 1993(1)
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 13.80 $ 12.35 $ 11.15 $ 10.69 $ 10.00
-------- -------- -------- -------- -------------
Income from Investment Operations:
Net investment income(3,4,5).......... 0.22 0.27 0.28 0.25 0.18
Net realized and unrealized
gain/(loss) on investments........... 3.68 2.16 1.69 0.72 0.69
-------- -------- -------- -------- -------------
Total from Investment Operations:... 3.90 2.43 1.97 0.97 0.87
-------- -------- -------- -------- -------------
Less Dividends:
Dividends from net investment
income............................... (0.23) (0.25) (0.28) (0.23) (0.18)
Dividend from net realized capital
gains................................ (1.19) (0.73) (0.49) (0.28) --
-------- -------- -------- -------- -------------
Total Dividends..................... (1.42) (0.98) (0.77) (0.51) (0.18)
-------- -------- -------- -------- -------------
Net increase (decrease) in net asset
value.................................. 2.48 1.45 1.20 0.46 0.69
-------- -------- -------- -------- -------------
Net Asset Value, End of Period.......... $ 16.28 $ 13.80 $ 12.35 $ 11.15 $ 10.69
-------- -------- -------- -------- -------------
-------- -------- -------- -------- -------------
Total Return............................ 30.43% 20.77% 18.80% 9.45% 8.80%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $246,654 $186,708 $189,011 $156,827 $147,090
Ratio to average net assets:
Net investment income including
reimbursement/ waiver................ 1.44% 2.01% 2.42% 2.31% 2.11%(6)
Operating expenses including
reimbursement/ waiver................ 1.03% 1.02% 1.07% 1.04% 0.98%(6)
Operating expenses excluding
reimbursement/ waiver................ 1.06% 1.03% 1.27% 1.24% 1.25%(6)
Portfolio Turnover Rate................. 93% 59% 51% 73% 38%(7)
Average Commission Rate Paid(8)......... $ 0.0618 $ 0.0654 N/A N/A N/A
</TABLE>
- ---------
(1) The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds.
(2) On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy. Prior to the reorganization, the Predecessor Fund
offered and sold two series of shares, Investment Shares and Trust Shares,
that were similar to the Fund's Retail A and Trust Shares, respectively. In
connection with the reorganization, shareholders of the Predecessor Fund
exchanged Investment Shares and Trust Shares for Retail A Shares and Trust
Shares, respectively, in the Fund.
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1997
and 1996 was $0.21 and $0.27, respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
other parties for the years ended October 31, 1995 and 1994 and for the
period ended October 31, 1993 was $0.25, $0.22 and $0.15, respectively
(unaudited).
(5) Net investment income per share does not reflect the tax reclassifications
arising in the current period.
(6) Annualized.
(7) Not Annualized.
(8) Required for fiscal years beginning on or after September 1, 1995.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide a relatively high total return
through long-term capital appreciation and current income. The Fund attempts to
achieve this objective by investing primarily in common stocks of companies with
prospects for above-average growth and dividends or of companies where
significant fundamental changes are taking place. Under normal market
circumstances, the Fund will invest at least 65% of its assets in common stocks,
preferred stocks, common stock warrants and securities convertible into common
stock.
The Fund invests primarily in growth-oriented equity securities.
Growth-oriented stocks may include issuers with smaller capitalizations. Small
capitalization stocks have historically been more volatile in price than larger
capitalization stocks, such as those included in the Standard & Poor's 500
Composite Stock Index (the "S&P 500"). This is because, among other things,
smaller companies have a lower degree of liquidity in the equity market and tend
to have a greater sensitivity to changing economic conditions. Further, in
addition to exhibiting greater volatility, these stocks may, to some degree,
fluctuate independently of the stocks of large companies. That is, the stock of
small capitalization companies may decline in price as the price of large
company stocks rise or vice versa. Therefore, investors should expect that the
Fund will be more volatile than, and may fluctuate independently of, broad stock
market indices such as the S&P 500.
The Fund may purchase convertible securities, including convertible
preferred stock, convertible bonds or debentures, units consisting of "usable"
bonds and warrants or a combination of the features of several of these
securities. See "Other Investment Policies and Risk Consideration--Convertible
Securities" below. The Fund may also buy and sell options and futures contracts
and utilize stock index futures contracts, options, swap agreements, indexed
securities, and options on futures contracts. See "Other Investment Policies and
Risk Considerations--Options and Futures Contracts," "Other Investment Policies
and Risk Considerations--Stock Index Futures, Swap Agreements, Indexed
Securities and Options" and "Other Investment Policies and Risk
Considerations--Derivative Securities" below.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs").
Securities of a foreign issuer may present greater risks in the form of
nationalization, confiscation, domestic marketability, or other national or
international restrictions. As a matter of practice, the Fund will not invest in
the securities of foreign issuers if any such risk appears to Fleet Investment
Advisors Inc. ("Fleet"), the Fund's investment adviser, to be substantial. See
"Special Risk Considerations--Foreign Securities" and "Other Investment Policies
and Risk Considerations--American, European and Global Depository Receipts"
below.
As a temporary defensive measure, in such proportions as, in the judgment of
Fleet, prevailing market conditions warrant, the Fund may invest in: (i)
short-term money market instruments (such as those listed below under "Other
Investment Policies and Risk Considerations"); (ii) securities issued and/or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies, or instrumentalities; and (iii) repurchase agreements. Additional
information about the types of money market instruments and U.S. Government
obligations in which the Fund is permitted to invest is contained in the
Statement of Additional Information relating to the Fund. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the Growth and Income Fund.
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Fleet will use its best efforts to achieve the Fund's investment objective,
although, its achievement cannot be assured. The investment objective of the
Fund may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program.
SPECIAL RISK CONSIDERATIONS
MARKET RISK
The Fund invests primarily in equity securities. As with other mutual funds
that invest primarily in equity securities, the Fund is subject to market risks.
That is, the possibility exists that common stocks will decline over short or
even extended periods of time and both the U.S. and certain foreign equity
markets tend to be cyclical, experiencing both periods when stock prices
generally increase and periods when stock prices generally decrease.
INTEREST RATE RISK
To the extent that the Fund invests in fixed income securities, its holdings
of such securities are sensitive to changes in interest rates and the interest
rate environment. Generally, the prices of bonds and other debt securities
fluctuate inversely with interest rate changes.
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs, as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
price of the Fund's securities in their local markets. Conversely, a decrease in
the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
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Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in countries with emerging economies or
emerging securities markets. The risk of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which the
Fund has the power to utilize. Some may be employed on a regular basis; others
may not be used at all. Accordingly, reference to any particular method or
technique carries no implication that it will be utilized or, if it is, that it
will be successful.
RATINGS
The Fund may purchase convertible bonds rated "BB" or higher by Standard &
Poor's Ratings Group ("S&P") or Fitch IBCA, Inc. ("Fitch IBCA"), or "Ba" or
higher by Moody's Investors Service, Inc. ("Moody's"), at the time of
investment. See "Other Investment Policies and Risk Considerations-- Convertible
Securities" below for a discussion of the risks of investing in convertible
bonds rated either "BB" or "Ba." Short-term money market instruments purchased
by the Fund must be rated in one of the top two rating categories by a
nationally recognized statistical rating agency, such as S&P, Moody's or Fitch
IBCA.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in other "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than 10
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Investments in bank obligations are limited to the obligations of
financial institutions having more than $1 billion in
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total assets at the time of purchase. Time deposits with a maturity longer than
seven days or that do not
provide for payment within seven days after notice will be limited to 15% of the
Fund's net assets.
Banks are subject to extensive but different government regulation which may
limit the amount and types of their loans and the interest rates that may be
charged. In addition, the profitability of the banking industry is largely
dependent upon the availability and cost of funds to finance lending operations
and the quality of underlying bank assets.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations" below.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
The Fund will not enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand upon notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 15% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement. Additional information regarding the Fund's policies with
respect to reverse repurchase agreements is contained in the Statement of
Additional Information relating to the Fund.
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SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with the investment limitations described
below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans may be on a long-term or short-term basis or both,
will be made only to borrowers deemed by Fleet to be of good standing and only
when, in Fleet's judgement, the income to be earned from the loan justifies the
attendant risks. The Fund currently intends to limit the lending of its
portfolio securities so that, at any given time, securities loaned by the Fund
represent not more than one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Fund may invest in other investment companies primarily for the purpose
of investing its short-term cash which has not yet been invested in other
portfolio instruments. However, from time to time, on a temporary basis, the
Fund may invest exclusively in one other investment company similar to the Fund.
Investments in other investment companies will cause the Fund (and, indirectly,
the Fund's shareholders) to bear proportionately the costs incurred in
connection with the investment companies' operations. Except as provided above,
securities of other investment companies will be acquired by the Fund within the
limits prescribed by the Investment Company Act of 1940, as amended, (the "1940
Act"). The Fund currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by Fund, other investment portfolios of Galaxy, or any other
investment companies advised by Fleet.
REITS
The Fund may invest up to 10% of its net assets in real estate investment
trusts ("REITs"). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of a REIT's
investments. In addition, equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, are not diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends
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to include the gross dividends from any investments in REITs in its periodic
distributions to its shareholders and, accordingly, a portion of its
distributions may also be designated as a return of capital. See "Taxes."
OPTIONS AND FUTURES CONTRACTS
The Fund may buy and sell options and futures contracts to manage its
exposure to changing interest rates, security prices and currency exchange
rates. The Fund may invest in options and futures based on any type of security,
index or currency, including options and futures based on foreign exchanges and
options not traded on exchanges. Some options and futures strategies, including
selling futures, buying puts, and writing calls, tend to hedge the Fund's
investments against price fluctuations. Other strategies, including buying
futures, writing puts, and buying calls, tend to increase market exposure.
Options and futures may be combined with each other or with forward contracts in
order to adjust the risk and return characteristics of the overall strategy.
Options and futures can be volatile investments, and involve certain risks.
If Fleet applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures may lower the Fund's individual return. The
Fund could also experience losses if the prices of its options and futures
positions were poorly correlated with its other investments, or if it could not
close out its positions because of an illiquid secondary market. See the
Statement of Additional Information relating to the Fund for additional
information as to the Fund's policies on options and futures trading.
The Fund will not hedge more than 20% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. The Fund will
not buy futures or write puts whose underlying value exceeds 20% of its total
assets, and will not buy calls with a value exceeding 5% of its total assets.
STOCK INDEX FUTURES, SWAP AGREEMENTS, INDEXED SECURITIES AND OPTIONS
The Fund may utilize stock index futures contracts, options, swap
agreements, indexed securities, and options on futures contracts, subject to the
limitation that the value of these futures contracts, swap agreements, indexed
securities, and options will not exceed 20% of the Fund's total assets. The Fund
will not purchase options to the extent that more than 5% of the value of its
total assets would be invested in premiums on open put option positions. In
addition, the Fund does not intend to invest more than 5% of the market value of
its total assets in each of the following: futures contracts, swap agreements,
and indexed securities. When the Fund enters into a swap agreement, liquid
assets of the Fund equal to the value of the swap agreement will be segregated
by the Fund.
There are several risks accompanying the utilization of futures contracts.
Positions in futures contracts may be closed only on an exchange or board of
trade that furnishes a secondary market for such contracts. While the Fund plans
to utilize futures contracts only if there exists an active market for such
contracts, there is no guarantee that a liquid market will exist for the
contracts at a specified time. Furthermore, because by definition, futures
contracts look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements. This could result in a distortion of
the relationship between the index and the futures market. In addition,
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because the futures market imposes less burdensome margin requirements than the
securities market, an increased amount of participation by speculators in the
futures market could result in price fluctuations.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
The Fund may invest in ADRs, EDRs and GDRs. ADRs are receipts issued in
registered form by a U.S. bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. GDRs are
receipts structured similarly to EDRs and are marketed globally. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. GDRs are designed for trading in non-U.S. securities
markets. ADRs, EDRs and GDRs traded in the over-the-counter market which do not
have an active or substantial secondary market will be considered illiquid and
therefore will be subject to the Fund's limitation with respect to such
securities. ADR prices are denominated in U.S. dollars although the underlying
securities are denominated in a foreign currency. Investments in ADRs, EDRs and
GDRs involve risks similar to those accompanying direct investments in foreign
securities. Certain of these risks are described above under "Special Risk
Considerations--Foreign Securities."
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Fund may buy and sell securities denominated in currencies other
than the U.S. dollar, and may receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Fund from time to time may enter into
foreign currency exchange transactions to convert the U.S. dollar to foreign
currencies, to convert foreign currencies to the U.S. dollar and to convert
foreign currencies to other foreign currencies. The Fund either enters into
these transactions on a spot (I.E., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another--for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen--at a future
date and at a specified price. Typically, the other party to a currency exchange
contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, such
contracts are rolled over in a manner consistent with a more long-term currency
decision. Because there is a risk of loss to the Fund if the other party does
not complete the transaction, forward foreign currency exchange contracts will
be entered into only with parties approved by Galaxy's Board of Trustees.
The Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency--for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S.
dollars--at a future date and at a specified price in anticipation of a decline
in the value of the currency sold short relative to the currency that the Fund
has contracted to receive in the exchange. In
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order to ensure that the short position is not used to achieve leverage with
respect to the Fund's investments, the Fund will establish with its custodian a
segregated account consisting of cash or other liquid assets equal in value to
the fluctuating market value of the currency as to which the short position is
being maintained. The value of the securities in the segregated account will be
adjusted at least daily to reflect changes in the market value of the short
position. See the Statement of Additional Information relating to the Fund for
additional information regarding foreign currency exchange transactions.
CONVERTIBLE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
invest in convertible securities. Convertible securities are fixed income
securities which may be exchanged or converted into a predetermined number of
shares of the issuer's underlying common stock at the option of the holder
during a specified time period. Convertible securities may take the form of
convertible preferred stock, convertible bonds or debentures, units consisting
of "usable" bonds and warrants or a combination of the features of several of
these securities.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate bonds that can be used in whole
or in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock. When owned as part of a unit along with warrants, which
are options to buy the common stock, they function as convertible bonds, except
that the warrants generally will expire before the bond's maturity. Convertible
securities are senior to equity securities, and therefore, have a claim to the
assets of the issuer prior to the holders of common stock in the case of
liquidation. However, convertible securities are generally subordinated to
similar nonconvertible securities of the same issuer. The interest income and
dividends from convertible bonds and preferred stocks provide a stable stream of
income with generally higher yields than common stocks, but lower than
non-convertible securities of similar quality. The Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stock in instances in which, in Fleet's opinion, the investment
characteristics of the underlying common shares will assist the Fund in
achieving its investment objective. Otherwise, the Fund will hold or trade the
convertible securities. In selecting convertible securities for the Fund, Fleet
evaluates the investment characteristics of the convertible security as a fixed
income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, Fleet considers numerous factors, including the
economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.
The Fund may invest in convertible bonds rated "BB" or higher by S&P or
Fitch IBCA, or "Ba" or higher by Moody's at the time of investment. Securities
rated "BB" by S&P or Fitch IBCA or "Ba" by Moody's provide questionable
protection of principal and interest in that such securities either have
speculative characteristics or are predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation. Debt obligations that are not rated, or determined to be, investment
grade are high-yield, high-risk bonds, typically subject to greater market
fluctuations, and securities in the lowest rating category may be in danger of
loss of income and principal due to an issuer's default. To a greater extent
than investment grade bonds, the value of lower-rated bonds tends to reflect
short-term corporate, economic, and market developments, as well as investor
perceptions
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of the issuer's credit quality. In addition, lower-rated bonds may be more
difficult to dispose of or to value than higher rated, lower-yielding bonds.
Fleet will attempt to reduce the risks described above through diversification
of the Fund's portfolio and by credit analysis of each issuer, as well as by
monitoring broad economic trends and corporate and legislative developments. If
a convertible bond is rated below "BB" or "Ba" after the Fund has purchased it,
the Fund is not required to eliminate the convertible bond from its portfolio,
but will consider appropriate action. The investment characteristics of each
convertible security vary widely, which allows convertible securities to be
employed for different investment objectives. The Fund does not intend to invest
in such lower-rated bonds during the current fiscal year. A description of the
rating categories of S&P, Moody's and Fitch IBCA is contained in the Appendix to
the Statement of Additional Information relating to the Fund.
DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
purchase certain "derivative" securities. Derivative securities are instruments
that derive their value from the performance of underlying assets, interest or
currency exchange rates, or indices, and include, but are not limited to,
options, stock index futures and options, indexed securities and swap
agreements, and foreign currency exchange contracts.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Fund will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Fund, and will determine, in connection with its day-to-day
management of the Fund, how such securities will be used in furtherance of the
Fund's investment objective. It is possible, however, that Fleet's evaluations
will prove to be inaccurate or incomplete and, even when accurate and complete,
it is possible that the Fund will, because of the risks discussed above, incur
loss as a result of its investments in derivative securities. See "Investment
Objectives and Policies--Derivative Securities" in the Statement of Additional
Information relating to the Fund for additional information.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase eligible securities on a "when-issued" or "delayed
settlement" basis. When-issued transactions, which involve a commitment by the
Fund to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later), permit the Fund to
lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued and delayed settlement transactions involve
the risk,
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however, that the yield or price obtained in a transaction may be less favorable
than the yield or price available in the market when the securities delivery
takes place.
The Fund may dispose of a commitment prior to settlement if Fleet deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if Fleet
believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio rate of 100% or
more is considered high although the rate of turnover will not be a limiting
factor on making portfolio decisions. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expenses and other transaction
costs, which must be ultimately borne by the Fund's shareholders. High portfolio
turnover may result in the realization of substantial net capital gains;
distributions derived from such gains will be treated as ordinary income for
federal income tax purposes. See "Taxes--Federal."
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information relating to the Fund under "Investment Objectives and Policies."
The Fund may not:
1. Borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an arrangement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund may
borrow up to one-third of the value of its total assets and pledge up to 10%
of the value of its total assets to secure such borrowings; or
2. With respect to 75% of the value of its total assets, invest more
than 5% in securities of any one issuer, other than cash, cash items, or
securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized
by such securities, or acquire more than 10% of the outstanding voting
securities of any one issuer.
The following investment limitation may be changed by Galaxy's Board of
Trustees without shareholder approval. Shareholders will be notified before any
material change in this limitation becomes effective:
3. The Fund may not invest more than 15% of its net assets in
securities subject to restrictions on resale under the Securities Act of
1933, as amended, (except for commercial paper issued under Section 4(2) of
the Securities Act of 1933, as amended, and certain other securities which
meet the criteria for liquidity as established by the Board of Trustees).
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In addition, the Fund may not purchase any securities which would cause 25%
or more of the value of its total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
The Fund intends to invest in restricted securities. Restricted securities
are any securities in which the Fund may otherwise invest pursuant to its
investment objective and policies, but which are subject to restriction on
resale under federal securities law. The Fund will limit its investments in
illiquid securities, including certain restricted securities not determined by
the Board of Trustees to be liquid, non-negotiable fixed time deposits with
maturities over seven days, over-the-counter options, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of its net
assets.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. The Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
15% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered to be
illiquid if Fleet has determined, in accordance with guidelines established by
the Board of Trustees, that an adequate trading market exists for such
securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). Net asset value per share is determined on each day on
which the Exchange is open for trading. Currently, the holidays which Galaxy
observes are New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Net asset value per share of the Fund for purposes of pricing
sales and redemptions is calculated separately for each series of shares by
dividing the value of all securities and other assets attributable to a
particular series of shares of the Fund, less the liabilities attributable to
the shares of that series of the Fund, by the number of outstanding shares of
that series of the Fund.
The assets in the Fund which are traded on a recognized stock exchange are
valued at the last sale price on the securities exchange on which such
securities are primarily traded or at the last sale price on the national
securities market. Securities quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the
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average of the most recent bid and asked prices. Investments in debt securities
with remaining maturities of 60 days or less are valued based upon the amortized
cost method. Restricted securities, securities for which market quotations are
not readily available, and other assets are valued at fair value by Fleet under
the supervision of Galaxy's Board of Trustees. An option is generally valued at
the last sale price or, in the absence of a last sale price, the last offer
price.
Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except when an occurrence subsequent
to the time a value was so established is likely to have changed such value,
then the fair value of those securities will be determined through consideration
of other factors by or under the direction of the Board of Trustees. A security
which is listed or traded on more than one exchange is valued at the quotation
on the exchange determined to be the primary market for such security. For
valuation purposes, quotations of foreign securities in foreign currency are
converted to U.S. dollars equivalent at the prevailing market rate on the day of
valuation.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that the Fund's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If an Institution accepts a purchase
order from its Customer on a non-Business Day, the order
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<PAGE>
will not be executed until it is received and accepted by FD Distributors on a
Business Day in accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Fund and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts (including defined contribution plans). Investors should contact their
Institution (in the case of employer sponsored defined contribution plans, their
employer) for further information concerning the types of eligible Customer
accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirements with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by its Customers and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Fund may also be available for purchase through
different types of retirement plans offered by an Institution to its Customers.
Information pertaining to such plans is available directly from the Institution.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day will normally be wired on the following Business
Day to the Institution. Payment for redemption orders received on a non-Business
Day will normally be wired to the Institution on the next Business Day. However,
in both cases Galaxy reserves the right to wire redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. The Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon sixty days
written notice, if the value of the account is less than $250 as a result of
redemptions.
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DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared and paid
quarterly. Dividends on each share of the Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund qualified during its last taxable year and intends to continue to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves the Fund
of liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
The policy of the Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional Trust Shares.
(Federal income taxes for distributions to an IRA or a qualified retirement plan
are deferred under the Code.) Such ordinary income distributions will qualify
for the dividends received deduction for corporations to the extent of the total
qualifying dividends received by the Fund from domestic corporations for the
taxable year.
Distribution by the Fund of "net capital gain", (the excess of its net
long-term capital gain over its net short-term capital loss), if any, of the
Fund, is taxable to shareholders as long-term capital gain, regardless of how
long the shareholder has held shares and whether such gains are received in cash
or reinvested in additional Trust Shares. Such long-term capital gain will
constitute 20% or 28% rate gain, depending upon the Fund's holding period for
the assets the sale of which generated the gain. Such distributions are not
eligible for the dividends received deduction.
The dividends received deduction is not available for dividends attributable
to distributions made by a REIT to the Fund. In addition, distributions paid by
REITs often include a "return of capital." The Code requires a REIT to
distribute at least 95% of its taxable income to investors. In many cases,
however, because of "non-cash expenses such as property depreciation, an equity
REIT's cash flow will exceed its taxable income. The REIT may distribute this
excess cash to offer a more competitive yield. This portion of the distribution
is deemed a return of capital and is generally not taxable to shareholders.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and
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paid by the Fund on December 31 of such year if such dividends are actually paid
during January of the following year.
If you are considering buying shares of the Fund on or just before the
record date of a dividend or capital gain distribution, you should be aware that
the amount of the forthcoming distribution payment, although in effect a return
of capital, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients and
manages the other investment portfolios of Galaxy: the Money Market, Government,
U.S. Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Institutional Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Asset Allocation, Small
Company Equity, MidCap Equity, Small Cap Value, Strategic Equity, Short-Term
Bond, Intermediate Government Income, High Quality Bond, Corporate Bond,
Tax-Exempt Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond
Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Fund,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of .75% of the average daily net assets of the Fund.
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Fleet may from time to time, in its discretion, waive all or a portion of
the advisory fees payable by the Fund in order to help maintain a competitive
expense ratio and may from time to time allocate a portion of its advisory fees
to Fleet Bank or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders. For the fiscal year ended October 31, 1997,
Fleet received advisory fees (after fee waivers) at the effective annual rate of
.75% of the Fund's average daily net assets. During the fiscal year ended
October 31, 1997, Fleet also reimbursed the Fund for certain operating expenses,
which reimbursement may be revised or discontinued at any time.
The Fund's portfolio manager, Brendan Henebry, is primarily responsible for
the day-to-day management of the Fund's investment portfolio. Mr. Henebry served
as portfolio manager for the Predecessor Fund since its inception in 1992. Prior
to joining Fleet in 1995, he was associated with Shawmut Bank and its
predecessor since 1965 and was a Vice President since 1978. While at Shawmut
Bank, he served as manager of its Growth and Income Equity Management Group.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission ("SEC"), financial
institutions that are affiliated with Fleet or that have sold shares of the
Funds, if Fleet believes that the quality of the transaction and the commission
are comparable to what they would be with other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as shares
of the Fund, but do not prohibit such a bank holding company or its affiliates
or banks generally from acting as investment adviser, transfer agent, or
custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which agree to provide shareholder support services that are banks
or bank affiliates are subject to such banking laws and regulations. Should
legislative, judicial, or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Fund,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Fund's method of operation would not
affect the Fund's net asset value per share or result in financial loss to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5180, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Fund, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of the combined
average daily net assets of the
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Fund and the other portfolios offered by Galaxy (collectively, the
"Portfolios"), .085% of the next $2.5 billion of the combined average daily net
assets and .075% of combined average daily net assets over $5 billion. In
addition, Investor Services Group also receives a separate annual fee from each
Portfolio for certain fund accounting services. From time to time, Investor
Services Group may waive voluntarily all or a portion of the administration fee
payable to it by the Fund. For the fiscal year ended October 31, 1997, the Fund
paid Investor Services Group administration fees at the effective annual rate of
.082% of the Fund's average daily net assets.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in the Fund: Class U - Series 1 shares (Trust
Shares), Class U - Series 2 shares (Retail A Shares) and Class U - Series 3
shares (Retail B Shares), each series representing interests in the Fund. The
Board of Trustees has also authorized the issuance of additional classes and
series of shares representing interests in other portfolios of Galaxy. For
information regarding the Fund's Retail Shares and these other portfolios, which
are offered through separate prospectuses, contact FD Distributors at
1-800-628-0414.
Trust Shares, Retail A Shares and Retail B Shares in the Fund bear their pro
rata portion of all operating expenses paid by the Fund except as follows.
Holders of the Fund's Retail A Shares bear the fees that are paid to
Institutions under Galaxy's Shareholder Services Plan described below. Holders
of the Fund's Retail B Shares bear the fees described in the Prospectus for such
shares that are paid under Galaxy's Distribution and Services Plan at an annual
rate not to exceed .95% of the average daily net asset value of the Fund's
outstanding Retail B Shares. In addition, Trust Shares, Retail A Shares and
Retail B Shares in the Fund bear differing transfer agency expenses.
Standardized yield and total return quotations are computed separately for each
series of shares. The differences in the expenses paid by the respective series
will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end sales charge
of 3.75%. Retail B Shares are sold with a maximum contingent deferred sales
charge of 5.0% and automatically convert to Retail A Shares of the Fund six
years after the date of purchase. Retail A Shares and Retail B Shares have
certain exchange and other privileges which are not available with respect to
Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class, and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to such investment portfolio as are declared in the discretion of
Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
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SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.50% of the average daily net asset value of the Fund's Retail A Shares
beneficially owned by Customers. Institutions may receive up to one-half of
these fees for providing one or more of the following services to such
Customers: aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with FD Distributors; processing
dividend payments from the Fund; providing sub-accounting with respect to Retail
A Shares or the information necessary for sub-accounting; and providing periodic
mailings to Customers. Institutions may also receive up to one-half of this fee
for providing one or more of these additional services to such Customers:
providing Customers with information as to their positions in Retail A Shares;
responding to Customer inquiries; and providing a service to invest the assets
of Customers in Retail A Shares. These services are described more fully in the
Statement of Additional Information relating to the Fund under "Shareholder
Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including: maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Fund to Investor Services Group have
been increased by an amount equal to these fees. In substance, therefore, the
holders of Trust Shares of the Fund indirectly bear these fees.
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CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as custodian of the Fund's assets. Chase Manhattan
may employ sub-custodians for the Fund for the purpose of providing custodial
services for the Fund's foreign assets held outside the United States. First
Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-owned
subsidiary of First Data Corporation, serves as the Fund's transfer and dividend
disbursing agent. Services performed by these entities for the Fund are
described in the Statement of Additional Information relating to the Fund.
Communications to Investor Services Group should be directed to Investor
Services Group at P.O. Box 5108, 4400 Computer Drive, Westboro, Massachusetts
01581-5180.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Fund. Galaxy bears
the expenses incurred in the Fund's operations. Such expenses include: taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, Rule 12b-1 distribution, fund accounting and custody fees; charges of
the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholders' reports and meetings; and any extraordinary expenses. The
Fund also pays for brokerage fees and commissions in connection with the
purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds, the S&P 500, an unmanaged index of groups of common
stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the Exchange.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES or publications of a local or regional nature may also be
used in comparing the performance of the Fund. Performance data will be
calculated separately for Trust Shares, Retail A Shares and Retail B Shares of
the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
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The Fund may also advertise its performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividends and capital gain distributions made by the Fund during the period
are reinvested in Fund shares.
The performance of the Fund will fluctuate and any quotation of performance
should not be considered as representative of the future performance of the
Fund. Since yields fluctuate, yield data cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Trust Shares of the Fund will not be
included in performance calculations.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other materials,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of or the Fund means, with respect to the approval of an
investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of the Fund, or (b) 67% or more
of the shares of the Fund present at a meeting if more than 50% of the
outstanding shares of the Fund are represented at the meeting in person or by
proxy.
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GALAXY
GROWTH AND INCOME
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-507 15004 (3/98)
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TRUST
THE GALAXY FUND
STRATEGIC EQUITY FUND
PROSPECTUS
FEBRUARY 28, 1998
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
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PAGE
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EXPENSE SUMMARY........................................................... 2
INVESTMENT OBJECTIVE AND POLICIES......................................... 3
In General.............................................................. 3
Special Risk Considerations............................................. 3
Other Investment Policies and Risk Considerations....................... 4
INVESTMENT LIMITATIONS.................................................... 11
PRICING OF SHARES......................................................... 12
HOW TO PURCHASE AND REDEEM SHARES......................................... 13
Distributor............................................................. 13
Purchase of Shares...................................................... 13
Redemption of Shares.................................................... 14
DIVIDENDS AND DISTRIBUTIONS............................................... 15
TAXES..................................................................... 15
Federal................................................................. 15
State and Local......................................................... 16
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MANAGEMENT OF THE FUND.................................................... 16
Investment Adviser...................................................... 16
Authority to Act as Investment Adviser.................................. 17
Administrator........................................................... 18
DESCRIPTION OF GALAXY AND ITS SHARES...................................... 18
Shareholder Services Plan............................................... 19
Agreements for Sub-Account Services..................................... 19
CUSTODIAN AND TRANSFER AGENT.............................................. 20
EXPENSES.................................................................. 20
PERFORMANCE REPORTING..................................................... 20
MISCELLANEOUS............................................................. 21
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THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares"), which
represent interests in the STRATEGIC EQUITY FUND (the "Fund") offered by Galaxy.
The Fund's investment objective is to seek long-term capital appreciation.
The Fund attempts to achieve this objective by investing primarily in the
securities of companies that the Fund's investment adviser believes are
reasonably priced and offer favorable return potential relative to other
securities. Under normal market and economic conditions, the Fund will invest at
least 65% of its total assets in equity securities, including common stocks,
preferred stocks, securities convertible into common stock, rights and warrants.
This Prospectus describes Trust Shares in the Fund. Trust Shares are offered
to investors maintaining qualified accounts primarily at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue two additional series of shares in the Fund,
Retail A Shares and Retail B Shares (Retail A Shares and Retail B Shares are
referred to herein collectively as "Retail Shares"), which are offered under a
separate prospectus primarily to individuals, corporations or other entities
purchasing either for their own accounts or for the accounts of others and to
FIS Securities Inc., Fleet Brokerage Corporation, Fleet Securities, Inc., Fleet
Enterprises, Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks and other qualified banks, savings and loan associations and
broker/dealers on behalf of their customers. Trust Shares, Retail A Shares and
Retail B Shares represent equal pro rata interests in the Fund, except they bear
different expenses which reflect the difference in the range of services
provided to them. See "Financial Highlights," "Management of the Fund" and
"Description of Galaxy and Its Shares" herein.
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF, OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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FEBRUARY 28, 1998
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EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Trust Shares and (ii) the operating
expenses for Trust Shares of the Fund. Examples based on the summary are also
shown.
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STRATEGIC
EQUITY
SHAREHOLDER TRANSACTION EXPENSES FUND FUND
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Sales Load............................................................ None
Sales Load on Reinvested Dividends.................................... None
Deferred Sales Load................................................... None
Redemption Fees....................................................... None
Exchange Fees......................................................... None
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ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
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Advisory Fees (After Fee Waivers)..................................... .55%
12b-1 Fees............................................................ None
Other Expenses........................................................ .80%
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Total Fund Operating Expenses (After Fee Waivers)..................... 1.35%
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Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
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1 YEAR 3 YEARS
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Strategic Equity Fund................................................. $14 $42
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The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly. The information contained in the Expense Summary and
Example is based on expenses which the Fund expects to incur during the current
fiscal year on its Trust Shares. Without voluntary fee waivers by Fleet,
Advisory Fees would be .75% and Total Fund Operating Expenses would be 1.55% for
Trust Shares of the Fund. Fleet is under no obligation to waive fees and/or
reimburse expenses but has advised Galaxy that it intends to waive fees and/or
reimburse expenses during the current year to the extent necessary to maintain
the Fund's operating expenses at the level set forth in the above table. For
more complete descriptions of these costs and expenses, see "Management of the
Fund" and "Description of Galaxy and Its Shares" in this Prospectus. Any fees
that are charged by affiliates of Fleet or other institutions directly to their
customer accounts for services related to an investment in Trust Shares of the
Fund are in addition to and not reflected in the fees and expenses described
above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. THE FUND IS NEW AND ACTUAL EXPENSES AND
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN.
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INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The investment objective of the Fund is to seek long-term capital
appreciation. The Fund attempts to achieve its investment objective by investing
primarily in the securities of companies that Fleet believes are reasonably
priced and offer favorable return potential relative to other securities. In
selecting investments for the Fund, Fleet uses a fundamental analysis which
focuses on intermediate and long-term return forecasts for a broad universe of
between 300 and 400 large and mid-capitalization stocks. Under normal market and
economic conditions, the Fund will invest at least 65% of its total assets in
equity securities, including common stocks, preferred stocks, securities
convertible into common stock, rights and warrants.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs").
See Special Risk Considerations--Foreign Securities" and "Other Investment
Policies and Risk Considerations--American, European and Global Depository
Receipts" below.
The Fund may also buy and sell options and futures contracts and utilize
stock index futures contracts, options, swap agreements, indexed securities and
options on futures contracts. See "Other Investment Policies and Risk
Considerations--Options and Futures Contracts", "Other Investment Policies and
Risk Considerations--Stock Index Futures, Swap Agreements, Indexed Securities
and Options" and "Other Investment Policies and Risk Considerations--Derivative
Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and in U.S. Government obligations at
such times and in such proportions as, in the opinion of Fleet, prevailing
market and economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Strategic Equity Fund.
Fleet will use its best efforts to achieve the Fund's investment objective,
although its achievement cannot be assured. The investment objective of the Fund
may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program.
SPECIAL RISK CONSIDERATIONS
MARKET RISK
The Fund invests primarily in equity securities. As with other mutual funds
that invest primarily in equity securities, the Fund is subject to market risks.
That is, the possibility exists that common stocks will decline over short or
even extended periods of time and both the U.S. and certain foreign equity
markets tend to be cyclical, experiencing both periods when stock prices
generally increase and periods when stock prices generally decrease.
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INTEREST RATE RISK
To the extent that the Fund invests in fixed income securities, its holdings
of such securities are sensitive to changes in interest rates and the interest
rate environment. Generally, the prices of bonds and other debt securities
fluctuate inversely with interest rate change.
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs, as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
prices of the Fund's securities in their local markets. Conversely, a decrease
in the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in countries with emerging economies or
emerging securities markets. The risks of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which one or
more of the Funds have the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
RATINGS
All debt obligations, including convertible bonds, purchased by the Fund are
rated investment grade by Moody's Investment Services, Inc. ("Moody's") ("Aaa,"
"Aa," "A" and "Baa") or Standard & Poor's Ratings Group ("S&P") ("AAA," "AA,"
"A" and "BBB"), or, if not rated, are determined to be of comparable quality by
Fleet. Debt securities rated "Baa" by Moody's or "BBB" by S&P are generally
considered to be investment grade securities although they may have speculative
characteristics and
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changes in economic conditions or circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case for
higher rated obligations.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than 10
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Time deposits with a maturity longer
than seven days or that do not provide for payment within seven days after
notice will be limited to 15% of the Fund's net assets.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject the Fund to additional risk because such
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Such investments may also subject
the Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations--Foreign Securities." The
Fund will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet believes that the credit risk with
respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic
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adjustments in the interest rate. Floating rate instruments provide for
automatic adjustment of the interest rate whenever some other specified interest
rate changes. Some variable and floating rate obligations are direct lending
arrangements between the purchaser and the issuer and there may be no active
secondary market. However, in the case of variable and floating rate obligations
with a demand feature, the Fund may demand payment of principal and accrued
interest at a time specified in the instrument or may resell the instrument to a
third party. In the event that an issuer of a variable or floating rate
obligation defaulted on its payment obligation, the Fund might be unable to
dispose of the note because of the absence of a secondary market and could, for
this or other reasons, suffer a loss to the extent of the default. The Fund may
also purchase Rule 144A securities. See "Investment Limitations" below.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
The Fund will not enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand upon notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 15% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with the investment limitations described
below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by Fleet to be of good standing and only when, in Fleet's
judgment, the income to be earned from the loan justifies the attendant risks.
The Fund currently intends to limit the lending of its portfolio securities so
that, at any given time, securities loaned by the Fund represent not more than
one-third of the value of its total assets.
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INVESTMENT COMPANY SECURITIES
The Fund may invest in other investment companies primarily for the purpose
of investing its short-term cash which has not yet been invested in other
portfolio instruments. However, from time to time, on a temporary basis, the
Fund may invest exclusively in one other investment company similar to the Fund.
Investments in other investment companies will cause the Fund (and, indirectly,
the Fund's shareholders) to bear proportionately the costs incurred in
connection with the investment companies' operations. Except as provided above,
securities of other investment companies will be acquired by the Fund within the
limits prescribed by the Investment Company Act of 1940, as amended, (the "1940
Act"). The Fund currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Fund, other investment portfolios of Galaxy, or any
other investment companies advised by Fleet.
REITS
The Fund may invest up to 10% of its net assets in real estate investment
trusts ("REITs"). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of a REIT's
investments. In addition, equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, are not diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital. See
"Taxes."
OPTIONS AND FUTURES CONTRACTS
The Fund may buy and sell options and futures contracts to manage its
exposure to changing interest rates, security prices and currency exchange
rates. The Fund may invest in options and futures based on any type of security,
index or currency, including options and futures based on foreign exchanges and
options not traded on exchanges. Some options and futures strategies, including
selling futures, buying puts, and writing calls, tend to hedge the Fund's
investments against price fluctuations. Other strategies, including buying
futures, writing puts, and buying calls, tend to increase market exposure.
Options and
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futures may be combined with each other or with forward contracts in order to
adjust the risk and return characteristics of the overall strategy.
Options and futures can be volatile investments, and involve certain risks.
If Fleet applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures may lower the Fund's individual return. The
Fund could also experience losses if the prices of its options and futures
positions were poorly correlated with its other investments, or if it could not
close out its positions because of an illiquid secondary market. See the
Statement of Additional Information relating to the Fund for additional
information as to the Fund's policies on options and futures trading.
The Fund will not hedge more than 20% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. The Fund will
not buy futures or write puts whose underlying value exceeds 20% of its total
assets, and will not buy calls with a value exceeding 5% of its total assets.
STOCK INDEX FUTURES, SWAP AGREEMENTS, INDEXED SECURITIES AND OPTIONS
The Fund may utilize stock index futures contracts, options, swap
agreements, indexed securities, and options on futures contracts, subject to the
limitation that the value of these futures contracts, swap agreements, indexed
securities, and options will not exceed 20% of the Fund's total assets. The Fund
will not purchase options to the extent that more than 5% of the value of its
total assets would be invested in premiums on open put option positions. In
addition, the Fund does not intend to invest more than 5% of the market value of
its total assets in each of the following: futures contracts, swap agreements,
and indexed securities. When the Fund enters into a swap agreement, liquid
assets of the Fund equal to the value of the swap agreement will be segregated
by the Fund.
There are several risks accompanying the utilization of futures contracts.
Positions in futures contracts may be closed only on an exchange or board of
trade that furnishes a secondary market for such contracts. While the Fund plans
to utilize futures contracts only if there exists an active market for such
contracts, there is no guarantee that a liquid market will exist for the
contracts at a specified time. Furthermore, because by definition, futures
contracts look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements. This could result in a distortion of
the relationship between the index and the futures market. In addition, because
the futures market imposes less burdensome margin requirements than the
securities market, an increased amount of participation by speculators in the
futures market could result in price fluctuations.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
The Fund may invest in ADRs, EDRs and GDRs. ADRs are receipts issued in
registered form by a U.S. bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. GDRs are
receipts structured similarly to EDRs and are marketed globally. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter markets. GDRs are designed for trading in non-U.S. securities
markets. ADRs, EDRs and GDRs traded in the over-the-counter market which do not
have an active or substantial secondary market will be
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considered illiquid and therefore will be subject to the Fund's limitation with
respect to such securities. ADR prices are denominated in U.S. dollars although
the underlying securities are denominated in a foreign currency. Investments in
ADRs, EDRs and GDRs involve risks similar to those accompanying direct
investments in foreign securities. Certain of these risks are described above
under "Special Risk Considerations--Foreign Securities."
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Fund may buy and sell securities denominated in currencies other
than the U.S. dollar, and may receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Fund from time to time may enter into
foreign currency exchange transactions to convert the U.S. dollar to foreign
currencies, to convert foreign currencies to the U.S. dollar and to convert
foreign currencies to other foreign currencies. The Fund either enters into
these transactions on a spot (I.E. cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another--for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen--at a future
date and at a specified price. Typically, the other party to a currency exchange
contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, such
contracts are rolled over in a manner consistent with a more long-term currency
decision. Because there is a risk of loss to the Fund if the other party does
not complete the transaction, forward foreign currency exchange contracts will
be entered into only with parties approved by Galaxy's Board of Trustees.
The Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency--for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S.
dollars--at a future date and at a specified price in anticipation of a decline
in the value of the currency sold short relative to the currency that the Fund
has contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash or other liquid assets equal in value to the fluctuating market value of
the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the Statement of
Additional Information relating to the Fund for additional information regarding
foreign currency exchange transactions.
CONVERTIBLE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
invest in convertible securities. Convertible securities are fixed income
securities which may be exchanged or converted into a predetermined number of
shares of the issuer's underlying common stock at the option of the holder
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during a specified time period. Convertible securities in which the Fund may
invest may take the form of convertible preferred stock and convertible bonds or
debentures.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Convertible securities are senior to equity securities and
therefore have a claim to the assets of the issuer prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same issuer.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in Fleet's opinion,
the investment characteristics of the underlying common shares will assist the
Fund in achieving its investment objective. Otherwise, the Fund will hold or
trade the convertible securities. In selecting convertible securities for the
Fund, Fleet evaluates the investment characteristics of the convertible security
as a fixed income instrument, and the investment potential of the underlying
equity security for capital appreciation. In evaluating these matters with
respect to a particular convertible security, Fleet considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
purchase certain "derivative" securities. Derivative securities are instruments
that derive their value from the performance of underlying assets, interest or
currency exchange rates, or indices, and include, but are not limited to, put
and call options, stock index futures and options, indexed securities and swap
agreements, and foreign currency exchange contracts.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Fund will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Fund, and will determine, in connection with its day-to-day
management of the Fund, how such securities will be used in furtherance of the
Fund's investment objective. It is possible, however, that Fleet's evaluations
will prove to be inaccurate or incomplete and, even when accurate and complete,
it is possible that the Fund will, because of the risks discussed above, incur
loss as a result of its investments in derivative securities. See "Investment
Objectives and Policies--Derivative Securities" in the Statement of Additional
relating to the Fund for additional information.
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WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase eligible securities on a "when-issued" or "delayed
settlement" basis. When-issued transactions, which involve a commitment by the
Fund to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later), permit the Fund to
lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued and delayed settlement transactions involve
the risk, however, that the yield or price obtained in a transaction may be less
favorable than the yield or price available in the market when the securities
delivery takes place.
The Fund may dispose of a commitment prior to settlement if Fleet deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if Fleet
believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio rate of 100% or
more is considered high although the rate of turnover will not be a limiting
factor on making portfolio decisions. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expenses and other transaction
costs, which must be ultimately borne by the Fund's shareholders. High portfolio
turnover may result in the realization of substantial net capital gains;
distributions derived from such gains will be treated as ordinary income for
federal income tax purposes. See "Taxes--Federal." Although the Fund cannot
accurately predict its annual portfolio turnover rate, it is not expected to
exceed 100%.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information relating to the Fund under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) the Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 33% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase
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agreements in accordance with its investment policies and in amounts not in
excess of 33% of the value of its total assets at the time of such
borrowing); or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 33% of the value of the Fund's
total assets at the time of such borrowing. The Fund will not purchase
securities while borrowings (including reverse repurchase agreements) in
excess of 5% of its total assets are outstanding.
3. Invest more than 15% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other securities
which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of the Fund's
total assets would be invested in such issuer, except that up to 25% of the
value of its total assets may be invested without regard to this limitation.
In addition, the Fund may not purchase any securities which would cause 25%
or more of the value of its total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, the Fund intends to limit
any borrowings (including reverse repurchase agreements) to not more than 33% of
the value of its total assets at the time of such borrowing.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. The Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
15% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered to be
illiquid if Fleet has determined, in accordance with guidelines established by
the Board of Trustees, that an adequate trading market exists for such
securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). The net asset value per
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share is determined on each day on which the Exchange is open for trading.
Currently, the holidays which Galaxy observes are New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share for
purposes of pricing sales and redemptions is calculated separately for each
series of shares by dividing the value of all securities and other assets
attributable to a particular series of shares of the Fund, less the liabilities
attributable to the shares of that series of the Fund, by the number of
outstanding shares of that series of the Fund.
The assets in the Fund which are traded on a recognized stock exchange are
valued at the last sale price on the securities exchange on which such
securities are primarily traded or at the last sale price on the national
securities market. Securities quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by Fleet under the
supervision of Galaxy's Board of Trustees. An option is generally valued at the
last sale price or, in the absence of a last sale price, the last offer price.
Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except when an occurrence subsequent
to the time a value was so established is likely to have changed such value,
then the fair value of those securities will be determined through consideration
of other factors by or under the direction of the Board of Trustees. A security
which is listed or traded on more than one exchange is valued at the quotation
on the exchange determined to be the primary market for such security. For
valuation purposes, quotations of foreign securities in foreign currency are
converted to U.S. dollars equivalent at the prevailing market rate on the day of
valuation.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its
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Customers. Confirmations of purchases and redemptions of Trust Shares will be
sent to the appropriate Institution. Purchases of Trust Shares will be effected
only on days on which FD Distributors, Galaxy's custodian and the purchasing
Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that the Fund's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If an Institution accepts a purchase
order from its Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Fund and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts (including defined contribution plans). Investors should contact their
Institution (in the case of employer-sponsored defined contribution plans, their
employer) for further information concerning the types of eligible Customer
accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirements with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by their customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Funds may also be available for purchase through
different types of retirement plans offered by an Institution to its Customers.
Information pertaining to such plans is available directly from the Institution.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or
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otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day. Payment for redemption
orders received by FD Distributors on a Business Day will normally be wired on
the following Business Day to the Institution. Payment for redemption orders
received on a non-Business Day will normally be wired to the Institution on the
next Business Day. However, in both cases Galaxy reserves the right to wire
redemption proceeds within seven days after receiving the redemption order if,
in its judgment, an earlier payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. The Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon sixty days
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared and paid
quarterly. Dividends on each share of the Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, (the "Code"). Such qualification
generally relieves the Fund of liability for federal income taxes to the extent
the Fund's earnings are distributed in accordance with the Code.
The policy of the Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional Trust Shares.
(Federal income taxes for distributions to an IRA or a qualified retirement plan
are deferred under the Code.) Such ordinary income distributions will qualify
for the dividends received deduction for corporations to the extent of the total
qualifying dividends received by the Fund from domestic corporations for the
taxable year.
Distribution by the Fund of "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, of the
Fund, is taxable to shareholders as long-term capital gain, regardless of how
long the shareholder has held shares and whether such gains are received in cash
or reinvested in additional Trust Shares. Such long-term capital gain will
constitute 20% or 28% rate gain, depending upon
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the Fund's holding period for the assets the sale of which generated the gain.
Such distributions are not eligible for the dividends received deduction.
The dividends received deduction is not available for dividends attributable
to distributions made by a REIT to the Fund. In addition, distributions paid by
REITs often include a "return of capital." The Code requires a REIT to
distribute at least 95% of its taxable income to investors. In many cases,
however, because of "non-cash" expenses such as property depreciation, an equity
REIT's cash flow will exceed its taxable income. The REIT may distribute this
excess cash to offer a more competitive yield. This portion of the distribution
is deemed a return of capital and is generally not taxable to shareholders.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying shares of the Fund on or just before the
record date of a dividend or capital gain distribution, you should be aware that
the amount of the forthcoming distribution payment, although in effect a return
of capital, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients and
manages the other investment portfolios of Galaxy: the Money Market, Government,
U.S. Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Institutional Government Money Market, Equity Value,
Equity Growth, Equity
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Income, International Equity, Asset Allocation, Small Company Equity, MidCap
Equity, Small Cap Value, Growth and Income, Short-Term Bond, Intermediate
Government Income, High Quality Bond, Corporate Bond, Tax-Exempt Bond, New
Jersey Municipal Bond, New York Municipal Bond, Connecticut Municipal Bond,
Massachusetts Municipal Bond Fund and Rhode Island Municipal Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Fund,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of .75% of the average daily net assets of the Fund.
Fleet may from time to time, in its discretion, waive all or a portion of
the advisory fees payable by the Fund in order to help maintain a competitive
expense ratio and may from time to time allocate a portion of its advisory fees
to Fleet Bank or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders.
The Fund's portfolio manager, Peter B. Hathaway, is primarily responsible
for the day-to-day management of the Fund's portfolio. Mr. Hathaway, a Vice
President, has been associated with Fleet since 1995. Prior to joining Fleet, he
was with Shawmut Investment Advisors and its predecessors as an institutional
fund manager. He has over 30 years of investment experience.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission ("SEC"), financial
institutions that are affiliated with Fleet or that have sold shares of the
Funds, if Fleet believes that the quality of the transaction and the commission
are comparable to what they would be with other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which agree to provide shareholder support services that are banks
or bank affiliates are subject to such banking laws and regulations. Should
legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Fund,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Fund's method of operation would not
affect the Fund's net asset value per share or result in financial loss to any
shareholder.
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ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For services provided to the Fund, Investor Services Group
is entitled to receive administration fees, computed daily and paid monthly, at
the annual rate of .09% of the first $2.5 billion of the combined average daily
net assets of the Fund and the other portfolios offered by Galaxy (collectively,
the "Portfolios"), .085% of the next $2.5 billion of combined average daily net
assets and .075% of combined average daily net assets over $5 billion. In
addition, Investor Services Group also receives a separate annual fee from each
Portfolio for certain fund accounting services. From time to time, Investor
Services Group may waive voluntarily all or a portion of the administration fee
payable to it by the Fund.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in the Fund: Class AA - Series 1 shares (Trust
Shares), Class AA - Series 2 shares (Retail A Shares) and Class AA - Series 3
shares (Retail B Shares), each series representing interests in the Fund. The
Fund is classified as a diversified company under the 1940 Act. The Board of
Trustees has also authorized the issuance of additional classes and series of
shares representing interests in other portfolios of Galaxy. For information
regarding the Fund's Retail Shares and these other portfolios, which are offered
through separate prospectuses, contact FD Distributors at 1-800-628-0414.
Trust Shares, Retail A Shares and Retail B Shares in the Fund bear their pro
rata portion of all operating expenses paid by the Fund except as follows.
Holders of the Fund's Retail A Shares bear the fees that are paid to
Institutions under Galaxy's Shareholder Services Plan described below and
holders of the Fund's Retail B Shares bear the fees described in the prospectus
for such Shares that are paid under Galaxy's Distribution and Services Plan at
an annual rate of up to .95% of the average daily net asset value of the Fund's
outstanding Retail B Shares. Currently, these payments are not made with respect
to the Fund's Trust Shares. In addition, Trust Shares, Retail A Shares and
Retail B Shares in the Fund bear differing transfer agency expenses.
Standardized yield and total return quotations are computed separately for each
series of shares. The differences in the expenses paid by the respective series
will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end sales charge
of 3.75%. Retail B Shares of the Fund are sold with a maximum contingent
deferred sales charge of 5.0% and automatically convert to Retail A Shares of
the Fund six years after the date of purchase. Retail A Shares and Retail B
Shares have certain exchange and other privileges which are not available with
respect to Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class, and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to such investment portfolio as are declared in the discretion of
Galaxy's Board of Trustees.
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Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.50% of the average daily net asset value of the Fund's outstanding Retail A
Shares beneficially owned by customers. Institutions may receive up to one-half
of this fees for providing one or more of the following services to such
Customers: aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with FD Distributors; processing
dividend payments from the Fund; providing sub-accounting with respect to Retail
A Shares or the information necessary for sub-accounting; and providing periodic
mailings to Customers. Institutions may also receive up to one-half of this fee
for providing one or more of these additional services to such Customers:
providing Customers with information as to their positions in Retail A Shares;
responding to Customer inquiries; and providing a service to invest the assets
of Customers in Retail A Shares. These services are described more fully in the
Statement of Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including: maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in
19
<PAGE>
each sub-account; crediting to each participant's sub-account all dividends and
distributions with respect to that sub-account; and transmitting to each
participant a periodic statement regarding the sub-account as well as any proxy
materials, reports and other material Fund communications. Such entities are
compensated by Investor Services Group for the Sub-Account Services and in
connection therewith the transfer agency fees payable by Trust Shares of the
Fund to Investor Services Group have been increased by an amount equal to these
fees. In substance, therefore, the holders of Trust Shares of the Fund
indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as custodian of the Fund's assets. Chase Manhattan
may employ sub-custodians for the Fund for the purpose of providing custodial
services for the Fund's foreign assets held outside the United States. First
Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-owned
subsidiary of First Data Corporation, serves as the Fund's transfer and dividend
disbursing agent. Services performed by these entities for the Fund are
described in the Statement of Additional Information. Communications to Investor
Services Group should be directed to Investor Services Group at P.O. Box 5108,
4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Fund. Galaxy bears
the expenses incurred in the Fund's operations. Such expenses include: taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, Rule 12b-1 distribution, fund accounting and custody fees; charges of
the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholder reports and meetings; and any extraordinary expenses. The
Fund also pays for brokerage fees and commissions in connection with the
purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds, the S&P 500, an unmanaged index of groups of common
stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES or publications of a local or
20
<PAGE>
regional nature may also be used in comparing the performance of the Fund.
Performance data will be calculated separately for Trust Shares, Retail A Shares
and Retail B Shares of the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and analyzing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividends and capital gain distributions made by the Fund during the period
are reinvested in Fund shares.
The performance of the Fund will fluctuate and any quotation of performance
should not be considered as representative of the future performance of the
Fund. Since yields fluctuate, yield data cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Trust Shares of the Fund will not be
included in performance calculations.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of the Fund or (b) 67% or more of
the shares of the Fund present at a meeting if more than 50% of the outstanding
shares of the Fund are represented at the meeting in person or by proxy.
21
<PAGE>
GALAXY
STRATEGIC EQUITY
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-
<PAGE>
TRUST
THE GALAXY FUND
EQUITY VALUE FUND
EQUITY GROWTH FUND
EQUITY INCOME FUND
INTERNATIONAL EQUITY FUND
SMALL COMPANY EQUITY FUND
ASSET ALLOCATION FUND
SMALL CAP VALUE FUND
GROWTH AND INCOME FUND
STRATEGIC EQUITY FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENTS OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR BY FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY....................................................... 3
FINANCIAL HIGHLIGHTS.................................................. 5
INVESTMENT OBJECTIVES AND POLICIES.................................... 15
Equity Value Fund................................................... 15
Equity Growth Fund.................................................. 16
Equity Income Fund.................................................. 16
International Equity Fund........................................... 17
Small Company Equity Fund........................................... 18
Asset Allocation Fund............................................... 19
Small Cap Value Fund................................................ 20
Growth and Income Fund.............................................. 20
Strategic Equity Fund............................................... 21
Special Risk Considerations......................................... 22
Other Investment Policies and Risk Considerations................... 23
INVESTMENT LIMITATIONS................................................ 34
PRICING OF SHARES..................................................... 36
HOW TO PURCHASE AND REDEEM SHARES..................................... 37
<CAPTION>
PAGE
----
<S> <C>
Distributor......................................................... 37
Purchase of Shares.................................................. 37
Redemption of Shares................................................ 38
DIVIDENDS AND DISTRIBUTIONS........................................... 39
TAXES................................................................. 39
Federal............................................................. 39
State and Local..................................................... 40
MANAGEMENT OF THE FUNDS............................................... 41
Investment Adviser and Sub-Adviser.................................. 41
Authority to Act as Investment Adviser.............................. 43
Administrator....................................................... 44
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 44
Shareholder Services Plan........................................... 45
Agreements for Sub-Account Services................................. 46
CUSTODIAN AND TRANSFER AGENT.......................................... 46
EXPENSES.............................................................. 47
PERFORMANCE REPORTING................................................. 47
MISCELLANEOUS......................................................... 48
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance, call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes nine series of Galaxy's shares (collectively, the
"Trust Shares") which represent interests in nine separate diversified
investment portfolios (individually, a "Fund," collectively, the "Funds")
offered to investors by Galaxy, each having its own investment objective and
policies:
The EQUITY VALUE FUND'S investment objective is to seek long-term capital
appreciation. Income is secondary to the objective of capital appreciation. The
Fund attempts to achieve this objective by investing, under normal market and
economic conditions, at least 75% of its total assets in common stock, preferred
stock and debt securities convertible into common stock that the Fund's
investment adviser believes are undervalued and exhibit acceptable levels of
risk.
The EQUITY GROWTH FUND'S investment objective is to seek long-term capital
appreciation. The Fund attempts to achieve this objective by investing, under
normal market and economic conditions, at least 75% of its total assets in
common stock, preferred stock, common stock warrants and securities convertible
into common stock of companies that the Fund's investment adviser believes have
above-average earnings potential.
The EQUITY INCOME FUND'S investment objective is to seek current income and
capital appreciation. The Fund attempts to achieve this objective by investing,
under normal market and economic conditions, at least 75% of its total assets in
common stock and securities convertible into common stock that offer income
potential.
The INTERNATIONAL EQUITY FUND'S investment objective is to seek long-term
capital appreciation. The Fund attempts to achieve this objective by investing,
under normal market and economic conditions, at least 75% of its total assets in
equity securities of foreign issuers.
The SMALL COMPANY EQUITY FUND'S investment objective is to seek capital
appreciation. The Fund attempts to achieve this objective by investing primarily
in the securities of companies with capitalizations of $750 million or less that
the Fund's investment adviser believes represent the potential for significant
capital appreciation. Under normal market and economic conditions, the Fund will
invest at least 65% of its assets in the equity securities of companies with
capitalizations of $750 million or less.
The ASSET ALLOCATION FUND'S investment objective is to seek a high total
return by providing both a current level of income that is greater than that
produced by the popular stock market averages as well as long-term growth in the
value of the Fund's assets. Due to the Fund's expenses, however, net income
distributed to shareholders may be less than that of the averages. The Fund
attempts to achieve this objective and at the same time reduce volatility by
allocating its assets in varying amounts among short-term obligations, common
stocks, preferred stocks and bonds.
The SMALL CAP VALUE FUND'S investment objective is to provide long-term
capital appreciation. The Fund attempts to achieve this objective by investing,
under normal market and economic conditions, at least 65% of its total assets in
equity securities of companies that have a market value capitalization of up to
$1 billion.
The GROWTH AND INCOME FUND'S investment objective is to provide a relatively
high total return through long-term capital appreciation and current income. The
Fund attempts to achieve this objective by investing primarily in common stocks
of companies believed to have prospects for above-average growth and dividends
or of companies where significant fundamental changes are taking place. Under
normal market and economic conditions, the Fund will invest at least 65% of its
total assets in common stocks, preferred stocks, common stock warrants and
securities convertible into common stock.
The STRATEGIC EQUITY FUND'S investment objective is to seek long-term
capital appreciation. The Fund attempts to achieve this objective by investing
primarily in the securities of companies that the Fund's investment adviser
believes are reasonably priced and offer favorable return potential relative to
other securities. Under normal market and economic conditions, the Fund will
invest at least 65% of its total assets in equity securities, including common
stocks, preferred stocks, securities convertible into common stock, rights and
warrants.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
This Prospectus describes the Trust Shares in each Fund. Trust Shares are
offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue an additional series of shares, Retail A
Shares, in each of the Equity Income Fund, International Equity Fund and Small
Cap Value Fund and two additional series of shares, Retail A Shares and Retail B
Shares, in each of the Equity Value Fund, Equity Growth Fund, Small Company
Equity Fund, Asset Allocation Fund, Growth and Income Fund and Strategic Equity
Fund (Retail A Shares and Retail B Shares are referred to herein collectively as
"Retail Shares"). Retail Shares are offered under a separate prospectus
primarily to individuals, corporations or other entities, purchasing either for
their own accounts or for the accounts of others and to FIS Securities, Inc.,
Fleet Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises,
Inc., Fleet Financial Group, Inc., its affiliates, their correspondent banks and
other qualified banks, savings and loans associations and broker/dealers on
behalf of their customers. Trust Shares, Retail A Shares and Retail B Shares in
a Fund represent equal pro rata interests in the Fund, except they bear
different expenses that reflect the difference in the range of services provided
to them. See "Financial Highlights," "Management of the Funds" and "Description
of Galaxy and Its Shares" herein.
Each of the Funds is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates. Oechsle International Advisors, L.P. serves as the sub-adviser to
the International Equity Fund.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Funds, contained in the Statements of Additional Information relating to the
Funds and bearing
the same date, has been filed with the Securities and Exchange Commission. The
current Statements of Additional Information are available upon request without
charge by contacting Galaxy at its telephone number or address shown above. The
Statements of Additional Information, as they may be amended from time to time,
are incorporated by reference in their entireties into this Prospectus.
------------------------
FEBRUARY 28, 1998
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by each Fund with respect to its Trust Shares, and (ii) the operating
expenses for Trust Shares of each Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
SMALL
EQUITY EQUITY COMPANY
VALUE EQUITY GROWTH INCOME INTERNATIONAL EQUITY
FUND FUND FUND EQUITY FUND FUND
------ ---------------- ---------- -------------- --------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
- ----------------------------------------
Sales Load.............................. None None None None None
Sales Load on Reinvested Dividends...... None None None None None
Deferred Sales Load..................... None None None None None
Redemption Fees......................... None None None None None
Exchange Fees........................... None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------
Advisory Fees (After Fee Waivers)....... .75% .75% .75% .66% .75%
12b-1 Fees.............................. None None None None None
Other Expenses.......................... .31% .25% .27% .47% .41%
------ ----- ----- ----- --------
Total Fund Operating Expenses (After Fee
Waivers).............................. 1.06% 1.00% 1.02% 1.13% 1.16%
------ ----- ----- ----- --------
------ ----- ----- ----- --------
</TABLE>
<TABLE>
<CAPTION>
ASSET GROWTH AND
ALLOCATION SMALL CAP VALUE INCOME STRATEGIC
FUND FUND FUND EQUITY FUND
------ ---------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
- ----------------------------------------
Sales Load.............................. None None None None
Sales Load on Reinvested Dividends...... None None None None
Deferred Sales Load..................... None None None None
Redemption Fees......................... None None None None
Exchange Fees........................... None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------
Advisory Fees (After Fee Waivers)....... .75% .75% .75% .55%
12b-1 Fees.............................. None None None None
Other Expenses.......................... .47% .25% .32% .80%
------ ----- ----- -----
Total Fund Operating Expenses (After Fee
Waivers).............................. 1.22% 1.00% 1.07% 1.35%
------ ----- ----- -----
------ ----- ----- -----
</TABLE>
3
<PAGE>
- ---------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Value Fund....................... $11 $33 $57 $127
Equity Growth Fund...................... $10 $31 $54 $120
Equity Income Fund...................... $10 $32 $55 $122
International Equity Fund............... $11 $35 $61 $135
Small Company Equity Fund............... $12 $36 $63 $138
Asset Allocation Fund................... $12 $38 $66 $145
Small Cap Value Fund.................... $10 $31 $54 $120
Growth and Income Fund.................. $11 $33 $58 $128
Strategic Equity Fund................... $14 $42 N/A N/A
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Funds will bear
directly or indirectly. The information contained in the Expense Summary and
Example with respect to the Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity, Asset Allocation, Small Cap Value
and Growth and Income Funds is based on expenses incurred by each Fund during
the last fiscal year, restated to reflect the expenses which each Fund expects
to incur during the current fiscal year on its Trust Shares. The information
contained in the Expense Summary and Example with respect to the Strategic
Equity Fund is based on expenses which the Fund expects to incur during the
current fiscal year on its Trust Shares. Without voluntary fee waivers by Fleet,
Advisory Fees would be .91% and .75% and Total Operating Expenses would be 1.38%
and 1.55% for Trust Shares of the International Equity Fund and the Strategic
Equity Fund, respectively. Fleet is under no obligation to waive fees and/or
reimburse expenses but has advised Galaxy that it intends to waive fees and/or
reimburse expenses during the current year to the extent necessary to maintain
the Funds' operating expenses at the levels set forth in the above table. For
more complete descriptions of these costs and expenses, see "Management of the
Funds" and "Description of Galaxy and Its Shares" in this Prospectus and the
financial statements and notes incorporated by reference into the Statements of
Additional Information relating to the Funds. Any fees that are charged by
affiliates of Fleet or other institutions directly to their customer accounts
for services related to an investment in Trust Shares of the Funds are in
addition to and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
4
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Trust Shares in each Fund. Galaxy is also
authorized to issue an additional series of Shares, Retail A Shares, in each of
the Equity Income Fund, International Equity Fund and Small Cap Value Fund, and
two additional series of shares, Retail A Shares and Retail B Shares, in each of
the Equity Value Fund, Equity Growth Fund, Small Company Equity Fund, Asset
Allocation Fund, Growth and Income Fund and Strategic Equity Fund. As described
below under "Description of Galaxy and Its Shares," Trust Shares, Retail A
Shares and Retail B Shares represent equal pro rata interests in a Fund, except
that (i) effective October 1, 1994, Retail A Shares of a Fund bear the expenses
incurred under Galaxy's Shareholder Services Plan at an annual rate of up to
.30% of the average daily net asset value of the Fund's outstanding Retail A
Shares, (ii) Retail B Shares of a Fund bear the expenses incurred under Galaxy's
Distribution and Services Plan for Retail B Shares at an annual rate of up to
.95% of the average daily net asset value of the Fund's outstanding Retail B
Shares, and (iii) Trust Shares, Retail A Shares and Retail B Shares bear
differing transfer agency expenses.
The financial highlights presented below for the Equity Value, Equity
Growth, Equity Income, International Equity, Small Company Equity and Asset
Allocation Funds have been audited by Coopers & Lybrand L.L.P., Galaxy's
independent accountants, whose report is contained in Galaxy's Annual Report to
Shareholders relating to the Funds dated October 31, 1997 (the "Annual Report").
Such financial highlights should be read in conjunction with the financial
statements and notes thereto contained in the Annual Report and incorporated by
reference into the Statement of Additional Information relating to these Funds.
Information in the financial highlights presented below with respect to these
Funds for periods prior to the fiscal year ended October 31, 1994 reflect the
investment results of both Trust Shares and Retail A Shares of the Funds (Retail
A Shares of the Equity Value and Equity Growth Funds were first offered during
the fiscal year/period ended October 31, 1991, and Retail A Shares of the Equity
Income Fund were first offered during the fiscal year ended October 31, 1992).
As of the date of this Prospectus, the Strategic Equity Fund had not commenced
operations. More information about the performance of the Funds is also
contained in the Annual Report, which may be obtained without charge by
contacting Galaxy at its telephone number or address provided above.
5
<PAGE>
EQUITY VALUE FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------- PERIOD
ENDED
1997 1996 1995 1994 YEAR ENDED OCTOBER 31,(2) OCTOBER
----------------------------------------- ---------------------------------------------------- 31,
TRUST SHARES 1993 1992 1991 1990 1989 1988(1,2)
----------------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period............. $ 15.96 $ 14.33 $ 13.32 $ 13.12 $ 11.41 $ 11.52 $ 9.45 $ 11.51 $ 10.41 $ 10.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
Investment
Operations:
Net investment
income(3,4)...... 0.17 0.21 0.28 0.19 0.19 0.26 0.37 0.39 0.36 0.03
Net realized and
unrealized gain
(loss) on
investments...... 4.16 2.74 2.24 0.45 2.14 0.33 2.41 (1.37) 1.10 0.38
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
Investment
Operations:.... 4.33 2.95 2.52 0.64 2.33 0.59 2.78 (0.98) 1.46 0.41
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Dividends:
Dividends from net
investment
income........... (0.18) (0.21) (0.30) (0.16) (0.20) (0.27) (0.37) (0.38) (0.36) --
Dividends from net
realized capital
gains............ (1.90) (1.11) (1.21) (0.28) (0.42) (0.43) (0.34) (0.70) -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
Dividends:..... (2.08) (1.32) (1.51) (0.44) (0.62) (0.70) (0.71) (1.08) (0.36) --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net increase
(decrease) in net
asset value........ 2.25 1.63 1.01 0.20 1.71 (0.11) 2.07 (2.06) 1.10 0.41
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End
of Period.......... $ 18.21 $ 15.96 $ 14.33 $ 13.32 $ 13.12 $ 11.41 $ 11.52 $ 9.45 $ 11.51 $ 10.41
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Return........ 29.87% 22.05% 21.31% 5.05% 21.18% 5.66% 30.45% (9.43)% 14.19% 4.10%(5)
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's)... $241,532 $194,827 $165,330 $154,403 $176,107 $133,578 $ 99,601 $ 92,893 $ 92,366 $75,774
Ratios to average
net assets:
Net investment
income including
reimbursement/
waiver........... 0.98% 1.42% 2.10% 1.46% 1.52% 2.24% 3.25% 3.66% 3.25% 1.89%(6)
Operating expenses
including
reimbursement/
waiver........... 1.04% 1.03% 1.02% 1.06% 0.97% 0.94% 0.94% 0.95% 0.97% 0.95%(6)
Operating expenses
excluding
reimbursement/
waiver........... 1.04% 1.03% 1.02% 1.06% 0.97% 0.94% 0.94% 0.95% 0.98% 0.95%(6)
Portfolio Turnover
Rate............... 111% 116% 76% 71% 50% 136% 40% 94% 44% 4%(5)
Average Commission
Rate Paid(7)....... $ 0.0601 $ 0.0605 N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- ---------
(1) The Fund commenced operations on September 1, 1988.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
reflect the financial results of both Trust and Retail Shares. On September
7, 1995, Retail Shares of the Fund were redesignated "Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Trust Shares for the years ended
October 31, 1997, 1996, 1995 and 1994 was $0.17, $0.21, $0.28 and $0.19,
respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1993,
1992, 1991, 1990 and 1989 and for the period ended October 31, 1988 was
$0.19, $0.26, $0.37, $0.39, $0.36 and $0.03, respectively.
(5) Not Annualized.
(6) Annualized.
(7) Required for fiscal years beginning on or after September 1, 1995.
6
<PAGE>
EQUITY GROWTH FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------
YEAR ENDED
1997 1996 1995 1994 OCTOBER 31,(2) PERIOD ENDED
----------------------------------------- ----------------------- OCTOBER 31,
TRUST SHARES 1993 1992 1991(1,2)
----------------------------------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 20.39 $ 17.30 $ 14.19 $ 13.76 $ 12.90 $ 11.99 $ 10.00
-------- -------- -------- -------- ---------- ---------- ------------
Income from Investment Operations:
Net investment income(3,4)............ 0.16 0.17 0.20 0.18 0.15 0.17 0.16
Net realized and unrealized gain
(loss) on investments................ 6.06 3.40 3.28 0.47 0.95 0.91 1.97
-------- -------- -------- -------- ---------- ---------- ------------
Total from Investment Operations:... 6.22 3.57 3.48 0.65 1.10 1.08 2.13
-------- -------- -------- -------- ---------- ---------- ------------
Less Dividends:
Dividends from net investment income.. (0.16) (0.18) (0.20) (0.16) (0.15) (0.17) (0.14)
Dividends from net realized capital
gains................................ (1.28) (0.30) (0.17) (0.06) (0.09) -- --
-------- -------- -------- -------- ---------- ---------- ------------
Total Dividends:.................... (1.44) (0.48) (0.37) (0.22) (0.24) (0.17) (0.14)
-------- -------- -------- -------- ---------- ---------- ------------
Net increase (decrease) in net asset
value.................................. 4.78 3.09 3.11 0.43 0.86 0.91 1.99
-------- -------- -------- -------- ---------- ---------- ------------
Net Asset Value, End of Period.......... $ 25.17 $ 20.39 $ 17.30 $ 14.19 $ 13.76 $ 12.90 $ 11.99
-------- -------- -------- -------- ---------- ---------- ------------
-------- -------- -------- -------- ---------- ---------- ------------
Total Return............................ 32.16% 21.03% 25.08% 4.80% 8.58% 9.10% 21.39%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $745,537 $562,419 $420,016 $362,094 $427,298 $224,630 $92,224
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 0.72% 0.92% 1.31% 1.27% 1.20% 1.37% 1.46%(6)
Operating expenses including
reimbursement/waiver................. 0.95% 0.98% 1.00% 0.93% 0.97% 0.95% 0.83%(6)
Operating expenses excluding
reimbursement/waiver................. 0.95% 0.98% 1.00% 0.93% 0.97% 0.95% 0.83%(6)
Portfolio Turnover Rate................. 66% 36% 14% 18% 16% 22% 16%(5)
Average Commission Rate Paid(7)......... $ 0.0601 $ 0.0615 N/A N/A N/A N/A N/A
</TABLE>
- ---------
(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Trust and Retail
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Trust Shares for the years ended
October 31, 1997, 1996, 1995 and 1994 was $0.16, $0.17, $0.20 and $0.18,
respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1993
and 1992 and for the period ended October 31, 1991 was $0.15, $0.17 and
$0.16, respectively.
(5) Not Annualized.
(6) Annualized.
(7) Required for fiscal years beginning on or after September 1, 1995.
7
<PAGE>
EQUITY INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------
YEAR ENDED
1997 1996 1995 1994 OCTOBER 31,(2) PERIOD ENDED
----------------------------------------- ----------------------- OCTOBER 31,
TRUST SHARES 1993 1992 1991(1,2)
----------------------------------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 16.93 $ 14.99 $ 12.75 $ 12.85 $ 11.85 $ 11.29 $ 10.00
-------- -------- -------- -------- ---------- ---------- ------
Income from Investment Operations:
Net investment income(3,4)............ 0.38 0.37 0.36 0.31 0.30 0.30 0.29
Net realized and unrealized gain
(loss) on investments................ 3.35 2.48 2.45 0.07 1.09 0.76 1.26
-------- -------- -------- -------- ---------- ---------- ------
Total from Investment Operations:... 3.73 2.85 2.81 0.38 1.39 1.06 1.55
-------- -------- -------- -------- ---------- ---------- ------
Less Dividends:
Dividends from net investment
income............................... (0.38) (0.37) (0.36) (0.29) (0.28) (0.30) (0.26)
Dividends from net realized capital
gains................................ (1.44) (0.54) (0.21) (0.19) (0.11) (0.20) --
-------- -------- -------- -------- ---------- ---------- ------
Total Dividends:.................... (1.82) (0.91) (0.57) (0.48) (0.39) (0.50) (0.26)
-------- -------- -------- -------- ---------- ---------- ------
Net increase (decrease) in net asset
value.................................. 1.91 1.94 2.24 (0.10) 1.00 0.56 1.29
-------- -------- -------- -------- ---------- ---------- ------
Net Asset Value, End of Period.......... $ 18.84 $ 16.93 $ 14.99 $ 12.75 $ 12.85 $ 11.85 $ 11.29
-------- -------- -------- -------- ---------- ---------- ------
-------- -------- -------- -------- ---------- ---------- ------
Total Return............................ 23.80% 19.65% 22.81% 3.02% 11.85% 9.71% 15.61%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $119,505 $106,094 $ 87,819 $ 78,880 $123,970 $ 21,778 $ 7,096
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 2.14% 2.32% 2.60% 2.49% 2.34% 2.84% 2.72%(6)
Operating expenses including
reimbursement/waiver................. 0.95% 0.94% 0.98% 1.07% 1.16% 1.03% 0.85%(6)
Operating expenses excluding
reimbursement/waiver................. 0.97% 0.94% 1.00% 1.07% 1.22% 1.54% 1.39%(6)
Portfolio Turnover Rate................. 37% 45% 21% 31% 27% 18% 77%(5)
Average Commission Rate Paid(7)......... $ 0.0598 $ 0.0620 N/A N/A N/A N/A N/A
</TABLE>
- ---------
(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Trust and Retail
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Trust Shares for the years ended
October 31, 1997, 1996, 1995 and 1994 was $0.38, $0.37, $0.36 and $0.31,
respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1993
and 1992 and for the period ended October 31, 1991 was $0.29, $0.25 and
$0.23, respectively.
(5) Not Annualized.
(6) Annualized.
(7) Required for fiscal years beginning on or after September 1, 1995.
8
<PAGE>
INTERNATIONAL EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------
1997 1996 1995 1994 YEAR ENDED PERIOD ENDED
----------------------------------------- OCTOBER 31, OCTOBER 31,
TRUST SHARES 1993(2) 1992(1,2)
----------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 14.01 $ 12.98 $ 13.20 $ 12.13 $ 9.66 $ 10.00
-------- -------- -------- -------- ------------ ------------
Income from Investment Operations:
Net investment income(3,4)............ 0.08 0.17 0.16 0.06 0.02 0.06
Net realized and unrealized gain
(loss) on investments................ 2.12 1.30 (0.18) 1.02 2.51 (0.40)
-------- -------- -------- -------- ------------ ------------
Total from Investment Operations:... 2.20 1.47 (0.02) 1.08 2.53 (0.34)
-------- -------- -------- -------- ------------ ------------
Less Dividends:
Dividends from net investment
income............................... (0.20) (0.20) (0.04) (0.01) (0.06) --
Dividends from net realized capital
gains................................ (0.68) (0.24) (0.16) -- -- --
-------- -------- -------- -------- ------------ ------------
Total Dividends:.................... (0.88) (0.44) (0.20) (0.01) (0.06) --
-------- -------- -------- -------- ------------ ------------
Net increase (decrease) in net asset
value.................................. 1.32 1.03 (0.22) 1.07 2.47 (0.34)
-------- -------- -------- -------- ------------ ------------
Net Asset Value, End of Period.......... $ 15.33 $ 14.01 $ 12.98 $ 13.20 $ 12.13 $ 9.66
-------- -------- -------- -------- ------------ ------------
-------- -------- -------- -------- ------------ ------------
Total Return............................ 16.60% 11.51% (0.02)% 8.91% 26.36% (3.40)%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $265,124 $172,561 $ 89,614 $ 82,350 $39,246 $12,584
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 0.57% 1.40% 1.36% 0.74% 0.37% 1.19%(6)
Operating expenses including
reimbursement/ waiver................ 1.06% 1.08% 1.22% 1.43% 1.57% 1.61%(6)
Operating expenses excluding
reimbursement/ waiver................ 1.32% 1.36% 1.48% 1.72% 2.04% 2.79%(6)
Portfolio Turnover Rate................. 45% 146% 48% 39% 29% 21%(5)
Average Commission Rate Paid(7)......... $ 0.0214 $ 0.0381 N/A N/A N/A N/A
</TABLE>
- ---------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Trust and Retail
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Trust Shares for the years ended
October 31, 1997, 1996, 1995 and 1994 was $0.04, $0.13, $0.13 and $0.04,
respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the year ended October 31, 1993
and for the period ended October 31, 1992 was $0.00 and $0.00,
respectively.
(5) Not Annualized.
(6) Annualized.
(7) Required for fiscal years beginning on or after September 1, 1995.
9
<PAGE>
SMALL COMPANY EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------
1997 1996 1995 1994 YEAR ENDED PERIOD ENDED
----------------------------------------- OCTOBER 31, OCTOBER 31,
TRUST SHARES 1993(2) 1992(1,2)
----------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 20.20 $ 16.38 $ 12.36 $ 12.41 $ 8.79 $ 10.00
-------- -------- -------- -------- ------------ ------------
Income from Investment Operations:
Net investment income (loss)(3,4)..... (0.11) (0.09) (0.04) -- (0.04) (0.03)
Net realized and unrealized gain
(loss) on investments................ 3.61 4.08 4.25 -- 3.66 (1.18)
-------- -------- -------- -------- ------------ ------------
Total from Investment Operations:... 3.50 3.99 4.21 -- 3.62 (1.21)
-------- -------- -------- -------- ------------ ------------
Less Dividends:
Dividends from net investment
income............................... -- -- -- -- -- --
Dividends from net realized capital
gains................................ (2.38) (0.17) (0.19) (0.05) -- --
-------- -------- -------- -------- ------------ ------------
Total Dividends:.................... (2.38) (0.17) (0.19) (0.05) -- --
-------- -------- -------- -------- ------------ ------------
Net increase (decrease) in net asset
value.................................. 1.12 3.82 4.02 (0.05) 3.62 (1.21)
-------- -------- -------- -------- ------------ ------------
Net Asset Value, End of Period.......... $ 21.32 $ 20.20 $ 16.38 $ 12.36 $ 12.41 $ 8.79
-------- -------- -------- -------- ------------ ------------
-------- -------- -------- -------- ------------ ------------
Total Return............................ 19.59% 24.69% 34.73% 0.02% 41.18% (12.10)%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $310,751 $174,990 $ 94,831 $ 66,462 $55,683 $29,072
Ratios to average net assets:
Net investment income (loss) including
reimbursement/waiver................. (0.65)% (0.60)% (0.37)% (0.35)% (0.66)% (0.63)%(6)
Operating expenses including
reimbursement/ waiver................ 1.09% 1.14% 1.12% 1.27% 1.18% 1.06%(6)
Operating expenses excluding
reimbursement/ waiver................ 1.12% 1.14% 1.12% 1.27% 1.22% 1.33%(6)
Portfolio Turnover Rate................. 69% 82% 54% 35% 57% 87%(5)
Average Commission Rate Paid(7)......... $ 0.0576 $ 0.0531 N/A N/A N/A N/A
</TABLE>
- ---------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Trust and Retail
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income (loss) per share before reimbursement/waiver of fees
by Fleet and/or the Fund's administrator for Trust Shares for the years
ended October 31, 1997, 1996, 1995 and 1994 was $(0.11), $(0.09), $(0.04),
and $0.00, respectively.
(4) Net investment income (loss) per share before reimbursement/waiver of fees
by Fleet and/or the Fund's administrator for the year ended October 31,
1993 and for the period ended October 31, 1992 was $(0.04) and $(0.05),
respectively.
(5) Not Annualized.
(6) Annualized.
(7) Required for fiscal years beginning on or after September 1, 1995.
10
<PAGE>
ASSET ALLOCATION FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------
1997 1996 1995 1994 YEAR ENDED PERIOD ENDED
----------------------------------------- OCTOBER 31, OCTOBER 31,
TRUST SHARES 1993(2) 1992(1,2)
----------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 14.53 $ 12.83 $ 10.68 $ 11.15 $ 10.16 $ 10.00
-------- -------- -------- -------- ------------ ------------
Income from Investment Operations:
Net investment income(3,4)............ 0.43 0.33 0.32 0.28 0.25 0.15
Net realized and unrealized gain
(loss) on investments................ 2.42 1.83 2.16 (0.49) 0.99 0.13
-------- -------- -------- -------- ------------ ------------
Total from Investment Operations:... 2.85 2.16 2.48 (0.21) 1.24 0.28
-------- -------- -------- -------- ------------ ------------
Less Dividends:
Dividends from net investment
income............................... (0.40) (0.33) (0.33) (0.26) (0.25) (0.12)
Dividends from net realized capital
gains................................ (0.51) (0.13) -- -- -- --
-------- -------- -------- -------- ------------ ------------
Total Dividends:.................... (0.91) (0.46) (0.33) (0.26) (0.25) (0.12)
-------- -------- -------- -------- ------------ ------------
Net increase (decrease) in net asset
value.................................. 1.94 1.70 2.15 (0.47) 0.99 0.16
-------- -------- -------- -------- ------------ ------------
Net Asset Value, End of Period.......... $ 16.47 $ 14.53 $ 12.83 $ 10.68 $ 11.15 $ 10.16
-------- -------- -------- -------- ------------ ------------
-------- -------- -------- -------- ------------ ------------
Total Return............................ 20.42% 17.19% 23.68% (1.93)% 12.37% 2.85%(5)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $171,741 $123,603 $ 76,771 $ 65,464 $92,348 $11,555
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 2.82% 2.52% 2.74% 2.70% 2.59% 2.80%(6)
Operating expenses including
reimbursement/ waiver................ 1.21% 1.19% 1.26% 1.18% 1.14% 1.11%(6)
Operating expenses excluding
reimbursement/ waiver................ 1.22% 1.21% 1.30% 1.18% 1.25% 2.39%(6)
Portfolio Turnover Rate................. 58% 48% 41% 23% 7% 2%(5)
Average Commission Rate Paid(7)......... $ 0.0609 $ 0.0635 N/A N/A N/A N/A
</TABLE>
- ---------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Trust and Retail
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Trust Shares for the years ended
October 31, 1997, 1996, 1995 and 1994 was $0.43, $0.33, $0.32 and $0.28,
respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the year ended October 31, 1993
and for the period ended October 31, 1992 was $0.24 and $0.08,
respectively.
(5) Not Annualized.
(6) Annualized.
(7) Required for fiscal years beginning on or after September 1, 1995.
11
<PAGE>
The Small Cap Value Fund and Growth and Income Fund commenced operations on
December 14, 1992 as separate investment portfolios (the "Predecessor Small Cap
Value Fund" and the "Predecessor Growth and Income Fund," respectively, and
collectively, the "Predecessor Funds") of The Shawmut Funds, which was organized
as a Massachusetts business trust. On December 4, 1995, the Predecessor Funds
were reorganized as new portfolios of Galaxy. Prior to the reorganization, the
Predecessor Funds offered and sold two series of shares of beneficial interest
that were similar to the Funds' Trust Shares and Retail A Shares, respectively.
The financial highlights presented below set forth certain information
concerning (i) the investment results of the Small Cap Value and Growth and
Income Funds' Trust Shares for the fiscal years ended October 31, 1997 and
October 31, 1996 and (ii) the investment results of the Predecessor Funds' Trust
Shares (the series that is similar to the Trust Shares of the Small Cap Value
and Growth and Income Funds) for the fiscal years ended October 31, 1995 and
October 31, 1994 and the fiscal period ended October 31, 1993. The information
about the Small Cap Value and Growth and Income Funds for the fiscal years ended
October 31, 1997 and October 31, 1996 has been audited by Coopers & Lybrand
L.L.P., Galaxy's independent accountants, whose report is contained in Galaxy's
Annual Report to Shareholders relating to the Funds dated October 31, 1997 (the
"Annual Report"). The information about the Predecessor Small Cap Value and
Predecessor Growth and Income Funds for the fiscal years ended October 31, 1995
and October 31, 1994 and the fiscal period ended October 31, 1993 was audited by
other auditors. The financial highlights should be read in conjunction with the
financial statements and notes thereto contained in the Annual Report and
incorporated by reference into the Statement of Additional Information relating
to these Funds. More information about the performance of the Funds is contained
in the Annual Report which may be obtained without charge by contacting Galaxy
at its telephone number or address provided above.
12
<PAGE>
SMALL CAP VALUE FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, PERIOD ENDED
----------------------------------------- OCTOBER 31,
1997 1996(2) 1995 1994 1993(1)
-------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 14.76 $ 12.71 $ 11.07 $ 11.21 $ 10.00
-------- -------- -------- -------- ------------
Income from Investment Operations:
Net investment income(3,4,5,6)........ 0.01(10) 0.05 0.01 0.02 --
Net realized and unrealized
gain/(loss) on investments........... 5.74 2.97 2.21 0.17 1.21
-------- -------- -------- -------- ------------
Total from Investment Operations:... 5.75 3.02 2.22 0.19 1.21
-------- -------- -------- -------- ------------
Less Dividends:
Dividends from net investment
income(3)............................ -- (0.05) (0.01) (0.01) --
Dividends in excess of net investment
income............................... -- (0.01) -- -- --
Dividends from net realized capital
gains................................ (2.14) (0.91) (0.57) (0.32) --
-------- -------- -------- -------- ------------
Total Dividends(3).................. (2.14) (0.97) (0.58) (0.33) --
-------- -------- -------- -------- ------------
Net increase (decrease) in net asset
value.................................. 3.61 2.05 1.64 (0.14) 1.21
-------- -------- -------- -------- ------------
Net Asset Value, End of Period.......... $ 18.37 $ 14.76 $ 12.71 $ 11.07 $ 11.21
-------- -------- -------- -------- ------------
-------- -------- -------- -------- ------------
Total Return............................ 44.08% 25.22% 21.52% 1.86% 12.12%(8)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $189,257 $137,341 $121,364 $101,905 $100,382
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 0.09% 0.45% 0.07% 0.15% 0.02%(7)
Operating expenses including
reimbursement/waiver................. 0.96% 1.05% 1.10% 1.06% 1.01%(7)
Operating expenses excluding
reimbursement/waiver................. 0.96% 1.06% 1.35% 1.34% 1.29%(7)
Portfolio Turnover Rate................. 52% 39% 32% 29% 29%(8)
Average Commission Rate Paid(9)......... $ 0.0577 $ 0.0559 N/A N/A N/A
</TABLE>
- ---------
(1) The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds.
(2) On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy. Prior to the reorganization, the Predecessor Fund
offered and sold two series of shares, Investment Shares and Trust Shares,
that were similar to the Fund's Retail A and Trust Shares, respectively. In
connection with the reorganization, shareholders of the Predecessor Fund
exchanged Investment Shares and Trust Shares for Retail A Shares and Trust
Shares, respectively, in the Fund.
(3) Represents less than $0.01 per share for the year 1993.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1997
and 1996 was $0.05 and $0.05, respectively.
(5) Net investment income (loss) per share before reimbursement/waiver of fees
by other parties for the years ended October 31, 1995 and 1994 and for the
period ended October 31, 1993 was $(0.03), $(0.01) and $0.00, respectively
(unaudited).
(6) Net investment income per share does not reflect the tax reclassifications
arising in the current period.
(7) Annualized.
(8) Not Annualized.
(9) Required for fiscal years beginning on or after September 1, 1995.
(10) The selected per share data was calculated using the weighted average
shares outstanding method for the year.
13
<PAGE>
GROWTH AND INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, PERIOD ENDED
----------------------------------------- OCTOBER 31,
1997 1996(2) 1995 1994 1993(1)
-------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 13.80 $ 12.35 $ 11.15 $ 10.69 $ 10.00
-------- -------- -------- -------- ------------
Income from Investment Operations:
Net investment income(3,4,5).......... 0.22 0.27 0.28 0.25 0.18
Net realized and unrealized
gain/(loss) on investments........... 3.68 2.16 1.69 0.72 0.69
-------- -------- -------- -------- ------------
Total from Investment Operations:... 3.90 2.43 1.97 0.97 0.87
-------- -------- -------- -------- ------------
Less Dividends:
Dividends from net investment
income............................... (0.23) (0.25) (0.28) (0.23) (0.18)
Dividend from net realized capital
gains................................ (1.19) (0.73) (0.49) (0.28) --
-------- -------- -------- -------- ------------
Total Dividends..................... (1.42) (0.98) (0.77) (0.51) (0.18)
-------- -------- -------- -------- ------------
Net increase (decrease) in net asset
value.................................. 2.48 1.45 1.20 0.46 0.69
-------- -------- -------- -------- ------------
Net Asset Value, End of Period.......... $ 16.28 $ 13.80 $ 12.35 $ 11.15 $ 10.69
-------- -------- -------- -------- ------------
-------- -------- -------- -------- ------------
Total Return............................ 30.43% 20.77% 18.80% 9.45% 8.80%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $246,654 $186,708 $189,011 $156,827 $147,090
Ratios to average net assets:
Net investment income including
reimbursement/waiver................. 1.44% 2.01% 2.42% 2.31% 2.11%(6)
Operating expenses including
reimbursement/waiver................. 1.03% 1.02% 1.07% 1.04% 0.98%(6)
Operating expenses excluding
reimbursement/waiver................. 1.06% 1.03% 1.27% 1.24% 1.25%(6)
Portfolio Turnover Rate................. 93% 59% 51% 73% 38%(7)
Average Commission Rate Paid(8)......... $ 0.0618 $ 0.0654 N/A N/A N/A
</TABLE>
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(1) The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds.
(2) On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy. Prior to the reorganization, the Predecessor Fund
offered and sold two series of shares, Investment Shares and Trust Shares,
that were similar to the Fund's Retail A and Trust Shares, respectively. In
connection with the reorganization, shareholders of the Predecessor Fund
exchanged Investment Shares and Trust Shares for Retail A Shares and Trust
Shares, respectively, in the Fund.
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for the years ended October 31, 1997
and 1996 was $0.21 and $0.27, respectively.
(4) Net investment income per share before reimbursement/waiver of fees by
other parties for the years ended October 31, 1995 and 1994 and for the
period ended October 31, 1993 was $0.25, $0.22 and $0.15, respectively
(unaudited).
(5) Net investment income per share does not reflect the tax reclassifications
arising in the current period.
(6) Annualized.
(7) Not Annualized
(8) Required for fiscal years beginning on or after September 1, 1995.
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<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Fleet Investment Advisors Inc. ("Fleet"), the Funds' investment adviser and,
with respect to the International Equity Fund, Oechsle International Advisors,
L.P. ("Oechsle"), the Fund's sub-adviser, will use their best efforts to achieve
each Fund's investment objective, although such achievement cannot be assured.
The investment objective of a Fund may not be changed without the approval of
the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Except as noted below under "Investment Limitations," a Fund's
investment policies may be changed without shareholder approval. An investor
should not consider an investment in the Funds to be a complete investment
program.
EQUITY VALUE FUND
The investment objective of the Equity Value Fund is to seek long-term
capital appreciation. Income is secondary to the objective of capital
appreciation. The Fund attempts to achieve its investment objective by investing
primarily in common stock, preferred stock (including convertible preferred
stock) and debt obligations convertible into common stock that Fleet believes to
be undervalued, as measured by various financial tests, including one or more of
the following: cash flow, return on equity, return on assets, fixed charge
coverage and ratios of market capitalization to revenues. In addition, Fleet
considers the current value of an issuer's fixed assets (including real estate),
cash items, net working capital, indebtedness and historical book value. Stocks
which appear to be undervalued are also reviewed to determine whether
unacceptable risks account for their loss valuation. The Fund also seeks to
purchase stock with a projected price-earnings ratio below that of the Standard
& Poor's 500 Composite Stock Price Index (the "S&P 500").
Under normal market and economic conditions, the Fund invests at least 75%
of its total assets in common stock, preferred stock and debt securities
convertible into common stock that Fleet believes to be undervalued. Debt
securities convertible into common stock are purchased primarily during periods
of relative market instability and are acquired principally for income with the
potential for appreciation being a secondary consideration. Equity investments
consist primarily of common stock of companies having capitalizations that
exceed $100 million. Stocks of such companies generally are listed on a national
exchange or are unlisted securities with an established over-the-counter market.
The Fund may hold other types of securities in such proportions as, in the
opinion of Fleet, existing market and economic conditions may warrant, including
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and other high quality "money market" instruments. The Fund
may also hold cash pending investment, during temporary defensive periods or if,
in the opinion of Fleet, suitable stock or convertible debt securities are
unavailable.
The Fund may also invest up to 20% of its total assets in foreign
securities, either directly or indirectly through American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"). In addition, the Fund may
invest in securities issued by foreign branches of U.S. banks and foreign banks.
See "Special Risk Considerations--Foreign Securities" and "Other Investment
Policies and Risk Considerations--American, European and Global Depository
Receipts" below. The Fund may also write covered call options. See "Other
Investment Policies and Risk Considerations--Options and Futures Contracts" and
"Other Investment Policies and Risk Considerations--Derivative Securities"
below. See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Equity Value Fund.
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<PAGE>
EQUITY GROWTH FUND
The Equity Growth Fund's investment objective is to seek long-term capital
appreciation. The Fund attempts to achieve its investment objective by
investing, under normal market and economic conditions, at least 75% of its
total assets in a broadly diversified portfolio of equity securities such as
common stock, preferred stock, common stock warrants and securities convertible
into common stock of companies that Fleet believes will increase future earnings
to a level above the average earnings of similar issuers. Such companies often
retain their earnings to finance current and future growth and, for this reason,
generally pay little or no dividends. Equity securities in which the Fund
invests are selected based on analysis of trends in industries and companies,
earning power, growth features, quality and depth of management, marketing and
manufacturing skills, financial conditions and other investment criteria. By
investing in convertible securities, the Fund will seek the opportunity, through
the conversion feature, to participate in the capital appreciation of the common
stock into which the securities are convertible. See "Other Investment Policies
and Risk Considerations--Convertible Securities" below.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through the purchase of ADRs and EDRs. In
addition, the Fund may invest in securities issued by foreign branches of U.S.
banks and foreign banks. See "Special Risk Considerations--Foreign Securities"
and "Other Investment Policies and Risk Considerations--American, European and
Global Depository Receipts" below. The Fund may also purchase put options and
call options and write covered call options. See "Other Investment Policies and
Risk Considerations--Options and Futures Contracts" and "Other Investment
Policies and Risk Considerations--Derivative Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of Fleet, prevailing market or
economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Equity Growth Fund.
EQUITY INCOME FUND
The Equity Income Fund's investment objective is to seek current income and
capital appreciation. The Fund attempts to achieve its investment objective by
investing, under normal market and economic conditions, at least 75% of its
total assets in common stock and securities convertible into common stock that
offer income potential. Factors generally considered in selecting portfolio
securities include current income and prospects for dividend growth and capital
appreciation. However, the Fund's portfolio can be expected to include
securities that offer only growth potential or only income potential, as well as
securities that combine both these elements.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through the purchase of ADRs and EDRs. In
addition, the Fund may invest in securities issued by foreign branches of U.S.
banks and foreign banks. See "Special Risk Considerations--Foreign Securities"
and "Other Investment Policies and Risk Considerations--American, European and
Global Depository Receipts" below. The Fund may also purchase put options and
call options and write covered call options. See "Other Investment Policies and
Risk Considerations--Options and Futures Contracts" and "Other Investment
Policies and Risk Considerations--Derivative Securities" below.
16
<PAGE>
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of Fleet, prevailing market or
economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Equity Income Fund.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to seek long-term
capital appreciation. The Fund attempts to achieve its investment objective by
investing at least 75% of its total assets in equity securities of foreign
issuers. The Fund's assets will be invested at all times in the securities of
issuers located in at least three different foreign countries. Although the Fund
may earn income from dividends, interest and other sources, current income will
not be its primary consideration. The Fund emphasizes established companies,
although it may invest in companies of varying sizes as measured by assets,
sales and capitalization.
The Fund may invest in securities of issuers located in a variety of
different foreign regions and countries, including, but not limited to,
Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany,
Greece, Hong Kong, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, Thailand and the United Kingdom. More than 25% of the Fund's total
assets may be invested in the securities of issuers located in the same country.
Investment in a particular country of 25% or more of the Fund's total assets
will make the Fund's performance more dependent upon the political and economic
circumstances of a particular country than a mutual fund that is more widely
diversified among issuers in different countries. Criteria for determining the
appropriate distribution of investments among various countries and regions
include prospects for relative economic growth, expected levels of inflation,
government policies influencing business conditions, the outlook for currency
relationships, and the range of investment opportunities available to
international investors. Under normal market and economic conditions, no more
than 20% of the Fund's net assets will be invested in the aggregate in the
securities of issuers located in countries with emerging economies or emerging
securities markets.
The Fund invests in common stock and may invest in other securities with
equity characteristics, consisting of trust or limited partnership interests,
preferred stock, rights and warrants. The Fund may also invest in convertible
securities, consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock.
See "Other Investment Policies and Risk Considerations--Convertible Securities"
below. The Fund invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets,
and may invest in unlisted securities.
Securities issued in certain countries are currently accessible to the Fund
only through investment in other investment companies that are specifically
authorized to invest in such securities. The limitations on the Fund's
investment in other investment companies are described below under "Other
Investment Policies and Risk Considerations--Investment Company Securities."
During temporary defensive periods in response to unusual and adverse
conditions affecting the equity markets, or to meet anticipated day-to-day
operating expenses, the Fund's assets may be invested in short-term debt
instruments. In addition, when the Fund experiences large cash inflows from the
issuance of new shares or the sale of portfolio securities, and desirable equity
securities that are consistent with the
17
<PAGE>
Fund's investment objective are unavailable in sufficient quantities, the Fund
may hold short-term investments for a limited time pending availability of
suitable equity securities. The short-term debt instruments in which the Fund
may invest may be denominated in foreign currencies or U.S. dollars, and include
foreign and domestic: (i) short-term debt securities, including short-term
obligations of national governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) commercial paper, including master
notes; (iii) bank obligations, including negotiable certificates of deposit,
time deposits, bankers' acceptances, and Euro-currency instruments and
securities; and (iv) repurchase agreements.
Subject to applicable securities regulations, the Fund may, for the purpose
of hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indexes listed on foreign and domestic stock exchanges. In addition, the
Fund may invest up to 100% of its total assets in securities of foreign issuers
in the form of ADRs, EDRs or Global Depository Receipts ("GDRs") as described
under "Other Investment Policies and Risk Considerations." Furthermore, the Fund
may purchase and sell securities on a when-issued basis. For temporary defensive
purposes, the Fund may also invest a major portion of its assets in securities
of U.S. issuers. See "Other Investment Policies and Risk Considerations" below
regarding additional investment policies of the International Equity Fund.
SMALL COMPANY EQUITY FUND
The Small Company Equity Fund's investment objective is to seek capital
appreciation. The Fund attempts to achieve its investment objective by investing
primarily in the securities of companies with capitalizations of $750 million or
less ("Small Capitalization Securities") which Fleet believes represent the
potential for significant capital appreciation.
Small Capitalization Securities in which the Fund may invest include common
stock, preferred stock, securities convertible into common stock, rights and
warrants. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in the equity securities of companies with
capitalizations of $750 million or less. For temporary defensive purposes, the
Fund may also invest in corporate debt obligations.
The issuers of Small Capitalization Securities tend to be companies which
are smaller or newer than those listed on the New York or American Stock
Exchanges. As a result, Small Capitalization Securities are primarily traded on
the over-the-counter market, although they may also be listed for trading on the
New York or American Stock Exchanges. Because the issuers of Small
Capitalization Securities tend to be smaller or less well-established companies,
they may have limited product lines, markets or financial resources. As a
result, Small Capitalization Securities are often less marketable and may
experience a higher level of price volatility than the securities of larger or
more well-established companies.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through ADRs and EDRs. See "Special Risk
Considerations--Foreign Securities" and "Other Investment Policies and Risk
Considerations--American, European and Global Depository Receipts" below.
The Fund may purchase put options and call options and write covered call
options as a hedge against changes resulting from market conditions and in the
value of the securities held in the Fund or which it intends to purchase and
where the transactions are economically appropriate for the reduction of risks
18
<PAGE>
inherent in the ongoing management of the Fund. See "Other Investment Policies
and Risk Considerations--Options and Futures Contracts" and "Other Investment
Policies and Risk Considerations-- Derivative Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of Fleet, prevailing market or
economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Small Company Equity Fund.
ASSET ALLOCATION FUND
The investment objective of the Asset Allocation Fund is to seek a high
total return by providing both a current level of income that is greater than
that provided by the popular stock market averages as well as long-term growth
in the value of the Fund's assets. Fleet interprets the objective to refer to
the Dow Jones Industrial Average (of 30 companies listed on the New York Stock
Exchange) and the S&P 500. Due to the Fund's expenses, net income distributed to
shareholders may be less than that of these averages.
The Fund attempts to achieve its investment objective and at the same time
reduce volatility by allocating its assets among short-term obligations, common
stock, preferred stock and bonds. The proportion of the Fund's assets invested
in each type of security will vary from time to time as a result of Fleet's
interpretation of economic and market conditions. However, at least 25% of the
Fund's total assets will at all times be invested in fixed-income senior
securities, including debt securities and preferred stocks. In selecting common
stock for purchase by the Fund, Fleet will analyze the potential for changes in
earnings and dividends for a foreseeable period.
The Fund may also invest up to 20% of its total assets in foreign
securities. Such foreign investments may be made directly, by purchasing
securities issued or guaranteed by foreign corporations, banks or governments
(or their political subdivisions or instrumentalities) or by supranational banks
or other organizations, or indirectly, by purchasing ADRs and EDRs. Examples of
supranational banks include the International Bank for Reconstruction and
Development ("World Bank"), the Asian Development Bank and the InterAmerican
Development Bank. Obligations of supranational banks may be supported by
appropriated but unpaid commitments of their member countries and there is no
assurance that those commitments will be undertaken or met in the future. See
"Special Risk Considerations--Foreign Securities" and "Other Investment Policies
and Risk Considerations--American, European and Global Depository Receipts"
below. The Fund may also invest in dollar-denominated high quality debt
obligations of U.S. corporations issued outside the United States. The Fund may
purchase put options and call options and write covered call options, purchase
asset-backed securities and mortgage-backed securities and enter into foreign
currency exchange transactions. See "Other Investment Policies and Risk
Considerations" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of Fleet, prevailing market and
economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Asset Allocation Fund.
19
<PAGE>
SMALL CAP VALUE FUND
The Small Cap Value Fund's investment objective is to provide long-term
capital appreciation. The Fund attempts to achieve its investment objective by
investing, under normal market and economic conditions, at least 65% of its
assets in equity securities of companies that have a market value capitalization
of up to $1 billion.
Small capitalization stocks have historically been more volatile in price
than larger capitalization stocks, such as those included in the S&P 500. This
is because, among other things, smaller companies have a lower degree of
liquidity in the equity market and tend to have a greater sensitivity to
changing economic conditions. Further, in addition to exhibiting greater
volatility, these stocks may, to some degree, fluctuate independently of the
stocks of large companies. That is, the stock of small capitalization companies
may decline in price as the prices of large company stocks rise or vice versa.
Therefore, investors should expect that the Fund will be more volatile than, and
may fluctuate independently of, broad stock market indices such as the S&P 500.
The Fund may purchase convertible securities, including convertible
preferred stock, convertible bonds or debentures, units consisting of "usable"
bonds and warrants or a combination of the features of several of these
securities. See "Other Investment Policies and Risk Considerations--Convertible
Securities" below. The Fund may also buy and sell options and futures contracts
and utilize stock index futures contracts, options, swap agreements, indexed
securities, and options on futures contracts. See "Other Investment Policies and
Risk Considerations--Options and Futures Contracts," "Other Investment Policies
and Risk Considerations--Stock Index Futures, Swap Agreements, Indexed
Securities and Options" and "Other Investment Policies and Risk
Considerations--Derivative Securities" below.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of ADRs, EDRs and GDRs. Securities of a
foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Fund will not invest in the
securities of a foreign issuer if any such risk appears to Fleet to be
substantial. See "Special Risk Considerations--Foreign Securities" and "Other
Investment Policies and Risk Considerations--American, European and Global
Depository Receipts" below.
As a temporary defensive measure, in such proportions as, in the judgment of
Fleet, prevailing market conditions warrant, the Fund may invest in: (i)
short-term money market instruments (such as those listed below under "Other
Investment Policies and Risk Considerations"); (ii) securities issued and/or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies, or instrumentalities; and (iii) repurchase agreements. Additional
information about the types of money market instruments and U.S. Government
obligations in which the Small Cap Value Fund is permitted to invest is
contained in the Statement of Additional Information relating to the Fund. See
"Other Investment Policies and Risk Considerations" below for information
regarding additional investment policies of the Small Cap Value Fund.
GROWTH AND INCOME FUND
The Growth and Income Fund's investment objective is to provide a relatively
high total return through long-term capital appreciation and current income. The
Fund attempts to achieve this objective by investing primarily in common stocks
of companies with prospects for above-average growth and dividends or of
companies where significant fundamental changes are taking place. Under normal
market conditions,
20
<PAGE>
the Fund will invest at least 65% of its assets in common stocks, preferred
stocks, common stock warrants and securities convertible into common stock.
The Fund invests primarily in growth-oriented equity securities.
Growth-oriented stocks may include issuers with smaller capitalizations. See
"Small Company Equity Fund" and "Small Cap Value Fund" above for a description
of the risks associated with investments in small capitalization stocks.
Investors should expect that the Fund will be more volatile than, and may
fluctuate independently of, broad stock market indices such as the S&P 500.
The Fund may purchase convertible securities, including convertible
preferred stock, convertible bonds or debentures, units consisting of "usable"
bonds and warrants or a combination of the features of several of these
securities. See "Other Investment Policies and Risk Considerations--Convertible
Securities" below. The Fund may also buy and sell options and futures contracts
and utilize stock index futures contracts, options, swap agreements, indexed
securities, and options on futures contracts. See "Other Investment Policies and
Risk Considerations--Options and Futures Contracts," "Other Investment Policies
and Risk Considerations--Stock Index Futures, Swap Agreements, Indexed
Securities and Options" and "Other Investment Policies and Risk
Considerations--Derivative Securities" below.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of ADRs, EDRs and GDRs. Securities of a
foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Fund will not invest in the
securities of foreign issuers if any such risk appears to Fleet to be
substantial. See "Special Risk Considerations--Foreign Securities" and "Other
Investment Policies and Risk Considerations--American, European and Global
Depository Receipts" below.
As a temporary defensive measure, in such proportions as, in the judgment of
Fleet, prevailing market conditions warrant, the Fund may invest in: (i)
short-term money market instruments (such as those listed below under "Other
Investment Policies"); (ii) securities issued and/or guaranteed as to payment of
principal and interest by the U.S. Government, its agencies, or
instrumentalities; and (iii) repurchase agreements. Additional information about
the types of money market instruments and U.S. Government obligations in which
the Fund is permitted to invest is contained in the Statement of Additional
Information relating to the Fund. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Growth and Income Fund.
STRATEGIC EQUITY FUND
The investment objective of the Strategic Equity Fund is to seek long-term
capital appreciation. The Fund attempts to achieve its investment objective by
investing primarily in the securities of companies that Fleet believes are
reasonably priced and offer favorable return potential relative to other
securities. In selecting investments for the Fund, Fleet uses a fundamental
analysis which focuses on intermediate and long-term return forecasts for a
broad universe of between 300 and 400 large and mid-capitalization stocks. Under
normal market and economic conditions, the Fund will invest at least 65% of its
total assets in equity securities, including common stocks, preferred stocks,
securities convertible into common stock, rights and warrants.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through ADRs, EDRs and GDRs. See "Special Risk
Considerations--Foreign Securities" and "Other
21
<PAGE>
Investment Policies and Risk Considerations--American, European and Global
Depository Receipts" below.
The Fund may also buy and sell options and futures contracts and utilize
stock index futures contracts, options, swap agreements, indexed securities and
options on futures contracts. See "Other Investment Policies and Risk
Considerations--Options and Futures Contracts", "Other Investment Policies and
Risk Considerations--Stock Index Futures, Swap Agreements, Indexed Securities
and Options" and "Other Investment Policies and Risk Considerations--Derivative
Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and in U.S. Government obligations at
such times and in such proportions as, in the opinion of Fleet, prevailing
market and economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Strategic Equity Fund.
SPECIAL RISK CONSIDERATIONS
MARKET RISK
Each Fund invests primarily (or with respect to the Asset Allocation Fund,
to a significant degree) in equity securities. As with other mutual funds that
invest primarily or to a significant degree in equity securities, the Funds are
subject to market risks. That is, the possibility exists that common stocks will
decline over short or even extended periods of time and both the U.S. and
certain foreign equity markets tend to be cyclical, experiencing both periods
when stock prices generally increase and periods when stock prices generally
decrease.
INTEREST RATE RISK
To the extent that the Funds invest in fixed income securities, their
holdings of such securities are sensitive to changes in interest rates and the
interest rate environment. Generally, the prices of bonds and other debt
securities fluctuate inversely with interest rate changes.
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs, as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although each of the Funds may invest in securities denominated in foreign
currencies, each Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of a Fund's shares may fluctuate with U.S. dollar
exchange rates as well as with price changes of the Fund's securities in the
various local markets and currencies. Thus, an increase in the value of the U.S.
dollar compared to the currencies in which a Fund makes its investments could
reduce the effect of increases and magnify the effect of decreases in the price
of a Fund's securities in their local markets. Conversely, a decrease in the
value of the U.S. dollar will have the opposite effect of magnifying the effect
of increases and reducing the
22
<PAGE>
effect of decreases in the prices of a Fund's securities in their local markets.
In addition to favorable and unfavorable currency exchange-rate developments,
the Funds are subject to the possible imposition of exchange control regulations
or freezes on convertibility of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in countries with emerging economies or
emerging securities markets. The risks of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which one or
more of the Funds have the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
RATINGS
All debt obligations, including convertible bonds, purchased by the Equity
Value, Equity Growth, Equity Income, Small Company Equity, Asset Allocation and
Strategic Equity Funds are rated investment grade by Moody's Investors Service,
Inc. ("Moody's") ("Aaa," "Aa," "A" and "Baa") or Standard & Poor's Ratings Group
("S&P") ("AAA," "AA," "A" and "BBB"), or, if not rated, are determined to be of
comparable quality by Fleet. Debt securities rated "Baa" by Moody's or "BBB" by
S&P are generally considered to be investment grade securities although they may
have speculative characteristics and changes in economic conditions or
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case for higher rated debt obligations.
The International Equity Fund may only purchase debt securities rated "A" or
higher by Moody's or S&P, or if unrated, determined by Fleet or Oechsle to be of
comparable quality. Issuers of commercial paper, bank obligations or repurchase
agreements in which the International Equity Fund invests must have, at the time
of investment, outstanding debt rated A or higher by Moody's or S&P, or, if they
are not rated, the instrument purchased must be determined to be of comparable
quality.
The Small Cap Value and Growth and Income Funds may purchase convertible
bonds rated "Ba" or higher by Moody's or "BB" or higher by S&P or Fitch IBCA,
Inc. ("Fitch IBCA") at the time of investment. See "Other Investment Policies
and Risk Considerations--Convertible Securities" below for a discussion of the
risks of investing in convertible bonds rated either "Ba" or "BB". Short-term
money market instruments purchased by the Small Cap Value and Growth and Income
Funds must be rated in one of the top two rating categories by a nationally
recognized statistical rating agency, such as Moody's, S&P or Fitch IBCA.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Funds may, in accordance with their respective investment policies,
invest from time to time in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and in other "money market"
instruments, including bank obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years;
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and Treasury Bonds generally have initial maturities of more than ten years.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the Government National Mortgage Association, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. With respect to each Fund other than the Small Cap Value and Growth
and Income Funds, bank obligations also include U.S. dollar-denominated
obligations of foreign branches of U.S. banks or of U.S. branches of foreign
banks, all of the same type as domestic bank obligations. Investments in bank
obligations are limited to the obligations of financial institutions having more
than $1 billion in total assets at the time of purchase. Time deposits with a
maturity longer than seven days or that do not provide for payment within seven
days after notice will be limited to 10% (15% with respect to the Small Cap
Value Fund, Growth and Income Fund and Strategic Equity Fund) of a Fund's net
assets.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject a Fund to additional risk because such
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Such investments may also subject
a Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations--Foreign Securities." A
Fund will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet and/or Oechsle believe that the credit
risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a Fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default. The Funds may also purchase Rule 144A securities. See "Investment
Limitations" below.
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REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet and/or Oechsle under guidelines approved by Galaxy's Board
of Trustees. No Fund will enter into repurchase agreements with Fleet or Oechsle
or any of their affiliates. Unless a repurchase agreement has a remaining
maturity of seven days or less or may be terminated on demand upon notice of
seven days or less, the repurchase agreement will be considered an illiquid
security and will be subject to the 10% limit (15% with respect to the Strategic
Equity Fund) described below in Investment Limitation No. 3 under "Investment
Limitations" with respect to the Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity, Asset Allocation, and Strategic
Equity Funds, and to the 15% limit described below in Investment Limitation No.
7 under "Investment Limitations" with respect to the Small Cap Value and Growth
and Income Funds.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
Each Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. A Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement. Additional information regarding the Small Cap Value and
Growth and Income Funds' policies with respect to reverse repurchase agreements
is contained in the applicable Statement of Additional Information.
SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions such
as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term (except in the case of
the Small Cap Value and Growth and Income Funds which may loan their securities
on a long-term or short-term basis or both), will be made only to borrowers
deemed by Fleet and/or Oechsle to be of good standing and only when, in Fleet's
and/or Oechsle's judgment, the income to be earned from the loan justifies the
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attendant risks. The Funds currently intend to limit the lending of their
portfolio securities so that, at any given time, securities loaned by a Fund
represent not more than one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity and Asset Allocation Funds may invest in securities issued by
other investment companies which invest in high quality, short-term debt
securities and which determine their net asset value per share based on the
amortized cost or penny-rounding method. The International Equity Fund may also
purchase shares of investment companies investing primarily in foreign
securities, including so-called "country funds." Country funds have portfolios
consisting exclusively of securities of issuers located in one foreign country.
The Small Cap Value, Growth and Income and Strategic Equity Funds may invest in
other investment companies primarily for the purpose of investing their
short-term cash which has not yet been invested in other portfolio instruments.
However, from time to time, on a temporary basis, the Small Cap Value, Growth
and Income and Strategic Equity Funds may invest exclusively in one other
investment company similar to the respective Funds. Investments in other
investment companies will cause a Fund (and, indirectly, the Fund's
shareholders) to bear proportionately the costs incurred in connection with the
investment companies' operations. Except as provided above with respect to the
Small Cap Value, Growth and Income and Strategic Equity Funds, securities of
other investment companies will be acquired by a Fund within the limits
prescribed by the Investment Company Act of 1940, as amended, (the "1940 Act").
Each Fund currently intends to limit its investments so that, as determined
immediately after a securities purchase is made: (a) not more than 5% of the
value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Fund, other investment portfolios of Galaxy, or any
other investment companies advised by Fleet or Oechsle.
REITS
Each Fund may invest up to 10% of its net assets in real estate investment
trusts ("REITs"). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of a REIT's
investments. In addition, equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, are not diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. Each Fund intends
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to include the gross dividends from any investments in REITs in its periodic
distributions to its shareholders and, accordingly, a portion of the Fund's
distributions may also be designated as a return of capital. See "Taxes."
OPTIONS AND FUTURES CONTRACTS
PUT AND CALL OPTIONS--EQUITY GROWTH, EQUITY INCOME, SMALL COMPANY EQUITY AND
ASSET ALLOCATION FUNDS. The Equity Growth, Equity Income, Small Company Equity
and Asset Allocation Funds may purchase put options and call options on
securities and securities indices. A put option gives the buyer the right to
sell, and the writer the obligation to buy, the underlying security at the
stated exercise price at any time prior to the expiration of the option. A call
option gives the buyer the right to buy the underlying security at the stated
exercise price at any time prior to the expiration of the option. Options
involving securities indices provide the holder with the right to make or
receive a cash settlement upon exercise of the option based on movements in the
relevant index. Such options must be listed on a national securities exchange
and issued by the Options Clearing Corporation. The aggregate value of options
purchased by the Equity Growth, Equity Income, Small Company Equity and Asset
Allocation Funds may not exceed 5% of the value of their respective net assets.
COVERED CALL OPTIONS--EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME,
INTERNATIONAL EQUITY, SMALL COMPANY EQUITY AND ASSET ALLOCATION FUNDS. To
further increase return on their portfolio securities, in accordance with their
investment objectives and policies, the Equity Value, Equity Growth, Equity
Income, International Equity, Small Company Equity and Asset Allocation Funds
may engage in writing covered call options (options on securities owned by a
Fund) and may enter into closing purchase transactions with respect to such
options. Such options must be listed on a national securities exchange and
issued by the Options Clearing Corporation. The aggregate value of the
securities subject to options written by the Equity Value, Equity Growth, Equity
Income, International Equity, Small Company Equity and Asset Allocation Funds
may not exceed 25% of the value of their respective net assets. By writing a
covered call option, a Fund forgoes the opportunity to profit from an increase
in the market price of the underlying security above the exercise price, except
insofar as the premium represents such a profit. The Fund will not be able to
sell the underlying security until the option expires or is exercised or the
Fund effects a closing purchase transaction by purchasing an option of the same
series. Such options would normally be written only on underlying securities as
to which Fleet and/or Oechsle does not anticipate significant short-term capital
appreciation.
OPTIONS ON FOREIGN STOCK INDEXES--INTERNATIONAL EQUITY FUND. The
International Equity Fund may, for the purpose of hedging its portfolio, subject
to applicable securities regulations purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges. A stock
index fluctuates with changes in the market values of the stocks included in the
index. Examples of foreign stock indexes are the Canadian Market Portfolio Index
(Montreal Stock Exchange), The Financial Times--Stock Exchange 100 (London Stock
Exchange) and the Toronto Stock Exchange Composite 300 (Toronto Stock Exchange).
Options on stock indexes are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a stock index
gives the holder the right to receive a cash "exercise settlement amount" equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied
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by (b) a fixed "index multiplier." Receipt of this cash amount will depend upon
the closing level of the stock index upon which the option is based being
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. The writer of the option is obligated, in return
for the premium received, to make delivery of this amount. The writer may offset
its position in stock index options prior to expiration by entering into a
closing transaction on an exchange or the option may expire unexercised. For
additional information relating to option trading practices and related risks,
see "Derivative Securities" below and the Statement of Additional Information
relating to the Fund.
OPTIONS AND FUTURES CONTRACTS--SMALL CAP VALUE, GROWTH AND INCOME AND
STRATEGIC EQUITY FUNDS. The Small Cap Value, Growth and Income and Strategic
Equity Funds may buy and sell options and futures contracts to manage their
exposure to changing interest rates, security prices and currency exchange
rates. The Funds may invest in options and futures based on any type of
security, index, or currency, including options and futures based on foreign
exchanges (see "Options on Foreign Stock Indexes--International Equity Fund"
above) and options not traded on exchanges. Some options and futures strategies,
including selling futures, buying puts, and writing calls, tend to hedge a
Fund's investments against price fluctuations. Other strategies, including
buying futures, writing puts, and buying calls, tend to increase market
exposure. Options and futures may be combined with each other or with forward
contracts in order to adjust the risk and return characteristics of the overall
strategy.
Options and futures can be volatile investments, and involve certain risks.
If Fleet applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures may lower a Fund's individual return. A Fund
could also experience losses if the prices of its options and futures positions
were poorly correlated with its other investments, or if it could not close out
its positions because of an illiquid secondary market. See the applicable
Statement of Additional Information for additional information as to the Funds'
policies on options and futures trading.
The Funds will not hedge more than 20% of their respective total assets by
selling futures, buying puts, and writing calls under normal conditions. The
Funds will not buy futures or write puts whose underlying value exceeds 20% of
their respective total assets, and will not buy calls with a value exceeding 5%
of their respective total assets.
STOCK INDEX FUTURES, SWAP AGREEMENTS, INDEXED SECURITIES AND OPTIONS--SMALL
CAP VALUE, GROWTH AND INCOME AND STRATEGIC EQUITY FUNDS. The Small Cap Value,
Growth and Income and Strategic Equity Funds may utilize stock index futures
contracts, options, swap agreements, indexed securities, and options on futures
contracts, subject to the limitation that the value of these futures contracts,
swap agreements, indexed securities, and options will not exceed 20% of the
Funds' respective total assets. The Funds will not purchase options to the
extent that more than 5% of the value of their respective total assets would be
invested in premiums on open put option positions. In addition, the Funds do not
intend to invest more than 5% of the market value of their respective total
assets in each of the following: futures contracts, swap agreements, and indexed
securities. When a Fund enters into a swap agreement, liquid assets of the Fund
equal to the value of the swap agreement will be segregated by that Fund.
There are several risks accompanying the utilization of futures contracts.
Positions in futures contracts may be closed only on an exchange or board of
trade that furnishes a secondary market for such contracts. While the Funds plan
to utilize futures contracts only if there exists an active market for such
contracts, there is no guarantee that a liquid market will exist for the
contracts at a specified time. Furthermore, because by definition, futures
contracts look to projected price levels in the future and not to current levels
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of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements. This could result in a distortion of
the relationship between the index and the futures market. In addition, because
the futures market imposes less burdensome margin requirements than the
securities market, an increased amount of participation by speculators in the
futures market could result in price fluctuations.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
Each Fund may invest in ADRs and EDRs. The International Equity, Small Cap
Value, Growth and Income and Strategic Equity Funds may also invest in GDRs.
ADRs are receipts issued in registered form by a U.S. bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer. EDRs
are receipts issued in Europe typically by non-U.S. banks or trust companies and
foreign branches of U.S. banks that evidence ownership of foreign or U.S.
securities. GDRs are receipts structured similarly to EDRs and are marketed
globally. ADRs may be listed on a national securities exchange or may be traded
in the over-the-counter market. EDRs are designed for use in European exchange
and over-the-counter markets. GDRs are designed for trading in non-U.S.
securities markets. ADRs, EDRs and GDRs traded in the over-the-counter market
which do not have an active or substantial secondary market will be considered
illiquid and therefore will be subject to the Funds' respective limitations with
respect to such securities. ADR prices are denominated in U.S. dollars although
the underlying securities are denominated in a foreign currency. Investments in
ADRs, EDRs and GDRs involve risks similar to those accompanying direct
investments in foreign securities. Certain of these risks are described above
under "Special Risk Considerations--Foreign Securities."
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because each Fund may buy and sell securities denominated in currencies
other than the U.S. dollar, and may receive interest, dividends and sale
proceeds in currencies other than the U.S. dollar, the Funds from time to time
may enter into foreign currency exchange transactions to convert the U.S. dollar
to foreign currencies, to convert foreign currencies to the U.S. dollar and to
convert foreign currencies to other foreign currencies. A Fund either enters
into these transactions on a spot (I.E., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another--for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen--at a future
date and at a specified price. Typically, the other party to a currency exchange
contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow a Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, such
contracts are rolled over in a manner consistent with a more long-term currency
decision. Because there is a risk of loss to a Fund if the other party does not
complete the transaction, forward foreign currency exchange contracts will be
entered into only with parties approved by Galaxy's Board of Trustees.
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A Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency--for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S.
dollars--at a future date and at a specified price in anticipation of a decline
in the value of the currency sold short relative to the currency that the Fund
has contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash or other liquid assets equal in value to the fluctuating market value of
the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the applicable
Statement of Additional Information for additional information regarding foreign
currency exchange transactions.
ASSET-BACKED SECURITIES--ASSET ALLOCATION FUND
The Asset Allocation Fund may purchase asset-backed securities, which
represent a participation in, or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool of assets similar to
one another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the applicable Statement of
Additional Information.
MORTGAGE-BACKED SECURITIES--ASSET ALLOCATION FUND
The Asset Allocation Fund may invest in mortgage-backed securities
(including collateralized mortgage obligations) that represent pools of mortgage
loans assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities provide a monthly payment
consisting of interest and principal payments. Additional payment may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of the
Fund, should it invest in mortgage-backed securities, may be affected by
reinvestment of prepayments at higher or lower rates than the original
investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or some form of non-government credit
enhancement. Mortgage-backed securities have either fixed or adjustable interest
rates. The rate of return on mortgage-backed securities may be affected by
prepayments of principal on the underlying loans, which generally increase as
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interest rates decline; as a result, when interest rates decline, holders of
these securities normally do not benefit from appreciation in market value to
the same extent as holders of other non-callable debt securities. In addition,
like other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, generally will fluctuate in
response to market interest rates.
MORTGAGE DOLLAR ROLLS--ASSET ALLOCATION FUND
The Asset Allocation Fund may enter into mortgage "dollar rolls" in which
the Fund sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date not
exceeding 120 days. During the roll period, the Fund loses the right to receive
principal and interest paid on the securities sold. However, the Fund would
benefit to the extent of any difference between the price received for the
securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. Unless such benefits exceed the income, capital appreciation and gain
or loss due to mortgage prepayments that would have been realized on the
securities sold as part of the mortgage dollar roll, the use of this technique
will diminish the investment performance of the Fund compared with what such
performance would have been without the use of mortgage dollar rolls. All cash
proceeds will be invested in instruments that are permissible investments for
the Fund. The Fund will hold and maintain in a segregated account until the
settlement date cash or other liquid assets in an amount equal to the forward
purchase price.
For financial reporting and tax purposes, the Fund proposes to treat
mortgage dollar rolls as two separate transactions, one involving the purchase
of a security and a separate transaction involving a sale. The Fund does not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom
the Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet's ability to predict correctly interest rates and mortgage
prepayments. For these reasons, there is no assurance that mortgage dollar rolls
can be successfully employed.
CONVERTIBLE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, invest in convertible securities. Convertible securities
are fixed income securities which may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible securities may
take the form of convertible preferred stock, convertible bonds or debentures,
units consisting of "usable" bonds and warrants or a combination of the features
of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate
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bonds that can be used in whole or in part, customarily at full face value, in
lieu of cash to purchase the issuer's common stock. When owned as part of a unit
along with warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities and
therefore have a claim to the assets of the issuer prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar non-convertible securities of the same issuer.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. A Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in Fleet's and/or
Oechsle's opinion, the investment characteristics of the underlying common stock
will assist the Fund in achieving its investment objective. Otherwise, a Fund
will hold or trade the convertible securities. In selecting convertible
securities for a Fund, Fleet and/or Oechsle evaluates the investment
characteristics of the convertible security as a fixed income instrument, and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, Fleet and/or Oechsle considers numerous factors, including
the economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.
The Small Cap Value and Growth and Income Funds may invest in convertible
bonds rated "BB" or higher by S&P or Fitch IBCA, or "Ba" or higher by Moody's at
the time of investment. Securities rated "BB" by S&P or Fitch IBCA or "Ba" by
Moody's provide questionable protection of principal and interest in that such
securities either have speculative characteristics or are predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. Debt obligations that are not
rated, or determined to be, investment grade are high-yield, high-risk bonds,
typically subject to greater market fluctuations, and securities in the lowest
rating category may be in danger of loss of income and principal due to an
issuer's default. To a greater extent than investment grade bonds, the value of
lower-rated bonds tends to reflect short-term corporate, economic, and market
developments, as well as investor perceptions of the issuer's credit quality. In
addition, lower-rated bonds may be more difficult to dispose of or to value than
higher-rated, lower-yielding bonds. Fleet will attempt to reduce the risks
described above through diversification of each Fund's portfolio and by credit
analysis of each issuer, as well as by monitoring broad economic trends and
corporate and legislative developments. If a convertible bond is rated below
"BB" or "Ba" after a Fund has purchased it, the Fund is not required to
eliminate the convertible bond from its portfolio, but will consider appropriate
action. The investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for different investment
objectives. The Funds do not intend to invest in such lower-rated bonds during
the current fiscal year. A description of the rating categories of S&P, Moody's
and Fitch IBCA is contained in the Appendix to the Statement of Additional
Information relating to the Small Cap Value and Growth and Income Funds.
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and include,
but are not
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limited to, put and call options, stock index futures and options, indexed
securities and swap agreements, foreign currency exchange contracts, and certain
asset-backed and mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that a Fund will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
Fleet and/or Oechsle will evaluate the risks presented by the derivative
securities purchased by the Funds, and will determine, in connection with their
day-to-day management of the Funds, how such securities will be used in
furtherance of the Funds' investment objectives. It is possible, however, that
Fleet's and/or Oechsle's evaluations will prove to be inaccurate or incomplete
and, even when accurate and complete, it is possible that the Funds will,
because of the risks discussed above, incur loss as a result of their
investments in derivative securities. See "Investment Objectives and
Policies--Derivative Securities" in the applicable Statement of Additional
Information for additional information.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS--INTERNATIONAL EQUITY, SMALL CAP
VALUE, GROWTH AND INCOME AND STRATEGIC EQUITY FUNDS
The International Equity, Small Cap Value, Growth and Income and Strategic
Equity Funds may purchase eligible securities on a "when-issued" basis. The
Small Cap Value, Growth and Income and Strategic Equity Funds may also purchase
eligible securities on a "delayed settlement" basis. When-issued transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit the Fund to lock in a price or yield on a security it owns
or intends to purchase, regardless of future changes in interest rates. Delayed
settlement describes settlement of a securities transaction in the secondary
market which will occur sometime in the future. When-issued and delayed
settlement transactions involve the risk, however, that the yield or price
obtained in a transaction may be less favorable than the yield or price
available in the market when the securities delivery takes place.
A Fund may dispose of a commitment prior to settlement if Fleet or Oechsle,
as the case may be, deems it appropriate to do so. In addition, a Fund may enter
into transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Funds may realize short-term profits or losses
upon the sale of such commitments.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet and/or Oechsle believes that such a disposition is consistent with the
Fund's investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold such investments. A portfolio
turnover rate of 100% or more is
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considered high, although the rate of portfolio turnover will not be a limiting
factor in making portfolio decisions. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expenses and other transaction
costs, which must be ultimately borne by a Fund's shareholders. High portfolio
turnover may result in the realization of substantial net capital gains;
distributions derived from such gains will be treated as ordinary income for
federal income tax purposes. See "Taxes--Federal." Although the Strategic Equity
Fund can not accurately predict its annual portfolio turnover rate, it is not
expected to exceed 100% for the Fund.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to a particular Fund without the affirmative
vote of the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the applicable Statements
of Additional Information under "Investment Objectives and Policies."
The Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity, Asset Allocation and Strategic Equity Funds may not:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) each Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10%, with respect to the Equity Value Fund, or 33%, with respect
to the Equity Growth, Equity Income, International Equity, Small Company
Equity, Asset Allocation and Strategic Equity Funds, of the value of its
total assets at the time of such borrowing (provided that the Funds may
borrow pursuant to reverse repurchase agreements in accordance with their
investment policies and in amounts not in excess of 10%, with respect to the
Equity Value Fund, or 33%, with respect to the Equity Growth, Equity Income,
International Equity, Small Company Equity, Asset Allocation and Strategic
Equity Funds, of the value of their respective total assets at the time of
such borrowing); or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10%, with respect to the Equity
Value Fund, or 33%, with respect to the Equity Growth, Equity Income,
International Equity, Small Company Equity, Asset Allocation and Strategic
Equity Funds, of the value of a Fund's total assets at the time of such
borrowing. No Fund will purchase securities while borrowings (including
reverse repurchase agreements) in excess of 5% of its total assets are
outstanding.
3. Invest more than 10% (15% with respect to the Strategic Equity Fund)
of the value of its net assets in illiquid securities, including repurchase
agreements with remaining maturities in excess of seven days, time deposits
with maturities in excess of seven days, restricted securities (with respect
to the Equity Value Fund), securities which are restricted as to transfer in
their principal market (with respect to the International Equity Fund),
non-negotiable time deposits and other securities which are not readily
marketable.
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4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of a Fund's total
assets would be invested in such issuer, except that up to 25% of the value
of its total assets may be invested without regard to this limitation.
The Small Cap Value and Growth and Income Funds may not:
5. Borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an arrangement to buy it back on a set
date) or pledge securities except, under certain circumstances, such Funds
may borrow up to one-third of the value of their respective total assets and
pledge up to 10% of the value of their respective total assets to secure
such borrowings.
6. With respect to 75% of the value of their respective total assets,
invest more than 5% in securities of any one issuer, other than cash, cash
items, or securities issued or guaranteed by the government of the United
States or its agencies or instrumentalities and repurchase agreements
collateralized by such securities, or acquire more than 10% of the
outstanding voting securities of any one issuer.
The following investment policy may be changed by Galaxy's Board of Trustees
without shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective:
7. The Small Cap Value and Growth and Income Funds may not invest more
than 15% of their respective net assets in securities subject to
restrictions on resale under the Securities Act of 1933 (except for
commercial paper issued under Section 4(2) of the Securities Act of 1933 and
certain securities which meet the criteria for liquidity as established by
the Board of Trustees).
In addition, the Funds may not purchase any securities which would cause 25%
or more of the value of a Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided however that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, (a) the Equity Value Fund
intends to limit any borrowings (including reverse repurchase agreements) to not
more than 10% of the value of its total assets at the time of such borrowing and
each of the Equity Growth, Equity Income, International Equity, Small Company
Equity, Asset Allocation and Strategic Equity Funds intends to limit any
borrowings (including reverse repurchase agreements to not more than 33% of the
value of its total assets at the time of such borrowing), and (b) mortgage
dollar rolls entered into by the Asset Allocation Fund that are not accounted
for as financings shall not constitute borrowings.
The Small Cap Value and Growth and Income Funds intend to invest in
restricted securities. Restricted securities are any securities in which a Fund
may otherwise invest pursuant to its investment objective and policies, but
which are subject to restriction on resale under federal securities law. Each
such Fund will limit its investments in illiquid securities, including certain
restricted securities not determined by the Board of Trustees to be liquid,
non-negotiable fixed time deposits with maturities over seven days,
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over-the-counter options, and repurchase agreements providing for settlement in
more than seven days after notice, to 15% of its net assets.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. A Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of each
Fund's 10% limitation (15% with respect to the Small Cap Value, Growth and
Income and Strategic Equity Funds) on purchases of illiquid instruments
described above, Rule 144A securities will not be considered to be illiquid if
Fleet and/or Oechsle has determined, in accordance with guidelines established
by the Board of Trustees, that an adequate trading market exists for such
securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of a Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Funds is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). Net asset value per share is determined on each day on
which the Exchange is open for trading. Currently, the holidays which Galaxy
observes are New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Net asset value per share of a Fund for purposes of pricing sales
and redemptions is calculated separately for each series of shares by dividing
the value of all securities and other assets attributable to a particular series
of shares of a Fund, less the liabilities attributable to the shares of that
series of the Fund, by the number of outstanding shares of that series of the
Fund.
VALUATION OF THE EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME, SMALL COMPANY
EQUITY, ASSET ALLOCATION, SMALL CAP VALUE, GROWTH AND INCOME AND STRATEGIC
EQUITY FUNDS
The assets in the Equity Value, Equity Growth, Equity Income, Small Company
Equity, Asset Allocation, Small Cap Value, Growth and Income and Strategic
Equity Funds which are traded on a recognized stock exchange are valued at the
last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Securities quoted on the NASD National Market System are also valued at the last
sale price. Other securities traded on over-the-counter markets are valued on
the basis of their closing over-the-counter bid prices. Securities for which
there were no transactions are valued at the average of the most recent bid and
asked prices. Investments in debt securities with remaining maturities of 60
days or less are valued based upon the amortized cost method. Restricted
securities, securities for which market quotations are not readily available,
and other assets are valued at fair value by Fleet under the supervision of
Galaxy's Board of Trustees. An option is generally valued at the last sale price
or, in the absence of a last sale price, the last offer price. See "Valuation of
International Equity Fund" below for a description of the valuation of certain
foreign securities held by these Funds.
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VALUATION OF THE INTERNATIONAL EQUITY FUND
The International Equity Fund's portfolio securities which are primarily
traded on a domestic exchange are valued at the last sale price on that exchange
or, if there is no recent sale, at the last current bid quotation. Portfolio
securities which are primarily traded on foreign securities exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, except when an occurrence subsequent to the time a value
was so established is likely to have changed such value, then the fair value of
those securities may be determined through consideration of other factors by or
under the direction of the Board of Trustees. A security which is listed or
traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security. Investments in debt
securities having a maturity of 60 days or less are valued based upon the
amortized cost method. All other securities are valued at the last current bid
quotation if market quotations are available, or at fair value as determined in
accordance with policies established in good faith by Galaxy's Board of
Trustees. For valuation purposes, quotations of foreign securities in foreign
currency are converted to U.S. dollars equivalent at the prevailing market rate
on the day of valuation. An option is generally valued at the last sale price
or, in the absence of a last sale price, the last offer price.
Certain of the securities acquired by the International Equity Fund may be
traded on foreign exchanges or over-the-counter markets on days on which the
Fund's net asset value is not calculated. In such cases, the net asset value of
the Fund's shares may be significantly affected on days when investors can
neither purchase nor redeem shares of the Fund.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by Institutions. The Institution
is responsible for transmitting to FD Distributors orders for purchases of Trust
Shares and for wiring required funds in payment to Galaxy's custodian on a
timely basis. FD Distributors is responsible for transmitting such orders to
Galaxy's transfer agent for execution. Beneficial ownership of Trust Shares will
be recorded by the Institution and reflected in the account statements it
provides to its Customers. Confirmations of purchases and redemptions of Trust
Shares will be sent to the appropriate Institution. Purchases of Trust Shares
will be effected only on days on which FD Distributors, Galaxy's custodian and
the purchasing Institution are open for business ("Business Days").
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset
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value per share determined on that day, provided that the Fund's custodian
receives the purchase price in federal funds or other immediately available
funds prior to 4:00 p.m. on the following Business Day, at which time the order
will be executed. If funds are not received by such date and time, the order
will not be accepted and notice thereof will be given promptly to the
Institution which submitted the order. Payments for orders which are not
received or accepted will be returned after prompt inquiry to the sending
Institution. If an Institution accepts a purchase order from its Customer on a
non-Business Day, the order will not be executed until it is received and
accepted by FD Distributors on a Business Day in accordance with the foregoing
procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Funds and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts. Investors should contact their Institution (in the case of
employer-sponsored defined contribution plans, their employer) for further
information concerning the types of eligible Customer accounts and the related
purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirements with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by their customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Funds may also be available for purchase through
different types of retirement plans offered by Institutions to their Customers.
Information pertaining to such plans is available directly from the
Institutions.
Trust Shares of the International Equity Fund described in this Prospectus
may also be sold to clients, partners and employees of Oechsle.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which purchase orders must be
received in order to be processed on that Business Day.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge its Customers' accounts for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day will normally be wired on the following Business
Day to the Institution. Payment for redemption orders received on a non-Business
Day will normally be wired to the Institution on the next Business Day.
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However, in both cases Galaxy reserves the right to wire redemption proceeds
within seven days after receiving the redemption order if, in its judgment, an
earlier payment could adversely affect a Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. Each Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon sixty days
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Equity Value, Equity Growth,
Equity Income, Small Company Equity, Asset Allocation, Small Cap Value, Growth
and Income and Strategic Equity Funds are declared and paid quarterly. Dividends
from net investment income of the International Equity Fund are declared and
paid annually. Dividends on each share of a Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by each series. Net realized capital gains are
distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of a Fund at the net
asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Equity Value Fund, Equity Growth Fund, Equity Income Fund, International
Equity Fund, Small Company Equity Fund, Asset Allocation Fund, Small Cap Value
Fund and Growth and Income Fund each qualified during its last taxable year and
intends to continue to qualify, and the Strategic Equity Fund intends to
qualify, as a "regulated investment company" under the Internal Revenue Code of
1986, as amended, (the "Code"). Such qualification generally relieves a Fund of
liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
The policy of each Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional Trust Shares.
(Federal income taxes for distributions to an IRA or a qualified retirement plan
are deferred under the Code.) Such ordinary income distributions will qualify
for the dividends received deduction for corporations to the extent of the total
qualifying dividends received by the distributing Fund from domestic
corporations for the taxable year.
Distribution by a Fund of "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, of a Fund,
is taxable to shareholders as long-term capital gain, regardless of how long the
shareholder has held shares and whether such gains are received in cash or
reinvested in additional Trust Shares. Such long-term capital gain will
constitute 20% or 28% rate gain, depending upon
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the Fund's holding period for the assets the sale of which generated the gain.
Such distributions are not eligible for the dividends received deduction.
The dividends received deduction is not available for dividends attributable
to distributions made by a REIT to a Fund. In addition, distributions paid by
REITs often include a "return of capital." The Code requires a REIT to
distribute at least 95% of its taxable income to investors. In many cases,
however, because of "non-cash" expenses such as property depreciation, an equity
REIT's cash flow will exceed its taxable income. The REIT may distribute this
excess cash to offer a more competitive yield. This portion of the distribution
is deemed a return of capital and is generally not taxable to shareholders.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying shares of a Fund on or just before the record
date of a dividend or capital gain distribution, you should be aware that the
amount of the forthcoming distribution payment, although in effect a return of
capital, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of a Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to income received from sources within foreign
countries. So long as more than 50% of the value of the Fund's total assets at
the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for U.S. federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. If the Fund makes this
election, the amount of such foreign taxes paid by the Fund will be included in
its shareholders' income pro rata (in addition to taxable distributions actually
received by them), and shareholders would be entitled either (a) to credit their
proportionate amount of such taxes against their U.S. federal income tax
liabilities, subject to certain limitations described in the Statement of
Additional Information relating to the Fund, or (b) if they itemize their
deductions, to deduct such proportionate amount from their U.S. income should
they so choose. Shareholders of the Equity Value, Equity Growth, Equity Income,
Small Company Equity, Asset Allocation, Small Cap Value, Growth and Income and
Strategic Equity Funds should not expect to claim a foreign tax credit or
deduction.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Funds and their shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Funds should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
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MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees. The Statements of Additional Information contain the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER AND SUB-ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Funds. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients and
manages the other investment portfolios of Galaxy: the Money Market, Government,
U.S. Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Institutional Government Money Market, Short-Term Bond,
Intermediate Government Income, High Quality Bond, Corporate Bond, Tax-Exempt
Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut Municipal
Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond and MidCap
Equity Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with each Fund's investment policies, Fleet manages each Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records (except with respect to such
functions that have been delegated to Oechsle, the International Equity Fund's
sub-adviser as described below).
For the services provided and expenses assumed with respect to the Equity
Value, Equity Growth, Equity Income, Small Company Equity, Asset Allocation,
Small Cap Value, Growth and Income and Strategic Equity Funds, Fleet is entitled
to receive advisory fees, computed daily and paid monthly, at the annual rate of
.75% of the average daily net assets of each Fund. For the services provided and
expenses assumed with respect to the International Equity Fund, Fleet is
entitled to receive advisory fees, computed daily and paid monthly, at the
annual rate of 1.15% of the first $50 million of the Fund's average daily net
assets, plus .95% of the next $50 million of such assets, plus .85% of net
assets in excess of $100 million.
Fleet may from time to time, in its discretion, waive all or a portion of
the advisory fees payable by the Funds in order to help maintain a competitive
expense ratio and may from time to time allocate a portion of its advisory fees
to Fleet Bank or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders. For the fiscal year ended October 31, 1997,
Fleet received advisory fees (after fee waivers) at the effective annual rates
of .75%, .75%, .75%, .68%, .75%, .75%, .75% and .75% of the average daily net
assets of the Equity Value, Equity Growth, Equity Income, International Equity,
Small Company Equity, Asset Allocation, Small Cap Value and Growth and Income
Funds, respectively. In addition to fee waivers, during the fiscal year ended
October 31, 1997, Fleet also reimbursed each of the Funds for certain operating
expenses, which reimbursement may be revised or discontinued at any time. The
Strategic Equity Fund did not conduct investment operations during the fiscal
year ended October 31, 1997.
The advisory agreement between Galaxy and Fleet with respect to the
International Equity Fund provides that Fleet will provide a continuous
investment program for the Fund, including research and management with respect
to all securities and investments and cash equivalents in the Fund. In addition,
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the advisory agreement authorizes Fleet to engage a sub-adviser to assist it in
the performance of its services. Pursuant to such authorization, Fleet has
appointed Oechsle, a Delaware limited partnership, with principal offices at One
International Place, Boston, Massachusetts 02210, as the sub-adviser to the
International Equity Fund. The general partner of Oechsle is Oechsle Group,
L.P., and the managing general partner of Oechsle Group, L.P. is Walter Oechsle.
Oechsle currently manages approximately $10.2 billion in assets.
Under its sub-advisory agreement with Fleet, Oechsle determines which
securities and other investments will be purchased, retained or sold for the
Fund; places orders for the Fund; manages the Fund's overall cash position; and
provides Fleet with foreign broker research and a quarterly review of
international economic and investment developments. Fleet, among other things,
assists and consults with Oechsle in connection with the Fund's continuous
investment program; approves lists of foreign countries recommended by Oechsle
for investment; reviews the investment policies and restrictions of the Fund and
recommends appropriate changes to the Board of Trustees; and provides the Board
of Trustees and Oechsle with information concerning relevant economic and
political developments.
For the services provided and the expenses assumed pursuant to the
sub-advisory agreement, Fleet pays a fee to Oechsle, computed daily and paid
quarterly, at the annual rate of .40% of the first $50 million of the
International Equity Fund's average daily net assets, plus .35% of average daily
net assets in excess of $50 million. For the fiscal year ended October 31, 1997,
Oechsle received sub-advisory fees from Fleet at the effective annual rate of
.36% of the Fund's average daily net assets.
The Equity Value Fund's portfolio manager, G. Jay Evans, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Evans has been with Fleet and its predecessors since 1978, is a Senior Vice
President, and has been the Fund's portfolio manager since the spring of 1993.
The Equity Growth Fund's portfolio manager, Robert G. Armknecht, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Armknecht, an Executive Vice President, has been with Fleet and
its predecessors since 1989 and has been the Fund's portfolio manager since its
inception.
The Equity Income Fund's portfolio manager, J. Edward Klisiewicz, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Klisiewicz, a Senior Vice President, has been with Fleet and its
predecessors since 1970 and has been the Fund's portfolio manager since its
inception.
The International Equity Fund's portfolio managers, David von Hemert of
Fleet and S. Dewey Keesler, Jr. and Kathleen Harris of Oechsle, are primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. von Hemert, a Senior Vice President, has been with Fleet and its
predecessors since 1980 and has been managing the Fund since August 1994. Mr.
Keesler, General Partner and Portfolio Manager, has been with Oechsle since its
founding in 1986. Ms. Harris has been a Portfolio Manager at Oechsle since
January 1995. Prior thereto, she was Portfolio Manager and Investment Director
for the State of Wisconsin Investment Board and a Fund Manager and Equity
Analyst for Northern Trust Company. Mr. Keesler and Ms. Harris have been
managing the Fund since August 1996.
The Small Company Equity Fund's portfolio manager, Stephen D. Barbaro, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Barbaro, a Vice President and Senior Portfolio Manager, has been
with Fleet and its predecessors since 1976 and has been the Fund's portfolio
manager since its inception.
42
<PAGE>
The Asset Allocation Fund's co-portfolio managers, Donald Jones and David
Lindsay, are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Jones determines the allocation of the Fund's assets
between equity and fixed income investments and manages the equity portion of
the Fund's investment portfolio. Mr. Lindsay manages the fixed income portion of
the Fund's investment portfolio. Mr. Jones, who currently serves as a Vice
President, has been with Fleet and its predecessors as a portfolio manager since
1988 and has been the Fund's portfolio manager since May 1, 1995. Mr. Lindsay, a
Senior Vice President, has been with Fleet and its predecessors since 1986. He
has managed the fixed income portion of the Fund's portfolio since January 1997.
The Small Cap Value Fund's portfolio manager, Peter Larson, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Larson served as the portfolio manager of the Predecessor Small Cap Value
Fund since its inception in 1992. Prior to joining Fleet in 1995, he was
associated with Shawmut Bank since 1963 as an investment officer and was a Vice
President in charge of its Small Cap Equity Management product since 1982.
The Growth and Income Fund's portfolio manager, Brendan Henebry, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Henebry served as portfolio manager for the Predecessor Growth
and Income Fund since its inception in 1992. Prior to joining Fleet in 1995, he
was associated with Shawmut Bank and its predecessor since 1965 and was a Vice
President since 1978. While at Shawmut Bank he served as manager of its Growth
and Income Equity Management Group.
The Strategic Equity Fund's portfolio manager, Peter B. Hathaway, is
primarily responsible for the day-to-day management of the Fund's portfolio. Mr.
Hathaway, a Vice President, has been associated with Fleet since 1995. Prior to
joining Fleet, he was with Shawmut Investment Advisors and its predecessors as
an institutional fund manager. He has over 30 years of investment experience.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission ("SEC"), financial
institutions that are affiliated with Fleet or Oechsle or that have sold shares
of the Funds, if Fleet or Oechsle, as the case may be, believes that the quality
of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Funds, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which agree to provide shareholder support services that are banks
or bank affiliates are subject to such banking laws and regulations. Should
legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Funds,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Funds' method of operation would not
affect a Fund's net asset value per share or result in financial loss to any
shareholder.
43
<PAGE>
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Funds' administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Funds in their administration
and operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Funds, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of the combined
average daily net assets of the Funds and the other portfolios offered by Galaxy
(collectively the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily all or a portion of the
administration fee payable to it by the Funds. For the fiscal year ended October
31, 1997, the Equity Value, Equity Growth, Equity Income, International Equity,
Small Company Equity, Asset Allocation, Small Cap Value and Growth and Income
Funds paid Investor Services Group administration fees at the effective annual
rate of .082% of each Fund's average daily net assets. The Strategic Equity Fund
did not conduct investment operations during the fiscal year ended October 31,
1997.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of Shares in each series in the Funds as follows: Class C
shares (Trust Shares), Class C - Special Series 1 shares (Retail A Shares) and
Class C - Special Series 2 shares (Retail B Shares), each series representing
interests in the Equity Value Fund; Class G - Series 1 shares (Trust Shares) and
Class G - Series 2 shares (Retail A Shares), both series representing interests
in the International Equity Fund; Class H - Series 1 shares (Trust Shares),
Class H - Series 2 shares (Retail A Shares) and Class H - Series 3 shares
(Retail B Shares), each series representing interests in the Equity Growth Fund;
Class I - Series 1 shares (Trust Shares) and Class I - Series 2 shares (Retail A
Shares), both series representing interests in the Equity Income Fund; Class K -
Series 1 shares (Trust Shares), Class K - Series 2 shares (Retail A Shares) and
Class K - Series 3 shares (Retail B Shares), each series representing interests
in the Small Company Equity Fund; Class N - Series 1 shares (Trust Shares),
Class N - Series 2 shares (Retail A Shares) and Class N - Series 3 shares
(Retail B Shares), each series representing interests in the Asset Allocation
Fund; Class U - Series 1 shares (Trust Shares), Class U - Series 2 shares
(Retail A Shares) and Class U - Series 3 shares (Retail B Shares), each series
representing interest in the Growth and Income Fund; Class X - Series 1 shares
(Trust Shares) and Class X - Series 2 shares (Retail A Shares), each series
representing interests in the Small Cap Value Fund; and Class AA - Series 1
shares (Trust Shares), Class AA - Series 2 shares (Retail A Shares) and Class AA
- -Series 3 shares (Retail B Shares), each series representing interests in the
Strategic Equity Fund. Each Fund is classified as a diversified company under
the 1940 Act. The Board of Trustees has also authorized the issuance of
additional classes and series of shares representing interests in other
portfolios of Galaxy. For information regarding the Funds' Retail Shares and
these other portfolios, which are offered through separate prospectuses, contact
FD Distributors at 1-800-628-0414.
44
<PAGE>
Shares of each series in a Fund bear their pro rata portion of all operating
expenses paid by the Fund except as follows. Holders of a Fund's Retail A Shares
bear the fees that are paid to Institutions under Galaxy's Shareholder Services
Plan described below and holders of Retail B Shares of the Equity Value Fund,
Equity Growth Fund, Small Company Equity Fund, Asset Allocation Fund, Growth and
Income Fund and Strategic Equity Fund bear the fees described in the prospectus
for such shares that are paid under Galaxy's Distribution and Services Plan at
an annual rate not to exceed .95% of the average daily net asset value of each
Fund's outstanding Retail B Shares. Currently, these payments are not made with
respect to a Fund's Trust Shares. In addition, shares of each series in a Fund
bear differing transfer agency expenses. Standardized yield and total return
quotations are computed separately for each series of Shares. The differences in
the expenses paid by the respective series will affect their performance.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class (irrespective of series
designation), and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such investment portfolio as are
declared in the discretion of Galaxy's Board of Trustees.
Retail A Shares of the Funds are sold with a maximum front-end sales charge
of 3.75%. Retail B Shares of the Equity Value Fund, Equity Growth Fund, Small
Company Equity Fund, Asset Allocation Fund, Growth and Income Fund and Strategic
Equity Fund are sold with a maximum contingent deferred sales charge of 5.0% and
automatically convert to Retail A Shares of the same Fund six years after the
date of purchase. Retail A and Retail B Shares have certain exchange and other
privileges which are not available with respect to Trust Shares.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.50% of the average daily net asset value of Retail A Shares beneficially owned
by Customers. Institutions may receive up to one-half of this fee for providing
one or more of the following services to such Customers: aggregating and
processing purchase and redemption requests and placing net purchase and
redemption orders with FD Distributors; processing dividend payments from a
Fund; providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and providing periodic mailings to
Customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such Customers: providing
Customers with information as to their positions in Retail A Shares; responding
to
45
<PAGE>
Customer inquiries; and providing a service to invest the assets of Customers in
Retail A Shares. These services are described more fully in the Statement of
Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of each Fund, and
to limit the payment under these servicing agreements for each Fund to an
aggregate fee of not more than .30% (on an annualized basis) of the average
daily net asset value of the Retail A Shares of the Fund beneficially owned by
Customers of Institutions. Galaxy understands that Institutions may charge fees
to their Customers who are the beneficial owners of Retail A Shares in
connection with their accounts with such Institutions. Any such fees would be in
addition to any amounts which may be received by an Institution under the
Shareholder Services Plan. Under the terms of each servicing agreement entered
into with Galaxy, Institutions are required to provide to their Customers a
schedule of any fees that they may charge in connection with Customer
investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such affiliates agree to
perform certain sub-account and administrative functions ("Sub-Account
Services") on a per account basis with respect to Trust Shares of each Fund held
by defined contribution plans, including maintaining records reflecting
separately with respect to each plan participant's sub-account all purchases and
redemptions of Trust Shares and the dollar value of Trust Shares in each
sub-account; crediting to each participant's sub-account all dividends and
distributions with respect to that sub-account; and transmitting to each
participant a periodic statement regarding the sub-account as well as any proxy
materials, reports and other material Fund communications. Such affiliates are
compensated by Investor Services Group for the Sub-Account Services and in
connection therewith the transfer agency fees payable by Trust Shares of the
Funds to Investor Services Group have been increased by an amount equal to these
fees. In substance, therefore, the holders of Trust Shares of these Funds
indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as custodian of the Funds' assets. Chase Manhattan
may employ sub-custodians for the Funds for the purpose of providing custodial
services for the Funds' foreign assets held outside the United States. First
Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-owned
subsidiary of First Data Corporation, serves as the Funds' transfer and dividend
disbursing agent. Services performed by these entities for the Funds are
described in the applicable Statements of Additional Information. Communications
to Investor Services Group should be directed to Investor Services Group at P.O.
Box 5108, 4400 Computer Drive, Westboro, Massachusetts 01581-5108.
46
<PAGE>
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Funds. Galaxy bears
the expenses incurred in the Funds' operations. Such expenses include: taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, Rule 12b-1 distribution (if applicable), fund accounting and custody
fees; charges of the transfer agent and dividend disbursing agent; certain
insurance premiums; outside auditing and legal expenses; costs of independent
pricing services; costs of shareholder reports and meetings; and any
extraordinary expenses. The Funds also pay for brokerage fees and commissions in
connection with the purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant indices
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Funds may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds, the S&P 500, an unmanaged index of groups of common
stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange. In addition, the performance of the International
Equity Fund may be compared to either the Morgan Stanley Capital International
Index or the FT World Actuaries Index and the performance of the Small Company
Equity Fund and Small Cap Value Fund may be compared to the NASDAQ Composite
Index, an unmanaged index of over-the-counter stock prices.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES or publications of a local or regional nature may also be
used in comparing the performance and yields of the Funds. Performance data will
be calculated separately for Trust Shares, Retail A Shares and/or Retail B
Shares of the Funds.
The standard yield is computed by dividing a Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and annualizing the result on a semi-annual basis. The Funds may
also advertise their "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in a Fund is assumed to be
reinvested.
The Funds may also advertise their performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of a Fund's operations, or on a year-by-year
basis. Each Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in a
Fund for the specified
47
<PAGE>
period. Both methods of calculating total return assume that dividends and
capital gain distributions made by a Fund during the period are reinvested in
Fund shares.
The performance of the Funds will fluctuate and any quotation of performance
should not be considered as representative of the future performance of a Fund.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in a Fund's shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that performance data
are generally functions of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses, and market conditions. Any
additional fees charged by Institutions with respect to accounts of Customers
that have invested in Trust Shares of a Fund will not be included in performance
calculations.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of a particular Fund means, with respect to the approval of
an investment advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of such Fund, or (b) 67% or more
of the shares of such Fund present at a meeting if more than 50% of the
outstanding shares of such Fund are represented at the meeting in person or by
proxy.
48
<PAGE>
GALAXY
FUNDS
EQUITY VALUE FUND
EQUITY GROWTH FUND
EQUITY INCOME FUND
INTERNATIONAL EQUITY FUND
SMALL COMPANY EQUITY FUND
ASSET ALLOCATION FUND
SMALL CAP VALUE FUND
GROWTH AND INCOME FUND
STRATEGIC EQUITY FUND
[logo]
February 28, 1998
FN-041 15038 (3/96) pkg 50
<PAGE>
TRUST
THE GALAXY FUND
MIDCAP EQUITY FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXPENSE SUMMARY....................................................... 2
INVESTMENT OBJECTIVES AND POLICIES.................................... 3
In General.......................................................... 3
Special Risk Considerations......................................... 3
Other Investment Policies and Risk Considerations................... 4
INVESTMENT LIMITATIONS................................................ 11
PRICING OF SHARES..................................................... 13
HOW TO PURCHASE AND REDEEM SHARES..................................... 13
Distributor......................................................... 13
Purchase of Shares.................................................. 13
Redemption of Shares................................................ 14
DIVIDENDS AND DISTRIBUTIONS........................................... 15
<CAPTION>
PAGE
----
<S> <C>
TAXES................................................................. 15
Federal............................................................. 15
State and Local..................................................... 16
MANAGEMENT OF THE FUND................................................ 16
Investment Adviser.................................................. 16
Authority to Act as Investment Adviser.............................. 17
Administrator....................................................... 18
DESCRIPTION OF GALAXY AND
ITS SHARES.......................................................... 18
Shareholder Services Plan........................................... 19
Agreements for Sub-Account Services................................. 19
CUSTODIAN AND TRANSFER AGENT.......................................... 20
EXPENSES.............................................................. 20
PERFORMANCE REPORTING................................................. 20
MISCELLANEOUS......................................................... 21
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes a series of Galaxy's shares ("Trust Shares"), which
represent interests in the MIDCAP EQUITY FUND (the "Fund") offered by Galaxy.
The Fund's investment objective is to seek long-term capital appreciation.
The Fund attempts to achieve this objective by investing primarily in the
securities of companies with market value capitalizations of between $750
million and $3.5 billion that the Fund's investment adviser believes are
undervalued and represent the potential for future earnings growth. Under normal
market and economic conditions, the Fund will invest at least 65% of its total
assets in the equity securities of companies with market value capitalizations
of between $750 million and $3.5 billion.
This Prospectus describes Trust Shares in the Fund. Trust Shares are offered
to investors maintaining qualified accounts primarily at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Galaxy is also authorized to issue two additional series of shares in the Fund,
Retail A Shares and Retail B Shares (Retail A Shares and Retail B Shares are
referred to herein collectively as "Retail Shares"), which are offered under a
separate prospectus primarily to individuals, corporations or other entities
purchasing either for their own accounts or for the accounts of others and to
FIS Securities Inc., Fleet Brokerage Corporation, Fleet Securities, Inc., Fleet
Enterprises, Inc., Fleet Financial Group, Inc., its affiliates, their
correspondent banks and other qualified banks, savings and loan associations and
broker/dealers on behalf of their customers. Trust Shares, Retail A Shares and
Retail B Shares represent equal pro rata interests in the Fund, except they bear
different expenses which reflect the difference in the range of services
provided to them. See "Financial Highlights," "Management of the Fund" and
"Description of Galaxy and Its Shares" herein.
The Fund is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is not
affiliated with Fleet or its parent, Fleet Financial Group, Inc., and
affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF, OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
FEBRUARY 28, 1998
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Trust Shares and (ii) the operating
expenses for Trust Shares of the Fund. Examples based on the summary are also
shown.
<TABLE>
<CAPTION>
MIDCAP
SHAREHOLDER TRANSACTION EXPENSES EQUITY FUND
- -------------------------------------------------- -----------
<S> <C>
Sales Load........................................ None
Sales Load on Reinvested Dividends................ None
Deferred Sales Load............................... None
Redemption Fees................................... None
Exchange Fees..................................... None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- --------------------------------------------------
<S> <C>
Advisory Fees (After Fee Waivers)................. .55%
12b-1 Fees........................................ None
Other Expenses (After Fee Waivers)................ .80%
-----------
Total Fund Operating Expenses (After Fee
Waivers)......................................... 1.35%
-----------
-----------
</TABLE>
- ---------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
----------- -----------
<S> <C> <C>
MidCap Equity Fund................................ $ 14 $ 42
</TABLE>
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly. The information contained in the Expense Summary and
Example is based on expenses which the Fund expects to incur during the current
fiscal year on its Trust Shares. Without voluntary fee waivers by Fleet,
Advisory Fees would be .75% and Total Fund Operating Expenses would be 1.55% for
Trust shares of the Fund. Fleet is under no obligation to waive fees and/or
reimburse expenses but has advised Galaxy that it intends to waive fees and/or
reimburse expenses during the current year to the extent necessary to maintain
the Fund's operating expenses at the level set forth in the above table. For
more complete descriptions of these costs and expenses, see "Management of the
Fund" and "Description of Galaxy and Its Shares" in this Prospectus. Any fees
that are charged by affiliates of Fleet or other institutions directly to their
customer accounts for services related to an investment in Trust Shares of the
Fund are in addition to and not reflected in the fees and expenses described
above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. THE FUND IS NEW AND ACTUAL EXPENSES AND
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN.
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INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The investment objective of the Fund is to seek long- term capital
appreciation. The Fund attempts to achieve its investment objective by investing
primarily in the securities of companies with market value capitalizations of
between $750 million and $3.5 billion that Fleet Investment Advisors Inc.
("Fleet"), the Fund's investment adviser, believes are undervalued and represent
the potential for future earnings growth. In selecting investments for the Fund,
Fleet uses a qualitative analysis which seeks to identify companies undergoing
positive fundamental changes, such as new product introductions, corporate
restructurings or management changes, which are likely to result in positive
earnings growth and improving valuation ratios. Industry position and economic
trends are also considered.
Under normal market and economic conditions, the Fund will invest at least
65% of its total assets in the equity securities of companies with market value
capitalizations of between $750 million and $3.5 billion, including common
stocks, preferred stocks, securities convertible into common stock, rights and
warrants.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs").
See Special Risk Considerations--Foreign Securities" and "Other Investment
Policies and Risk Considerations--American, European and Global Depository
Receipts" below.
The Fund may also buy and sell options and futures contracts and utilize
stock index futures contracts, options, swap agreements, indexed securities and
options on futures contracts. See "Other Investment Policies and Risk
Considerations--Options and Futures Contracts", "Other Investment Policies and
Risk Considerations--Stock Index Futures, Swap Agreements, Indexed Securities
and Options" and "Other Investment Policies and Risk Considerations-- Derivative
Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and in U.S. Government obligations at
such times and in such proportions as, in the opinion of Fleet, prevailing
market and economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the MidCap Equity Fund.
Fleet will use its best efforts to achieve the Fund's investment objective,
although its achievement cannot be assured. The investment objective of the Fund
may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program.
SPECIAL RISK CONSIDERATIONS
MARKET RISK
The Fund invests primarily in equity securities. As with other mutual funds
that invest primarily in equity securities, the Fund is subject to market risks.
That is, the possibility exists that common stocks will decline over short or
even extended periods of time and both the U.S. and certain foreign equity
markets
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tend to be cyclical, experiencing both periods when stock prices generally
increase and periods when stock prices generally decrease.
INTEREST RATE RISK
To the extent that the Fund invests in fixed income securities, its holdings
of such securities are sensitive to changes in interest rates and the interest
rate environment. Generally, the prices of bonds and other debt securities
fluctuate inversely with interest rate change.
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs, as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
prices of the Fund's securities in their local markets. Conversely, a decrease
in the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in countries with emerging economies or
emerging securities markets. The risks of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which one or
more of the Funds have the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
RATINGS
All debt obligations, including convertible bonds, purchased by the Fund are
rated investment grade by Moody's Investment Services, Inc. ("Moody's") ("Aaa,"
"Aa," "A" and "Baa") or Standard & Poor's Ratings Group ("S&P") ("AAA," "AA,"
"A" and "BBB"), or, if not rated, are determined to be of
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comparable quality by Fleet. Debt securities rated "Baa" by Moody's or "BBB" by
S&P are generally considered to be investment grade securities although they may
have speculative characteristics and changes in economic conditions or
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case for higher rated obligations.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than 10
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Time deposits with a maturity longer
than seven days or that do not provide for payment within seven days after
notice will be limited to 15% of the Fund's net assets.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject the Fund to additional risk because such
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Such investments may also subject
the Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations--Foreign Securities." The
Fund will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet believes that the credit risk with
respect to the instrument is minimal.
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Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations" below.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
The Fund will not enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand upon notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 15% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with the investment limitations described
below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by Fleet to be of good standing and only when, in Fleet's
judgment, the income to be earned from the loan justifies the attendant risks.
The Fund currently intends to limit the lending of its
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portfolio securities so that, at any given time, securities loaned by the Fund
represent not more than one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Fund may invest in other investment companies primarily for the purpose
of investing its short-term cash which has not yet been invested in other
portfolio instruments. However, from time to time, on a temporary basis, the
Fund may invest exclusively in one other investment company similar to the Fund.
Investments in other investment companies will cause the Fund (and, indirectly,
the Fund's shareholders) to bear proportionately the costs incurred in
connection with the investment companies' operations. Except as provided above,
securities of other investment companies will be acquired by the Fund within the
limits prescribed by the Investment Company Act of 1940, as amended, (the "1940
Act"). The Fund currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Fund, other investment portfolios of Galaxy, or any
other investment companies advised by Fleet.
REITS
The Fund may invest up to 10% of its net assets in real estate investment
trusts ("REITs"). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of a REIT's
investments. In addition, equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, are not diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital. See
"Taxes."
OPTIONS AND FUTURES CONTRACTS
The Fund may buy and sell options and futures contracts to manage its
exposure to changing interest rates, security prices and currency exchange
rates. The Fund may invest in options and futures based on any type of security,
index or currency, including options and futures based on foreign exchanges and
options not traded on exchanges. Some options and futures strategies, including
selling futures, buying
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puts, and writing calls, tend to hedge the Fund's investments against price
fluctuations. Other strategies, including buying futures, writing puts, and
buying calls, tend to increase market exposure. Options and futures may be
combined with each other or with forward contracts in order to adjust the risk
and return characteristics of the overall strategy.
Options and futures can be volatile investments, and involve certain risks.
If Fleet applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures may lower the Fund's individual return. The
Fund could also experience losses if the prices of its options and futures
positions were poorly correlated with its other investments, or if it could not
close out its positions because of an illiquid secondary market. See the
Statement of Additional Information relating to the Fund for additional
information as to the Fund's policies on options and futures trading.
The Fund will not hedge more than 20% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. The Fund will
not buy futures or write puts whose underlying value exceeds 20% of its total
assets, and will not buy calls with a value exceeding 5% of its total assets.
STOCK INDEX FUTURES, SWAP AGREEMENTS, INDEXED SECURITIES AND OPTIONS
The Fund may utilize stock index futures contracts, options, swap
agreements, indexed securities, and options on futures contracts, subject to the
limitation that the value of these futures contracts, swap agreements, indexed
securities, and options will not exceed 20% of the Fund's total assets. The Fund
will not purchase options to the extent that more than 5% of the value of its
total assets would be invested in premiums on open put option positions. In
addition, the Fund does not intend to invest more than 5% of the market value of
its total assets in each of the following: futures contracts, swap agreements,
and indexed securities. When the Fund enters into a swap agreement, liquid
assets of the Fund equal to the value of the swap agreement will be segregated
by the Fund.
There are several risks accompanying the utilization of futures contracts.
Positions in futures contracts may be closed only on an exchange or board of
trade that furnishes a secondary market for such contracts. While the Fund plans
to utilize futures contracts only if there exists an active market for such
contracts, there is no guarantee that a liquid market will exist for the
contracts at a specified time. Furthermore, because by definition, futures
contracts look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements. This could result in a distortion of
the relationship between the index and the futures market. In addition, because
the futures market imposes less burdensome margin requirements than the
securities market, an increased amount of participation by speculators in the
futures market could result in price fluctuations.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
The Fund may invest in ADRs, EDRs and GDRs. ADRs are receipts issued in
registered form by a U.S. bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. GDRs are
receipts structured similarly to EDRs and are marketed globally. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter
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markets. GDRs are designed for trading in non-U.S. securities markets. ADRs,
EDRs and GDRs traded in the over-the-counter market which do not have an active
or substantial secondary market will be considered illiquid and therefore will
be subject to the Fund's limitation with respect to such securities. ADR prices
are denominated in U.S. dollars although the underlying securities are
denominated in a foreign currency. Investments in ADRs, EDRs and GDRs involve
risks similar to those accompanying direct investments in foreign securities.
Certain of these risks are described above under "Special Risk
Considerations--Foreign Securities."
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Fund may buy and sell securities denominated in currencies other
than the U.S. dollar, and may receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Fund from time to time may enter into
foreign currency exchange transactions to convert the U.S. dollar to foreign
currencies, to convert foreign currencies to the U.S. dollar and to convert
foreign currencies to other foreign currencies. The Fund either enters into
these transactions on a spot (I.E. cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another--for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen--at a future
date and at a specified price. Typically, the other party to a currency exchange
contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, such
contracts are rolled over in a manner consistent with a more long-term currency
decision. Because there is a risk of loss to the Fund if the other party does
not complete the transaction, forward foreign currency exchange contracts will
be entered into only with parties approved by Galaxy's Board of Trustees.
The Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency--for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S.
dollars--at a future date and at a specified price in anticipation of a decline
in the value of the currency sold short relative to the currency that the Fund
has contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash or other liquid assets equal in value to the fluctuating market value of
the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the Statement of
Additional Information relating to the Fund for additional information regarding
foreign currency exchange transactions.
CONVERTIBLE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
invest in convertible securities. Convertible securities are fixed income
securities which may be exchanged or converted into a
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predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible securities in
which the Fund may invest may take the form of convertible preferred stock and
convertible bonds or debentures.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Convertible securities are senior to equity securities and
therefore have a claim to the assets of the issuer prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same issuer.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in Fleet's opinion,
the investment characteristics of the underlying common shares will assist the
Fund in achieving its investment objective. Otherwise, the Fund will hold or
trade the convertible securities. In selecting convertible securities for the
Fund, Fleet evaluates the investment characteristics of the convertible security
as a fixed income instrument, and the investment potential of the underlying
equity security for capital appreciation. In evaluating these matters with
respect to a particular convertible security, Fleet considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
purchase certain "derivative" securities. Derivative securities are instruments
that derive their value from the performance of underlying assets, interest or
currency exchange rates, or indices, and include, but are not limited to, put
and call options, stock index futures and options, indexed securities and swap
agreements, and foreign currency exchange contracts.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Fund will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Fund, and will determine, in connection with its day-to-day
management of the Fund, how such securities will be used in furtherance of the
Fund's investment objective. It is possible, however, that Fleet's evaluations
will prove to be inaccurate or incomplete and, even when accurate and complete,
it is possible that the Fund will, because of the risks discussed above, incur
loss as a result of its investments in derivative securities. See
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"Investment Objectives and Policies--Derivative Securities" in the Statement of
Additional relating to the Fund for additional information.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase eligible securities on a "when-issued" or "delayed
settlement" basis. When-issued transactions, which involve a commitment by the
Fund to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later), permit the Fund to
lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued and delayed settlement transactions involve
the risk, however, that the yield or price obtained in a transaction may be less
favorable than the yield or price available in the market when the securities
delivery takes place.
The Fund may dispose of a commitment prior to settlement if Fleet deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if Fleet
believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio rate of 100% or
more is considered high although the rate of turnover will not be a limiting
factor on making portfolio decisions. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expenses and other transaction
costs, which must be ultimately borne by the Fund's shareholders. High portfolio
turnover may result in the realization of substantial net capital gains;
distributions derived from such gains will be treated as ordinary income for
federal income tax purposes. See "Taxes--Federal." Although the Fund cannot
accurately predict its annual portfolio turnover rate, it is not expected to
exceed 100%.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information relating to the Fund under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) the Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
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2. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 33% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase agreements
in accordance with its investment policies and in amounts not in excess of
33% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 33% of the value of the Fund's total assets at the time
of such borrowing. The Fund will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
3. Invest more than 15% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other securities
which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of the Fund's
total assets would be invested in such issuer, except that up to 25% of the
value of its total assets may be invested without regard to this limitation.
In addition, the Fund may not purchase any securities which would cause 25%
or more of the value of its total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, the Fund intends to limit
any borrowings (including reverse repurchase agreements) to not more than 33% of
the value of its total assets at the time of such borrowing.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. The Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
15% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered to be
illiquid if Fleet has determined, in accordance with guidelines established by
the Board of Trustees, that an adequate trading market exists for such
securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
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PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). The net asset value per share is determined on each
day on which the Exchange is open for trading. Currently, the holidays which
Galaxy observes are New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value per share for purposes of pricing sales and
redemptions is calculated separately for each series of shares by dividing the
value of all securities and other assets attributable to a particular series of
shares of the Fund, less the liabilities attributable to the shares of that
series of the Fund, by the number of outstanding shares of that series of the
Fund.
The assets in the Fund which are traded on a recognized stock exchange are
valued at the last sale price on the securities exchange on which such
securities are primarily traded or at the last sale price on the national
securities market. Securities quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by Fleet under the
supervision of Galaxy's Board of Trustees. An option is generally valued at the
last sale price or, in the absence of a last sale price, the last offer price.
Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except when an occurrence subsequent
to the time a value was so established is likely to have changed such value,
then the fair value of those securities will be determined through consideration
of other factors by or under the direction of the Board of Trustees. A security
which is listed or traded on more than one exchange is valued at the quotation
on the exchange determined to be the primary market for such security. For
valuation purposes, quotations of foreign securities in foreign currency are
converted to U.S. dollars equivalent at the prevailing market rate on the day of
valuation.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
The Trust Shares described in this Prospectus are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans (such institutions and plans are
referred to herein collectively as "Institutions"). Trust Shares sold to such
investors ("Customers") will be held of record by
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Institutions. The Institution is responsible for transmitting to FD Distributors
orders for purchases of Trust Shares and for wiring required funds in payment to
Galaxy's custodian on a timely basis. FD Distributors is responsible for
transmitting such orders to Galaxy's transfer agent for execution. Beneficial
ownership of Trust Shares will be recorded by the Institution and reflected in
the account statements it provides to its Customers. Confirmations of purchases
and redemptions of Trust Shares will be sent to the appropriate Institution.
Purchases of Trust Shares will be effected only on days on which FD
Distributors, Galaxy's custodian and the purchasing Institution are open for
business ("Business Days").
A purchase order for Trust Shares received by FD Distributors on a Business
Day prior to the close of regular trading hours on the Exchange (currently, 4:00
p.m. Eastern Time) will be priced at the net asset value per share determined on
that day, provided that the Fund's custodian receives the purchase price in
federal funds or other immediately available funds prior to 4:00 p.m. on the
following Business Day, at which time the order will be executed. If funds are
not received by such date and time, the order will not be accepted and notice
thereof will be given promptly to the Institution which submitted the order.
Payments for orders which are not received or accepted will be returned after
prompt inquiry to the sending Institution. If an Institution accepts a purchase
order from its Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with the foregoing procedures.
Galaxy reserves the right to reject any purchase order, in whole or in part.
The issuance of Trust Shares is recorded on the books of the Fund and share
certificates will not be issued.
Customers may purchase Trust Shares through procedures established by
Institutions in connection with the requirements of their Customer accounts.
Such accounts may include discretionary investment management accounts,
custodial accounts, agency accounts and different types of tax-advantaged
accounts (including defined contribution plans). Investors should contact their
Institution (in the case of employer-sponsored defined contribution plans, their
employer) for further information concerning the types of eligible Customer
accounts and the related purchase and redemption procedures.
Although Galaxy does not impose any minimum initial or subsequent investment
requirements with respect to Trust Shares, Institutions may impose such
requirements on the accounts maintained by their customers, and may also require
that Customers maintain minimum account balances with respect to Trust Shares.
Trust Shares of the Funds may also be available for purchase through
different types of retirement plans offered by an Institution to its Customers.
Information pertaining to such plans is available directly from the Institution.
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the time at which redemption orders must be
received in order to be processed on that Business Day.
REDEMPTION OF SHARES
Customers may redeem all or part of their Trust Shares in accordance with
procedures governing their accounts at their respective Institutions. It is the
responsibility of an Institution to transmit redemption orders to FD
Distributors and to credit its Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments is imposed by
Galaxy, although an Institution may charge
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its Customers' accounts for redemption services. Information relating to such
redemption services and charges, if any, is available from the Institution.
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Payment for redemption orders received by FD
Distributors on a Business Day will normally be wired on the following Business
Day to the Institution. Payment for redemption orders received on a non-Business
Day will normally be wired to the Institution on the next Business Day. However,
in both cases Galaxy reserves the right to wire redemption proceeds within seven
days after receiving the redemption order if, in its judgment, an earlier
payment could adversely affect the Fund.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized. The Fund reserves the right to redeem
shares in any account at their net asset value involuntarily, upon sixty days
written notice, if the value of the account is less than $250 as a result of
redemptions.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared and paid
quarterly. Dividends on each share of the Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers may elect to
have their dividends reinvested in additional Trust Shares of the Fund at the
net asset value of such shares on the ex-dividend date. Such election, or any
revocation thereof, must be communicated in writing by an Institution on behalf
of its Customers to Galaxy's transfer agent and will become effective with
respect to dividends paid after its receipt. The crediting and payment of
dividends to Customers will be in accordance with the procedures governing such
Customers' accounts at their respective Institutions.
TAXES
FEDERAL
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, (the "Code"). Such qualification
generally relieves the Fund of liability for federal income taxes to the extent
the Fund's earnings are distributed in accordance with the Code.
The policy of the Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional Trust Shares.
(Federal income taxes for distributions to an IRA or a qualified retirement plan
are deferred under the Code.) Such ordinary income distributions will qualify
for the dividends received deduction for corporations to the extent of the total
qualifying dividends received by the Fund from domestic corporations for the
taxable year.
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Distribution by the Fund of "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, of the
Fund, is taxable to shareholders as long-term capital gain, regardless of how
long the shareholder has held shares and whether such gains are received in cash
or reinvested in additional Trust Shares. Such long-term capital gain will
consitute 20% or 28% rate gain, depending upon the Fund's holding period for the
assets the sale of which generated the gain. Such distributions are not eligible
for the dividends received deduction.
The dividends received deduction is not available for dividends attributable
to distributions made by a REIT to the Fund. In addition, distributions paid by
REITs often include a "return of capital." The Code requires a REIT to
distribute at least 95% of its taxable income to investors. In many cases,
however, because of "non-cash" expenses such as property depreciation, an equity
REIT's cash flow will exceed its taxable income. The REIT may distribute this
excess cash to offer a more competitive yield. This portion of the distribution
is deemed a return of capital and is generally not taxable to shareholders.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying shares of the Fund on or just before the
record date of a dividend or capital gain distribution, you should be aware that
the amount of the forthcoming distribution payment, although in effect a return
of capital, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997.
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Fleet, which commenced operations in 1984, also provides investment management
and advisory services to individual and institutional clients and manages the
other investment portfolios of Galaxy: the Money Market, Government, U.S.
Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Institutional Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Asset Allocation, Small
Company Equity, Small Cap Value, Growth and Income, Strategic Equity, Short-Term
Bond, Intermediate Government Income, High Quality Bond, Corporate Bond,
Tax-Exempt Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond Fund and Rhode Island Municipal
Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Fund,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of .75% of the average daily net assets of the Fund.
Fleet may from time to time, in its discretion, waive all or a portion of
the advisory fees payable by the Fund in order to help maintain a competitive
expense ratio and may from time to time allocate a portion of its advisory fees
to Fleet Bank or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders.
The organizational arrangements of Fleet require that all investment
decisions with respect to the Fund, be made by Fleet's Equity Policy Committee
and no one person is primarily responsible for making recommendations to that
Committee.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission ("SEC"), financial
institutions that are affiliated with Fleet or that have sold shares of the
Funds, if Fleet believes that the quality of the transaction and the commission
are comparable to what they would be with other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which agree to provide shareholder support services that are banks
or bank affiliates are subject to such banking laws and regulations. Should
legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Fund,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Fund's method of operation would not
affect the Fund's net asset value per share or result in financial loss to any
shareholder.
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ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For services provided to the Fund, Investor Services Group
is entitled to receive administration fees, computed daily and paid monthly, at
the annual rate of .09% of the first $2.5 billion of the combined average daily
net assets of the Fund and the other portfolios offered by Galaxy (collectively,
the "Portfolios"), .085% of the next $2.5 billion of combined average daily net
assets and .075% of combined average daily net assets over $5 billion. In
addition, Investor Services Group also receives a separate annual fee from each
Portfolio for certain fund accounting services. From time to time, Investor
Services Group may waive voluntarily all or a portion of the administration fee
payable to it by the Fund.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in the Fund: Class Z-Series 1 shares (Trust
Shares), Class Z-Series 2 shares (Retail A Shares) and Class Z-Series 3 shares
(Retail B Shares), each series representing interests in the Fund. The Fund is
classified as a diversified company under the 1940 Act. The Board of Trustees
has also authorized the issuance of additional classes and series of shares
representing interests in other portfolios of Galaxy. For information regarding
the Fund's Retail Shares and these other portfolios, which are offered through
separate prospectuses, contact FD Distributors at 1-800-628-0414.
Trust Shares, Retail A Shares and Retail B Shares in the Fund bear their pro
rata portion of all operating expenses paid by the Fund except as follows.
Holders of the Fund's Retail A Shares bear the fees that are paid to
Institutions under Galaxy's Shareholder Services Plan described below and
holders of the Fund's Retail B Shares bear the fees described in the prospectus
for such Shares that are paid under Galaxy's Distribution and Services Plan at
an annual rate of up to .95% of the average daily net asset value of the Fund's
outstanding Retail B Shares. Currently, these payments are not made with respect
to the Fund's Trust Shares. In addition, Trust Shares, Retail A Shares and
Retail B Shares in the Fund bear differing transfer agency expenses.
Standardized yield and total return quotations are computed separately for each
series of shares. The differences in the expenses paid by the respective series
will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end sales charge
of 3.75%. Retail B Shares of the Fund are sold with a maximum contingent
deferred sales charge of 5.0% and automatically convert to Retail A Shares of
the Fund six years after the date of purchase. Retail A Shares and Retail B
Shares have certain exchange and other privileges which are not available with
respect to Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class, and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to such investment portfolio as are declared in the discretion of
Galaxy's Board of Trustees.
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Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.50% of the average daily net asset value of the Fund's outstanding Retail A
Shares beneficially owned by customers. Institutions may receive up to one-half
of this fees for providing one or more of the following services to such
Customers: aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with FD Distributors; processing
dividend payments from the Fund; providing sub-accounting with respect to Retail
A Shares or the information necessary for sub-accounting; and providing periodic
mailings to Customers. Institutions may also receive up to one-half of this fee
for providing one or more of these additional services to such Customers:
providing Customers with information as to their positions in Retail A Shares;
responding to Customer inquiries; and providing a service to invest the assets
of Customers in Retail A Shares. These services are described more fully in the
Statement of Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including: maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to
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that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Fund to Investor Services Group have
been increased by an amount equal to these fees. In substance, therefore, the
holders of Trust Shares of the Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as custodian of the Fund's assets. Chase Manhattan
may employ sub-custodians for the Fund for the purpose of providing custodial
services for the Fund's foreign assets held outside the United States. First
Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-owned
subsidiary of First Data Corporation, serves as the Fund's transfer and dividend
disbursing agent. Services performed by these entities for the Fund are
described in the Statement of Additional Information. Communications to Investor
Services Group should be directed to Investor Services Group at P.O. Box 5108,
4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Fund. Galaxy bears
the expenses incurred in the Fund's operations. Such expenses include: taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, Rule 12b-1 distribution, fund accounting and custody fees; charges of
the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholder reports and meetings; and any extraordinary expenses. The
Fund also pays for brokerage fees and commissions in connection with the
purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds, the S&P 500, an unmanaged index of groups of common
stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES or publications of a local or
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regional nature may also be used in comparing the performance of the Fund.
Performance data will be calculated separately for Trust Shares, Retail A Shares
and Retail B Shares of the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and analyzing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividends and capital gain distributions made by the Fund during the period
are reinvested in Fund shares.
The performance of the Fund will fluctuate and any quotation of performance
should not be considered as representative of the future performance of the
Fund. Since yields fluctuate, yield data cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Trust Shares of the Fund will not be
included in performance calculations.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of the Fund or (b) 67% or more of
the shares of the Fund present at a meeting if more than 50% of the outstanding
shares of the Fund are represented at the meeting in person or by proxy.
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GALAXY
MIDCAP EQUITY
FUND
FEBRUARY 28, 1998
P R O S P E C T U S
Trust Shares
[logo]
FN-
<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information regarding
Westboro, Massachusetts purchases, redemptions, exchanges and other
01581-5108 shareholder services or for current performance,
call 1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes nine separate diversified investment portfolios
(individually, a "Fund," collectively, the "Funds") offered to investors by
Galaxy. Each Fund has its own investment objective and policies:
The EQUITY VALUE FUND'S investment objective is to seek long-term capital
appreciation. Income is secondary to the objective of capital appreciation. The
Fund attempts to achieve this objective by investing, under normal market and
economic conditions, at least 75% of its total assets in common stock, preferred
stock and debt securities convertible into common stock that the Fund's
investment adviser believes are undervalued and exhibit acceptable levels of
risk.
The EQUITY GROWTH FUND'S investment objective is to seek long-term capital
appreciation. The Fund attempts to achieve this objective by investing, under
normal market and economic conditions, at least 75% of its total assets in
common stock, preferred stock, common stock warrants and securities convertible
into common stock of companies that the Fund's investment adviser believes have
above-average earnings potential.
The EQUITY INCOME FUND'S investment objective is to seek current income and
capital appreciation. The Fund attempts to achieve this objective by investing,
under normal market and economic conditions, at least 75% of its total assets in
common stock and securities convertible into common stock that offer income
potential.
The INTERNATIONAL EQUITY FUND'S investment objective is to seek long-term
capital appreciation. The Fund attempts to achieve this objective by investing,
under normal market and economic conditions, at least 75% of its total assets in
the equity securities of foreign issuers.
The SMALL COMPANY EQUITY FUND'S investment objective is to seek capital
appreciation. The Fund attempts to achieve this objective by investing primarily
in the securities of companies with market value capitalizations of $750 million
or less that the Fund's investment adviser believes represent the potential for
significant capital appreciation. Under normal market and economic conditions,
the Fund will invest at least 65% of its assets in the equity securities of
companies with market value capitalizations of $750 million or less.
The ASSET ALLOCATION FUND'S investment objective is to seek a high total
return by providing both a current level of income that is greater than that
produced by the popular stock market averages as well as long-term growth in the
value of the Fund's assets. Due to the Fund's expenses, however, net income
distributed to shareholders may be less than that of the averages. The Fund
attempts to achieve this objective and at the same time reduce volatility by
allocating its assets in varying amounts among short-term obligations, common
stocks, preferred stocks and bonds.
The SMALL CAP VALUE FUND'S investment objective is to provide long-term
capital appreciation. The Fund attempts to achieve this objective by investing,
under normal market and economic conditions, at least 65% of its total assets in
equity securities of companies that have a market value capitalization of up to
$1 billion.
The GROWTH AND INCOME FUND'S investment objective is to provide a relatively
high total return through long-term capital appreciation and current income. The
Fund attempts to achieve this objective by investing primarily in common stocks
of companies believed to have prospects for above-average growth and dividends
or of companies where significant fundamental changes are taking place. Under
normal market and economic conditions, the Fund will invest at least 65% of its
total assets in common stocks, preferred stocks, common stock warrants and
securities convertible into common stock.
The STRATEGIC EQUITY FUND'S investment objective is to seek long-term
capital appreciation. The Fund attempts to achieve this objective by investing
primarily in the securities of growth companies that the Fund's investment
adviser believes are reasonably priced and offer favorable return potential
relative to other securities. Under normal market and economic conditions, the
Fund will invest at least 65% of its total assets in equity securities,
including common stocks, preferred stocks, securities convertible into common
stock, rights and warrants.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
This Prospectus describes the Retail A Shares representing interests in each
Fund and the Retail B Shares representing interests in the Equity Value, Equity
Growth, Small Company Equity, Asset Allocation, Growth and Income and Strategic
Equity Funds (Retail A Shares and Retail B Shares are referred to herein
collectively as "Retail Shares"). Retail A Shares are sold with a front-end
sales charge. Retail B Shares are sold with a contingent deferred sales charge.
Retail Shares are offered to customers ("Customers") of FIS Securities, Inc.,
Fleet Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises,
Inc., Fleet Financial Group, Inc., its affiliates, their correspondent banks,
and other qualified banks, savings and loan associations and broker/dealers
("Institutions"). Retail Shares may also be purchased directly by individuals,
corporations or other entities, who submit a purchase application to Galaxy,
purchasing either for their own account or for the accounts of others ("Direct
Investors"). Galaxy is also authorized to issue an additional series of shares
in each Fund ("Trust Shares"), which are offered under a separate prospectus
primarily to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in employer-sponsored defined contribution plans.
Retail A Shares, Retail B Shares and Trust Shares in a Fund represent equal pro
rata interests in the Fund, except they bear different expenses that reflect the
difference in the range of services provided to them. See "Financial
Highlights," "Management of the Funds" and "Description of Galaxy and Its
Shares" herein.
Each of the Funds is advised by Fleet Investment Advisors Inc. and sponsored
and distributed by First Data Distributors, Inc., which is not affiliated with
Fleet or its parent, Fleet Financial Group, Inc., and affiliates. Oechsle
International Advisors, L.P. serves as the sub-adviser to the International
Equity Fund.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Funds, contained in the Statements of Additional Information relating to the
Funds and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statements of Additional Information are available upon
request without charge by contacting Galaxy at its telephone number or address
shown above. The Statements of Additional Information, as they may be amended
from time to time, are incorporated by reference in their entireties into this
Prospectus.
FEBRUARY 28, 1998
<PAGE>
HIGHLIGHTS
Q: WHAT IS THE GALAXY FUND?
A: Galaxy is an open-end management investment company (commonly known as a
mutual fund) that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives and policies.
This Prospectus describes Galaxy's EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME,
INTERNATIONAL EQUITY, SMALL COMPANY EQUITY, ASSET ALLOCATION, SMALL CAP VALUE,
GROWTH AND INCOME AND STRATEGIC EQUITY FUNDS. Prospectuses for Galaxy's MIDCAP
EQUITY, MONEY MARKET, GOVERNMENT, U.S. TREASURY, TAX-EXEMPT, CONNECTICUT
MUNICIPAL MONEY MARKET, MASSACHUSETTS MUNICIPAL MONEY MARKET, INSTITUTIONAL
GOVERNMENT MONEY MARKET, SHORT-TERM BOND, INTERMEDIATE GOVERNMENT INCOME, HIGH
QUALITY BOND, CORPORATE BOND, TAX-EXEMPT BOND, NEW JERSEY MUNICIPAL BOND, NEW
YORK MUNICIPAL BOND, CONNECTICUT MUNICIPAL BOND, MASSACHUSETTS MUNICIPAL BOND
and RHODE ISLAND MUNICIPAL BOND FUNDS may be obtained by calling 1-800-628-0414.
Q: WHO ADVISES THE FUNDS?
A: The Funds are managed by Fleet Investment Advisors Inc. ("Fleet"), an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc. Fleet Financial
Group, Inc. is a financial services company with total assets as of December 31,
1997 of approximately $85.5 billion. Oechsle International Advisors, L.P.
("Oechsle") serves as the sub-adviser to the International Equity Fund. Oechsle
currently has discretionary management authority over approximately $10.2
billion of assets. See "Management of the Funds--Investment Adviser and
Sub-Adviser."
Q: WHAT ADVANTAGES DO THE FUNDS OFFER?
A: The Funds offer investors the opportunity to invest in a variety of
professionally managed investment portfolios without having to become involved
with the detailed accounting and safekeeping procedures normally associated with
direct investments in securities. The Funds also offer the economic advantages
of block trading in portfolio securities and the availability of a family of
twenty-seven mutual funds should your investment goals change.
Q: HOW CAN I BUY AND REDEEM SHARES?
A: The Funds are distributed by First Data Distributors, Inc. Retail Shares
of the Funds are sold to individuals, corporations or other entities, who submit
a purchase application to Galaxy, purchasing either for their own accounts or
for the accounts of others ("Direct Investors"). Retail Shares may also be
purchased on behalf of Customers of FIS Securities, Inc., Fleet Brokerage
Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet
Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers
("Institutions"). Retail A Shares of the Funds may be purchased at their net
asset value plus a maximum initial sales charge of 3.75%. Retail A Shares are
subject to a shareholder servicing fee of up to .30% of the average daily net
asset value of such Shares. Retail B Shares of the Equity Value, Equity Growth,
Small Company Equity, Asset Allocation, Growth and Income and Strategic Equity
Funds may be purchased at their net asset value subject to a contingent deferred
sales charge ("CDSC"). The CDSC is paid on certain share redemptions made within
six years of the purchase date at the maximum rate of 5.00% of the lower of (i)
the net asset value of the redeemed shares or (ii) the original purchase price
of the redeemed shares. Retail B Shares are subject to shareholder servicing and
distribution fees of up to .95% of the average daily net asset value of such
Shares. Share purchase and redemption information for both Direct Investors and
Customers is provided below under "How to Purchase Shares" and "How to Redeem
Shares." Except as provided below under "Investor Programs," the minimum initial
investment for Direct Investors and the minimum initial aggregate investment for
Institutions purchasing on behalf of their Customers is $2,500. The minimum
investment for subsequent purchases is $100. There are no minimum requirements
for investors participating in the Automatic Investment Program described below.
Institutions may require Customers to maintain certain minimum investments in
Retail Shares. See "How to Purchase Shares" below.
Q: WHEN ARE DIVIDENDS PAID?
A: Dividends from net investment income of the Equity Value, Equity Growth,
Equity Income, Small Company Equity, Asset Allocation, Small Cap Value, Growth
and Income and Strategic Equity Funds are declared and paid quarterly. Dividends
from net investment income of the International Equity Fund are declared and
paid annually. Net realized capital gains of each Fund are distributed at least
annually. Dividends and distributions are paid in cash, although shareholders
may choose to have dividends and distributions automatically reinvested in
additional shares of the same series of shares with respect to which the
dividend or distribution was declared without sales or CDSC charges. See
"Dividends and Distributions."
Q: WHAT POTENTIAL RISKS ARE PRESENTED BY THE FUNDS' INVESTMENT PRACTICES?
A: One or more of the Funds may invest in foreign securities either directly
or indirectly through American Depository Receipts ("ADRs"), European Depository
Receipts ("EDRs") and, in the case of certain of the Funds, Global Depository
Receipts ("GDRs"). Investments in foreign securities incur higher costs than
investments in U.S. securities, including higher transaction costs as well as
the imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about individual companies, less
market liquidity, and political instability. See "Investment Objectives and
Policies--"Special Risk Considerations--Foreign Securities." The Small Company
Equity and Small Cap Value Funds invest primarily in small capitalization
stocks. The Growth and Income Fund invests primarily in growth-oriented equity
securities, which may include securities of issuers with small capitalizations.
As a result, these Funds may be more volatile than, and may fluctuate
independently of, broad stock market
1
<PAGE>
indices. See "Investment Objectives and Policies." The Small Cap Value and
Growth and Income Funds may invest in lower-rated convertible securities, which
are high-yield, high-risk bonds that are typically subject to greater market
fluctuations and may be more difficult to value or dispose of than higher-rated,
lower-yielding bonds. See "Investment Objectives and Policies--Other Investment
Policies and Risk Considerations--Convertible Securities." One or more of the
Funds may also invest in certain "derivative" securities, such as put and call
options, stock index futures and options, indexed securities and swap
agreements, foreign currency exchange transactions and certain asset-backed and
mortgage-backed securities. Derivative securities derive their value from the
performance of underlying assets, interest or currency exchange rates and
indices and as a result entail additional market and credit risks. See
"Investment Objectives and Policies--Other Investment Policies and Risk
Considerations--Derivative Securities."
Q: WHAT SHAREHOLDER PRIVILEGES ARE OFFERED BY THE FUNDS?
A: Retail A Shares of a Fund may be exchanged for Retail A Shares of any
other Galaxy portfolio which offers Retail A Shares and for shares of any other
investment portfolio otherwise advised by Fleet or its affiliates. Retail B
Shares of the Equity Value, Equity Growth, Small Company Equity, Asset
Allocation, Growth and Income and Strategic Equity Funds may be exchanged for
Retail B Shares of any other Galaxy portfolio which offers Retail B Shares. In
either case, exchanges are not subject to sales or additional CDSC charges.
Galaxy offers Individual Retirement Accounts ("IRAs"), Simplified Employee
Pension Plan ("SEP") and Keogh Plan accounts which can be established by
contacting First Data Distributors, Inc. Retail Shares are also available for
purchase through Multi-Employee Retirement Plan ("MERP") accounts which can be
established by Customers directly with Fleet Brokerage Securities, Inc. or its
affiliates. Galaxy also offers an Automatic Investment Program which allows
investors to automatically invest in Retail Shares of the Funds on a monthly or
quarterly basis, as well as certain other shareholder privileges. See "Investor
Programs."
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by each Fund with respect to its Retail A Shares and/or Retail B Shares,
and (ii) the operating expenses for Retail A Shares and/or Retail B Shares of
each Fund. SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or
selling shares of a Fund. ANNUAL FUND OPERATING EXPENSES are paid out of each
Fund's assets and include fees for portfolio management, maintenance of
shareholder accounts, general Fund administration, accounting and other
services. Examples based on the summary are also shown.
<TABLE>
<CAPTION>
EQUITY EQUITY EQUITY SMALL COMPANY
VALUE GROWTH INCOME INTERNATIONAL EQUITY
FUND FUND FUND EQUITY FUND
------------------ ------------------ ------- FUND -------------------------
RETAIL RETAIL RETAIL RETAIL RETAIL ------------ RETAIL
A B A B A RETAIL RETAIL B
SHARES SHARES SHARES SHARES SHARES A SHARES A SHARES SHARES
------- ------- ------- ------- ------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
- ------------------------------
Maximum Front-End Sales Charge
Imposed on Purchases (as a
percentage of offering
price)....................... 3.75%(1) None 3.75%(1) None 3.75%(1) 3.75%(1) 3.75%(1) None
Maximum Deferred Sales Charge
(as a percentage of offering
price)....................... None 5.00%(2) None 5.00%(2) None None None 5.00%(2)
Sales Charge Imposed on
Reinvested Dividends......... None None None None None None None None
Redemption Fees(3)............ None None None None None None None None
Exchange Fees................. None None None None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
- ------------------------------
Advisory Fees (After Fee
Waivers)..................... .75% .75% .75% .75% .75% .66% .75% .75%
12b-1 Fees(4) (After Fee
Waivers)..................... None .95% None .95% None None None .94%
Other Expenses (After Fee
Waivers)..................... .65% .42% .63% .39% .68% 1.00% .78% .47%
Total Fund Operating Expenses
(After Fee Waivers).......... 1.40% 2.12% 1.38% 2.09% 1.43% 1.66% 1.53% 2.16%
</TABLE>
- --------------------------
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Retail A Shares that
are purchased with no initial sales charge as part of an investment of
$500,000 or more. See "How to Purchase Shares--Applicable Sales
Charges--Retail A Shares."
(2) This amount applies to redemptions made during the first year. The charge
decreases to 4.00%, 3.00%, 3.00%, 2.00% and 1.00% for redemptions made
during the second through sixth years, respectively. Retail B Shares
automatically convert to Retail A Shares after six years. See "How to
Purchase Shares--Applicable Sales Charges--Retail B Shares."
(3) Direct Investors are charged a $5.00 fee if redemption proceeds are paid by
wire.
(4) Retail A Shares do not currently pay 12b-1 fees. Long-term investors in
Retail B Shares may pay more than the economic equivalent of the maximum
front-end sales charges permitted by the rules of the National Association
of Securities Dealers, Inc.
3
<PAGE>
<TABLE>
<CAPTION>
SMALL
CAP
ASSET ALLOCATION VALUE GROWTH AND INCOME
FUND FUND FUND
------------------ ------- ------------------
RETAIL RETAIL RETAIL RETAIL RETAIL
A B A A B
SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
- ------------------------------
Maximum Front-End Sales Charge
Imposed on Purchases (as a
percentage of offering
price)....................... 3.75%(1) None 3.75%(1) 3.75%(1) None
Maximum Deferred Sales Charge
(as a percentage of offering
price)....................... None 5.00%(2) None None 5.00%(2)
Sales Charge Imposed on
Reinvested Dividends......... None None None None None
Redemption Fees(3)............ None None None None None
Exchange Fees................. None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
- ------------------------------
Advisory Fees (After Fee
Waivers)..................... .75% .75% .75% .75% .75%
12b-1 Fees(4)................. None .95% None None .95%
Other Expenses (After Fee
Waivers)..................... .67% .45% .56% .53% .36%
Total Fund Operating Expenses
(After Fee Waivers).......... 1.42% 2.15% 1.31% 1.28% 2.06%
<CAPTION>
STRATEGIC EQUITY
FUND
------------------
RETAIL RETAIL
A B
SHARES SHARES
------- -------
<S> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
- ------------------------------
Maximum Front-End Sales Charge
Imposed on Purchases (as a
percentage of offering
price)....................... 3.75%(1) None
Maximum Deferred Sales Charge
(as a percentage of offering
price)....................... None 5.00%(2)
Sales Charge Imposed on
Reinvested Dividends......... None None
Redemption Fees(3)............ None None
Exchange Fees................. None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
- ------------------------------
Advisory Fees (After Fee
Waivers)..................... .55% .55%
12b-1 Fees(4)................. None .95%
Other Expenses (After Fee
Waivers)..................... .95% .60%
Total Fund Operating Expenses
(After Fee Waivers).......... 1.50% 2.10%
</TABLE>
- --------------------------
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Retail A Shares that
are purchased with no initial sales charge as part of an investment of
$500,000 or more. See "How to Purchase Shares--Applicable Sales
Charges--Retail A Shares."
(2) This amount applies to redemptions made during the first year. The charge
decreases to 4.00%, 3.00%, 3.00%, 2.00% and 1.00% for redemptions made
during the second through sixth years, respectively. Retail B Shares
automatically convert to Retail A Shares after six years. See "How to
Purchase Shares--Applicable Sales Charges--Retail B Shares."
(3) Direct Investors are charged a $5.00 fee if redemption proceeds are paid by
wire.
(4) Retail A Shares do not currently pay 12b-1 fees. Long-term investors in
Retail B Shares may pay more than the economic equivalent of the maximum
front-end sales charges permitted by the rules of the National Association
of Securities Dealers, Inc.
4
<PAGE>
- --------------------------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- --------
<S> <C> <C> <C> <C>
Equity Value Fund (Retail A Shares)(1)............ $52 $80 $111 $197
Equity Value Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $71 $95 $132 $207(3)
Assuming no redemption.......................... $21 $65 $112 $207(3)
Equity Growth Fund (Retail A Shares)(1)........... $51 $79 $109 $195
Equity Growth Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $71 $95 $131 $204(3)
Assuming no redemption.......................... $21 $65 $111 $204(3)
Equity Income Fund (Retail A Shares)(1)........... $52 $81 $112 $200
International Equity Fund (Retail A Shares)(1).... $54 $88 $124 $224
Small Company Equity Fund (Retail A Shares)(1).... $53 $84 $117 $211
Small Company Equity Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $72 $97 $134 $215(3)
Assuming no redemption.......................... $22 $67 $114 $215(3)
Asset Allocation Fund (Retail A Shares)(1)........ $52 $81 $112 $199
Asset Allocation Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $71 $96 $134 $209(3)
Assuming no redemption.......................... $22 $66 $114 $209(3)
Small Cap Value Fund (Retail A Shares)............ $51 $77 $106 $187
Growth and Income Fund (Retail A Shares).......... $50 $76 $104 $184
Growth and Income Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $71 $94 $129 $197(3)
Assuming no redemption.......................... $21 $64 $109 $197(3)
Strategic Equity Fund (Retail A Shares)(1)........ $53 $83 N/A N/A
Strategic Equity Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $71 $95 N/A N/A
Assuming no redemption.......................... $21 $65 N/A N/A
</TABLE>
- --------------------------
(1) Assumes deduction at time of purchase of maximum applicable front-end sales
charge.
(2) Assumes deduction of maximum applicable contingent deferred sales charge.
(3) Based on conversion of Retail B Shares to Retail A Shares after six years.
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Funds will bear
directly or indirectly. The information contained in the Expense Summary and
Example with respect to the Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity, Asset Allocation, Small Cap Value
and Growth and Income Funds is based on expenses incurred by each Fund during
the last fiscal year, restated to reflect the expenses each Fund expects to
incur during the current fiscal year on its Retail A Shares and/or Retail B
Shares. The information in the Expense Summary and Example with respect to the
Strategic Equity Fund is based on expenses which the Fund expects to incur
during the current fiscal year on its Retail A Shares and Retail B Shares.
Without voluntary fee waivers by Fleet, (i) Advisory Fees would be .91% for
Retail A Shares of the International Equity Fund and .75% and .75% for Retail A
Shares and Retail B Shares, respectively, of the Strategic Equity Fund, (ii)
12b-1 Fees would be .95% for Retail B Shares of the Small Company Equity Fund,
(iii) Other Expenses would be .66% for Retail A Shares of the Small Cap Value
Fund, .60% for Retail A Shares of the Growth and Income Fund and 1.03% for
Retail A Shares of the Strategic Equity Fund, and (iv) Total Fund Operating
Expenses would be 1.91% for Retail A Shares of the International Equity Fund,
2.17% for Retail B Shares of the Small Company Equity Fund, 1.41% for Retail A
Shares of the Small Cap Value Fund, 1.35% for Retail A Shares of the Growth and
Income Fund are 1.78% and 2.30% for Retail A Shares and Retail B Shares of the
Strategic Equity Fund. Fleet is under no obligation to waive fees and/or
reimburse expenses but has advised Galaxy that it intends to waive fees and/or
reimburse expenses during the current year to the extent necessary to maintain
the Funds' operating expenses at the levels set forth in the above table. For
more complete descriptions of these costs and expenses, see "How to Purchase
Shares," "How to Redeem Shares," "Management of the Funds" and "Description of
Galaxy and Its Shares" in this Prospectus and the financial statements and notes
incorporated by reference into the Statements of Additional Information. Any
fees that are charged by affiliates of Fleet or other Institutions directly to
their Customer accounts for services related to an investment in Retail Shares
of the Funds are in addition to and not reflected in the fees and expenses
described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
5
<PAGE>
FINANCIAL HIGHLIGHTS
This Prospectus describes the Retail A Shares in each Fund and the Retail B
Shares in the Equity Value, Equity Growth, Small Company Equity, Asset
Allocation, Growth and Income and Strategic Equity Funds. Galaxy is also
authorized to issue another series of shares in each Fund ("Trust Shares"),
which are offered under a separate prospectus. As described below under
"Description of Galaxy and Its Shares," Retail A Shares, Retail B Shares and
Trust Shares represent equal pro rata interests in a Fund, except that (i)
Retail A Shares of the Funds bear the expenses incurred under Galaxy's
Shareholder Services Plan at an annual rate of up to .30% of the average daily
net asset value of each Fund's outstanding Retail A Shares, (ii) Retail B Shares
of the Equity Value, Equity Growth, Small Company Equity, Asset Allocation,
Growth and Income and Strategic Equity Funds bear the expenses incurred under
Galaxy's Distribution and Services Plan at an annual rate of up to .95% of the
average daily net asset value of each Fund's outstanding Retail B Shares, and
(iii) Retail A Shares, Retail B Shares and Trust Shares bear differing transfer
agency expenses.
The financial highlights presented below for the Equity Value, Equity
Growth, Equity Income, International Equity, Small Company Equity and Asset
Allocation Funds have been audited by Coopers & Lybrand L.L.P., Galaxy's
independent accountants, whose report is contained in Galaxy's Annual Report to
Shareholders relating to the Funds dated October 31, 1997 (the "Annual Report").
Such financial highlights should be read in conjunction with the financial
statements and notes thereto contained in Galaxy's Annual Report and
incorporated by reference into the Statement of Additional Information relating
to these Funds. Information in the financial highlights presented below with
respect to Retail A Shares of these Funds for periods prior to the fiscal year
ended October 31, 1994 reflects the investment results of both Retail A Shares
and Trust Shares of the Funds (Retail A Shares of the Equity Value and Equity
Growth Funds were first offered during the fiscal year/ period ended October 31,
1991, and Retail A Shares of the Equity Income Fund were first offered during
the fiscal year ended October 31, 1992). As of the date of this Prospectus, the
Strategic Equity Fund had not commenced operations. More information about the
performance of the Funds is also contained in Galaxy's Annual Report, which may
be obtained without charge by contacting Galaxy at its telephone number or
address provided above.
6
<PAGE>
EQUITY VALUE FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------------------------
1996
1997 ---------------------- 1995 1994
------------------- RETAIL ------------ ------------
RETAIL RETAIL RETAIL B RETAIL RETAIL
A SHARES B SHARES A SHARES SHARES(3) SHARES SHARES 1993(2)
-------- --------- --------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 15.96 $ 15.99 $ 14.33 $ 14.74 $ 13.31 $ 13.12 $ 11.41
-------- --------- --------- ---------- ------------ ------------ ----------
Income from Investment Operations:
Net investment income(4,5)............ 0.11 -- 0.14 0.04 0.22 0.18 0.19
Net realized and unrealized gain
(loss) on investments................ 4.16 4.17 2.74 1.25 2.24 0.45 2.14
-------- --------- --------- ---------- ------------ ------------ ----------
Total from Investment
Operations:...................... 4.27 4.17 2.88 1.29 2.46 0.63 2.33
-------- --------- --------- ---------- ------------ ------------ ----------
Less Dividends:
Dividends from net investment
income............................... (0.12) (0.02) (0.14) (0.04) (0.23) (0.16) (0.20)
Dividends from net realized capital
gains................................ (1.90) (1.90) (1.11) -- (1.21) (0.28) (0.42)
-------- --------- --------- ---------- ------------ ------------ ----------
Total Dividends................... (2.02) (1.92) (1.25) (0.04) (1.44) (0.44) (0.62)
-------- --------- --------- ---------- ------------ ------------ ----------
Net increase (decrease) in net asset
value.................................. 2.25 2.25 1.63 1.25 1.02 0.19 1.71
-------- --------- --------- ---------- ------------ ------------ ----------
Net Asset Value, End of Period.......... $ 18.21 $ 18.24 $ 15.96 $ 15.99 $ 14.33 $ 13.31 $ 13.12
-------- --------- --------- ---------- ------------ ------------ ----------
-------- --------- --------- ---------- ------------ ------------ ----------
Total Return(8)......................... 29.48% 28.60% 21.49% 8.80%(6) 20.81% 4.97% 21.18%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $182,641 $14,958 $ 131,998 $ 1,916 $96,555 $74,001 $ 176,107
Ratios to average net assets:
Net investment income including
reimbursement/ waiver................ 0.63% (0.13)% 1.00% 0.43%(7) 1.62% 1.45% 1.52%
Operating expenses including
reimbursement/ waiver................ 1.38% 2.07% 1.45% 1.94%(7) 1.49% 1.08% 0.97%
Operating expenses excluding
reimbursement/ waiver................ 1.38% 2.38% 1.45% 2.24%(7) 1.50% 1.11% 0.97%
Portfolio Turnover Rate................. 111% 111% 116% 116% 76% 71% 50%
Average Commission Rate Paid(9)......... $ 0.0601 $0.0601 $ 0.0605 $0.0605 N/A N/A N/A
<CAPTION>
YEAR ENDED OCTOBER 31, PERIOD ENDED
---------------------------------------------- OCTOBER 31,
1992(2) 1991(2) 1990(2) 1989(2) 1988(1,2)
---------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 11.52 $ 9.45 $ 11.51 $ 10.41 $ 10.00
---------- --------- --------- --------- ------------
Income from Investment Operations:
Net investment income(4,5)............ 0.26 0.37 0.39 0.36 0.03
Net realized and unrealized gain
(loss) on investments................ 0.33 2.41 (1.37) 1.10 0.38
---------- --------- --------- --------- ------------
Total from Investment
Operations:...................... 0.59 2.78 (0.98) 1.46 0.41
---------- --------- --------- --------- ------------
Less Dividends:
Dividends from net investment
income............................... (0.27) (0.37) (0.38) (0.36) --
Dividends from net realized capital
gains................................ (0.43) (0.34) (0.70) -- --
---------- --------- --------- --------- ------------
Total Dividends................... (0.70) (0.71) (1.08) (0.36) --
---------- --------- --------- --------- ------------
Net increase (decrease) in net asset
value.................................. (0.11) 2.07 (2.06) 1.10 0.41
---------- --------- --------- --------- ------------
Net Asset Value, End of Period.......... $ 11.41 $ 11.52 $ 9.45 $ 11.51 $ 10.41
---------- --------- --------- --------- ------------
---------- --------- --------- --------- ------------
Total Return(8)......................... 5.66% 30.45% (9.43)% 14.19% 4.10%(6)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)..... $ 133,578 $ 99,601 $ 92,893 $ 92,366 $75,774
Ratios to average net assets:
Net investment income including
reimbursement/ waiver................ 2.24% 3.25% 3.66% 3.25% 1.89%(7)
Operating expenses including
reimbursement/ waiver................ 0.94% 0.94% 0.95% 0.97% 0.95%(7)
Operating expenses excluding
reimbursement/ waiver................ 0.94% 0.94% 0.95% 0.98% 0.94%(7)
Portfolio Turnover Rate................. 136% 40% 94% 44% 4%(6)
Average Commission Rate Paid(9)......... N/A N/A N/A N/A N/A
</TABLE>
- --------------------------
(1) The Fund commenced operations on September 1, 1988.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) The Fund began issuing Retail B Shares on March 4, 1996.
(4) Net investment income per share for Retail A Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the years ended October 31, 1997, 1996, 1995, 1994, 1993, 1992, 1991, 1990
and 1989 and for the period ended October 31, 1988 were $0.11, $0.14,
$0.22, $0.18, $0.19, $0.26, $0.37, $0.39 and $0.36, respectively.
(5) Net investment income (loss) per share for Retail B Shares before
reimbursement/waiver of fees by Fleet and/or the Fund's administrator for
the year ended October 31, 1997 and for the period ended October 31, 1996
was $(0.03) and $0.01, respectively.
(6) Not Annualized.
(7) Annualized.
(8) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(9) Required for fiscal years beginning on or after September 1, 1995.
7
<PAGE>
EQUITY GROWTH FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------------------------
1996 PERIOD
1997 -------------------- 1995 1994 ENDED
------------------- RETAIL --------- --------- OCTOBER
RETAIL RETAIL RETAIL B RETAIL RETAIL 31,
A SHARES B SHARES A SHARES SHARES(3) SHARES SHARES 1993(2) 1992(2) 1991(1,2)
-------- -------- --------- -------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period... $ 20.37 $ 20.26 $ 17.29 $ 18.77 $ 14.18 $ 13.76 $ 12.90 $ 11.99 $ 10.00
-------- -------- --------- -------- --------- --------- --------- --------- --------
Income from Investment
Operations:
Net investment
income(4,5)......... 0.07 (0.09)(10) 0.10 (0.01) 0.14 0.17 0.15 0.17 0.16
Net realized and
unrealized gain
(loss) on
investments......... 6.05 6.02 3.39 1.50 3.28 0.47 0.95 0.91 1.97
-------- -------- --------- -------- --------- --------- --------- --------- --------
Total from
Investment
Operations:..... 6.12 5.93 3.49 1.49 3.42 0.64 1.10 1.08 2.13
-------- -------- --------- -------- --------- --------- --------- --------- --------
Less Dividends:
Dividends from net
investment income... (0.07) -- (0.11) -- (0.14) (0.16) (0.15) (0.17) (0.14)
Dividends from net
realized capital
gains............... (1.28) (1.28) (0.30) -- (0.17) (0.06) (0.09) -- --
-------- -------- --------- -------- --------- --------- --------- --------- --------
Total
Dividends....... (1.35) (1.28) (0.41) -- (0.31) (0.22) (0.24) (0.17) (0.14)
-------- -------- --------- -------- --------- --------- --------- --------- --------
Net increase (decrease)
in net asset value.... 4.77 4.65 3.08 1.49 3.11 0.42 0.86 0.91 1.99
-------- -------- --------- -------- --------- --------- --------- --------- --------
Net Asset Value, End of
Period................ $ 25.14 $ 24.91 $ 20.37 $ 20.26 $ 17.29 $ 14.18 $ 13.76 $ 12.90 $ 11.99
-------- -------- --------- -------- --------- --------- --------- --------- --------
-------- -------- --------- -------- --------- --------- --------- --------- --------
Total Return(8)........ 31.61% 30.78% 20.51% 7.95%(6) 24.54% 4.72% 8.58% 9.10% 21.39%(6)
Ratios/Supplemental
Data:
Net Assets, End of
Period (000's)...... $226,330 $20,363 $160,800 $ 3,995 $ 98,911 $ 70,338 $ 427,298 $ 224,630 $92,224
Ratios to average net
assets:
Net investment income
including
reimbursement/waiver... 0.30% (0.40)% 0.50% (0.16)%(7) 0.85% 1.22% 1.20% 1.37% 1.46%(7)
Operating expenses
including
reimbursement/
waiver.............. 1.37% 2.07% 1.40% 1.92%(7) 1.45% 0.98% 0.97% 0.95% 0.83%(7)
Operating expenses
excluding
reimbursement/
waiver.............. 1.37% 2.30% 1.40% 2.29%(7) 1.47% 0.99% 0.97% 0.95% 0.83%(7)
Portfolio Turnover
Rate.................. 66% 66% 36% 36% 14% 18% 16% 22% 16%(6)
Average Commission Rate
Paid(9)............... $0.0601 $0.0601 $ 0.0615 $0.0615 N/A N/A N/A N/A N/A
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) The Fund began issuing Retail B Shares on March 4, 1996.
(4) Net investment income (loss) per share before reimbursement/waiver of fees
by Fleet and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1997, 1996, 1995, 1994, 1993 and 1992 and for the period
ended October 31, 1991 was $0.07, $0.10, $0.13, $0.17, $0.15, $0.17 and
$0.16, respectively.
(5) Net investment income (loss) per share before reimbursement/waiver of fees
by Fleet and/or the Fund's administrator for Retail B Shares for the year
ended October 31, 1997 and for the period ended October 31, 1996 was
$(0.14) and $(0.03), respectively.
(6) Not Annualized.
(7) Annualized.
(8) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(9) Required for fiscal years beginning on or after September 1, 1995.
(10) The selected per share data was calculated using the weighted average
shares outstanding method for the year.
8
<PAGE>
EQUITY INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
1997 1996 1995 1994
-------- -------- ------- ------- PERIOD ENDED
RETAIL RETAIL RETAIL RETAIL OCTOBER 31,
A SHARES A SHARES SHARES SHARES 1993(2) 1992(2) 1991(1,2)
-------- -------- ------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 16.91 $ 14.98 $ 12.74 $ 12.85 $ 11.85 $ 11.29 $10.00
-------- -------- ------- ------- -------- ------- ------
Income from Investment Operations:
Net investment income(3)........................ 0.30 0.30 0.28 0.30 0.30 0.30 0.29
Net realized and unrealized gain (loss) on
investments.................................... 3.35 2.47 2.47 0.07 1.09 0.76 1.26
-------- -------- ------- ------- -------- ------- ------
Total from Investment Operations:........... 3.65 2.77 2.75 0.37 1.39 1.06 1.55
-------- -------- ------- ------- -------- ------- ------
Less Dividends:
Dividends from net investment income............ (0.30 ) (0.30 ) (0.30) (0.29) (0.28) (0.30) (0.26)
Dividends from net realized capital gains....... (1.44 ) (0.54 ) (0.21) (0.19) (0.11) (0.20) --
-------- -------- ------- ------- -------- ------- ------
Total Dividends:............................ (1.74 ) (0.84 ) (0.51) (0.48) (0.39) (0.50) (0.26)
-------- -------- ------- ------- -------- ------- ------
Net increase (decrease) in net asset value........ 1.91 1.93 2.24 (0.11) 1.00 0.56 1.29
-------- -------- ------- ------- -------- ------- ------
Net Asset Value, End of Period.................... $ 18.82 $ 16.91 $ 14.98 $ 12.74 $ 12.85 $ 11.85 $11.29
-------- -------- ------- ------- -------- ------- ------
-------- -------- ------- ------- -------- ------- ------
Total Return(6)................................... 23.28% 19.01% 22.23% 2.94% 11.85% 9.71% 15.61%(4)
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............... $169,276 $126,952 $81,802 $63,532 $123,970 $21,778 $7,096
Ratios to average net assets:
Net investment income including
reimbursement/waiver........................... 1.70% 1.86% 2.08% 2.45% 2.34% 2.84% 2.72%(5)
Operating expenses including
reimbursement/waiver........................... 1.39% 1.40% 1.49% 1.11% 1.16% 1.03% 0.85%(5)
Operating expenses excluding
reimbursement/waiver........................... 1.41% 1.40% 1.51% 1.12% 1.22% 1.54% 1.39%(5)
Portfolio Turnover Rate........................... 37% 45% 21% 31% 27% 18% 77%(4)
Average Commission Rate Paid(7)................... $0.0598 $0.0620 N/A N/A N/A N/A N/A
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 14, 1990.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1997, 1996, 1995, 1994, 1993 and 1992 and for the period
ended October 31, 1991 was $0.30, $0.30, $0.28, $0.30, $0.29, $0.25 and
$0.23, respectively.
(4) Not Annualized.
(5) Annualized.
(6) Calculation does not include the effect of any sales charge for Retail A
Shares.
(7) Required for fiscal years beginning on or after September 1, 1995.
9
<PAGE>
INTERNATIONAL EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
1997 1996 1995 1994
------------- ------------- -------- -------- PERIOD ENDED
RETAIL RETAIL RETAIL RETAIL OCTOBER 31,
A SHARES A SHARES SHARES SHARES 1993(2) 1992(1,2)
------------- ------------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 13.94 $ 12.92 $ 13.20 $ 12.13 $ 9.66 $ 10.00
------------- ------------- -------- -------- -------- -------------
Income from Investment
Operations:
Net investment income(3).... 0.01 0.11 0.11 0.06 0.02 0.06
Net realized and unrealized
gain (loss) on
investments................ 2.09 1.27 (0.21) 1.02 2.51 (0.40)
------------- ------------- -------- -------- -------- -------------
Total from Investment
Operations:............ 2.10 1.38 (0.10) 1.08 2.53 (0.34)
------------- ------------- -------- -------- -------- -------------
Less Dividends:
Dividends from net
investment income.......... (0.18) (0.12) (0.02) (0.01) (0.06) --
Dividends from net realized
capital gains.............. (0.68) (0.24) (0.16) -- -- --
------------- ------------- -------- -------- -------- -------------
Total Dividends......... (0.86) (0.36) (0.18) (0.01) (0.06) --
------------- ------------- -------- -------- -------- -------------
Net increase (decrease) in net
asset value.................. 1.24 1.02 (0.28) 1.07 2.47 (0.34)
------------- ------------- -------- -------- -------- -------------
Net Asset Value, End of
Period....................... $ 15.18 $ 13.94 $ 12.92 $ 13.20 $ 12.13 $ 9.66
------------- ------------- -------- -------- -------- -------------
------------- ------------- -------- -------- -------- -------------
Total Return(6)............... 15.88% 10.86% (0.64)% 8.91% 26.36% (3.40)%(4)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................... $56,592 $35,144 $ 30,104 $ 32,887 $ 39,246 $12,584
Ratios to average net assets:
Net investment income
including
reimbursement/waiver....... 0.03% 0.78% 0.84% 0.69% 0.37% 1.19%(5)
Operating expenses including
reimbursement/waiver....... 1.60% 1.70% 1.76% 1.49% 1.57% 1.61%(5)
Operating expenses excluding
reimbursement/waiver....... 1.85% 1.98% 2.03% 1.79% 2.04% 2.79%(5)
Portfolio Turnover Rate....... 45% 146% 48% 39% 29% 21%(4)
Average Commission Rate
Paid(7)...................... $0.0214 $0.0381 N/A N/A N/A N/A
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1997, 1996, 1995, 1994 and 1993 and for the period ended
October 31, 1992 was $(0.01), $0.07, $0.08, $0.03, $0.00 and $0.00,
respectively.
(4) Not Annualized.
(5) Annualized.
(6) Calculation does not include the effect of any sales charge for Retail A
Shares.
(7) Required for fiscal years beginning on or after September 1, 1995.
10
<PAGE>
SMALL COMPANY EQUITY FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------------------------
1996 PERIOD
1997 ---------------------- 1995 1994 ENDED
--------------------- RETAIL --------- --------- OCTOBER
RETAIL RETAIL RETAIL B RETAIL RETAIL 31,
A SHARES B SHARES A SHARES SHARES(3) SHARES SHARES 1993(3) 1992(1,2)
--------- --------- ---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $ 19.96 $ 19.91 $ 16.28 $ 17.27 $ 12.35 $ 12.41 $ 8.79 $ 10.00
--------- --------- ---------- --------- --------- --------- --------- ---------
Income from Investment
Operations:
Net investment
income(4,5)............. (0.18) (0.21) (0.14) (0.19)(6) (0.09) (0.01) (0.04) (0.03)
Net realized and
unrealized gain (loss)
on investments.......... 3.54 3.41 3.99 2.83 4.21 -- 3.66 (1.18)
--------- --------- ---------- --------- --------- --------- --------- ---------
Total from Investment
Operations:......... 3.36 3.20 3.85 2.64 4.12 (0.01) 3.62 (1.21)
--------- --------- ---------- --------- --------- --------- --------- ---------
Less Dividends:
Dividends from net
investment income....... -- -- -- -- -- -- -- --
Dividends from net
realized capital
gains................... (2.38) (2.38) (0.17) -- (0.19) (0.05) -- --
--------- --------- ---------- --------- --------- --------- --------- ---------
Total Dividends:..... (2.38) (2.38) (0.17) -- (0.19) (0.05) -- --
--------- --------- ---------- --------- --------- --------- --------- ---------
Net increase (decrease) in
net asset value........... 0.98 0.82 3.68 2.64 3.93 (0.06) 3.62 (1.21)
--------- --------- ---------- --------- --------- --------- --------- ---------
Net Asset Value, End of
Period.................... $ 20.94 $ 20.73 $ 19.96 $ 19.91 $ 16.28 $ 12.35 $ 12.41 $ 8.79
--------- --------- ---------- --------- --------- --------- --------- ---------
--------- --------- ---------- --------- --------- --------- --------- ---------
Total Return(9)...... 19.08% 18.23% 23.97% 15.34%(7) 34.01% (0.06)% 41.18% (12.10)%(7)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)................. $ 135,593 $ 14,731 $ 111,101 $ 3,659 $ 45,668 $ 30,845 $ 55,683 $ 29,072
Ratios to average net
assets:
Net investment income
including
reimbursement/waiver.... (1.02)% (1.76)% (1.03)% (1.50)%(8) (0.85)% (0.40)% (0.66)% (0.63)%(8)
Operating expenses
including
reimbursement/waiver.... 1.46% 2.20% 1.57% 2.04%(8) 1.60% 1.31% 1.18% 1.06%(8)
Operating expenses
excluding
reimbursement/waiver.... 1.48% 2.44% 1.57% 2.44%(8) 1.64% 1.34% 1.22% 1.33%(8)
Portfolio Turnover Rate.... 69% 69% 82% 82% 54% 35% 57% 87%(7)
Average Commission Rate
Paid(10).................. $ 0.0576 $ 0.0576 $ 0.0531 $ 0.0531 N/A N/A N/A N/A
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) The Fund began issuing Retail B Shares on March 4, 1996.
(4) Net investment income (loss) per share before reimbursement/waiver of fees
by Fleet and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1997, 1996, 1995, 1994 and 1993 and for the period ended
October 31, 1992 was $(0.18), $(0.14), $(0.09), $(0.01), $(0.04) and
$(0.05), respectively.
(5) Net investment income (loss) per share before reimbursement/ waiver of fees
by Fleet and/or the Fund's administrator for Retail B Shares for the year
ended October 31, 1997 and for the period ended October 31, 1996 was
$(0.24) and $(0.24), respectively.
(6) The selected per share data was calculated using the weighted average
shares outstanding method for the period.
(7) Not annualized.
(8) Annualized.
(9) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(10) Required for fiscal years beginning on or after September 1, 1995.
11
<PAGE>
ASSET ALLOCATION FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------------------------
1997 1996 1995 1994
----------------------- ------------------------- ----------- -----------
RETAIL RETAIL RETAIL RETAIL RETAIL RETAIL
A SHARES B SHARES A SHARES B SHARES(3) SHARES SHARES 1993(2)
---------- ---------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 14.52 $ 14.51 $ 12.82 $ 13.59 $ 10.67 $ 11.15 $ 10.16
---------- ---------- ----------- ----------- ----------- ----------- ----------
Income from Investment
Operations:
Net investment
income(4,5)................ 0.40 0.29 0.30 0.13 0.30 0.27 0.25
Net realized and unrealized
gain (loss) on
investments................ 2.43 2.42 1.83 0.91 2.16 (0.49) 0.99
---------- ---------- ----------- ----------- ----------- ----------- ----------
Total from Investment
Operations:............ 2.83 2.71 2.13 1.04 2.46 (0.22) 1.24
---------- ---------- ----------- ----------- ----------- ----------- ----------
Less Dividends:
Dividends from net
investment income.......... (0.38) (0.28) (0.30) (0.12) (0.31) (0.26) (0.25)
Dividends from net realized
capital gains.............. (0.51) (0.51) (0.13) -- -- -- --
---------- ---------- ----------- ----------- ----------- ----------- ----------
Total Dividends......... (0.89) (0.79) (0.43) (0.12) (0.31) (0.26) (0.25)
---------- ---------- ----------- ----------- ----------- ----------- ----------
Net increase (decrease) in net
asset value.................. 1.94 1.92 1.70 0.92 2.15 (0.48) 0.99
---------- ---------- ----------- ----------- ----------- ----------- ----------
Net Asset Value, End of
Period....................... $ 16.46 $ 16.43 $ 14.52 $ 14.51 $ 12.82 $ 10.67 $ 11.15
---------- ---------- ----------- ----------- ----------- ----------- ----------
---------- ---------- ----------- ----------- ----------- ----------- ----------
Total Return(8)............... 20.23% 19.34% 16.92% 7.71%(6) 23.42% (2.02)% 12.37%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................... $ 177,239 $ 30,688 $116,852 $ 3,557 $ 76,368 $ 73,574 $ 92,348
Ratios to average net assets:
Net investment income
including
reimbursement/waiver....... 2.66% 1.95% 2.29% 1.73%(7) 2.52% 2.66% 2.59%
Operating expenses including
reimbursement/waiver....... 1.37% 2.10% 1.42% 1.95%(7) 1.48% 1.21% 1.14%
Operating expenses excluding
reimbursement/waiver....... 1.37% 2.19% 1.42% 2.15%(7) 1.50% 1.22% 1.25%
Portfolio Turnover Rate....... 58% 58% 48% 48% 41% 23% 7%
Average Commission Rate
Paid(9)...................... $ 0.0609 $ 0.0609 $ 0.0635 $0.0635 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
OCTOBER 31,
1992(1,2)
-----------
<S> <C>
Net Asset Value, Beginning of
Period....................... $ 10.00
-----------
Income from Investment
Operations:
Net investment
income(4,5)................ 0.15
Net realized and unrealized
gain (loss) on
investments................ 0.13
-----------
Total from Investment
Operations:............ 0.28
-----------
Less Dividends:
Dividends from net
investment income.......... (0.12)
Dividends from net realized
capital gains.............. --
-----------
Total Dividends......... (0.12)
-----------
Net increase (decrease) in net
asset value.................. 0.16
-----------
Net Asset Value, End of
Period....................... $ 10.16
-----------
-----------
Total Return(8)............... 2.85%(6)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................... $11,555
Ratios to average net assets:
Net investment income
including
reimbursement/waiver....... 2.80%(7)
Operating expenses including
reimbursement/waiver....... 1.11%(7)
Operating expenses excluding
reimbursement/waiver....... 2.39%(7)
Portfolio Turnover Rate....... 2%(6)
Average Commission Rate
Paid(9)...................... N/A
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 30, 1991.
(2) For periods prior to the year ended October 31, 1994, the per share amounts
and selected ratios reflect the financial results of both Retail and Trust
Shares. On September 7, 1995, Retail Shares of the Fund were redesignated
"Retail A Shares."
(3) The Fund began issuing Retail B Shares on March 4, 1996.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1997, 1996, 1995, 1994 and 1993 and for the period ended
October 31, 1992 was $0.40, $0.30, $0.30, $0.27, $0.24 and $0.08,
respectively.
(5) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Retail B Shares for the year
ended October 31, 1997 and for the period ended October 31, 1996 was $0.28
and $0.12, respectively.
(6) Not Annualized.
(7) Annualized.
(8) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(9) Required for fiscal years beginning on or after September 1, 1995.
12
<PAGE>
The Small Cap Value Fund and Growth and Income Fund commenced operations on
December 14, 1992 as separate investment portfolios (the "Predecessor Small Cap
Value Fund" and the "Predecessor Growth and Income Fund," respectively, and
collectively, the "Predecessor Funds") of The Shawmut Funds, which was organized
as a Massachusetts business trust. On December 4, 1995, the Funds were
reorganized as new portfolios of Galaxy. Prior to the reorganization, the
Predecessor Funds offered and sold two series of shares of beneficial interest
that were similar to the Funds' Retail A Shares and Trust Shares, respectively.
The financial highlights presented below set forth certain information
concerning (i) the investment results of the Small Cap Value Fund's Retail A
Shares and the Growth and Income Fund's Retail A Shares and Retail B Shares for
the fiscal years ended October 31, 1997 and October 31, 1996 and (ii) the
investment results of the Predecessor Small Cap Value and Predecessor Growth and
Income Funds' Investment Shares (the series that is similar to the Retail A
Shares of the Small Cap Value and Growth and Income Funds) for the fiscal years
ended October 31, 1995 and October 31, 1994 and the fiscal period ended October
31, 1993. The information about the Small Cap Value and Growth and Income Funds
for the fiscal year ended October 31, 1997 and October 31, 1996 has been audited
by Coopers & Lybrand L.L.P., Galaxy's independent accountants, whose report is
contained in Galaxy's Annual Report to Shareholders relating to the Funds dated
October 31, 1997 (the "Annual Report"). The information about the Predecessor
Small Cap Value and Predecessor Growth and Income Funds for the fiscal years
ended October 31, 1995 and October 31, 1994 and the fiscal period ended October
31, 1993 was audited by other auditors. The financial highlights should be read
in conjunction with the financial statements and notes thereto contained in the
Annual Report and incorporated by reference into the Statement of Additional
Information relating to these Funds. More information about the performance of
the Funds is contained in the Annual Report which may be obtained without charge
by contacting Galaxy at its telephone number or address provided above.
13
<PAGE>
SMALL CAP VALUE FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------
1997 1996(2)
------------- ------------- PERIOD ENDED
RETAIL RETAIL OCTOBER 31,
A SHARES A SHARES 1995 1994 1993(1)
------------- ------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 14.75 $ 12.68 $ 11.06 $ 11.21 $ 10.52
------------- ------------- ----------- ----------- -------
Income from Investment
Operations:
Net investment
income(3,4)................ (0.04)(9) 0.01 (0.02) (0.01) (0.01)
Net realized gain (loss) on
investments................ 5.72 2.95 2.21 0.18 0.70
------------- ------------- ----------- ----------- -------
Total from Investment
Operations:............ 5.68 2.96 2.19 0.17 0.69
------------- ------------- ----------- ----------- -------
Less Dividends:
Dividends from net
investment income.......... -- (0.02) -- -- --
Dividends in excess of net
investment income.......... -- -- -- -- --
Dividends from net realized
gains...................... (2.14) (0.87) (0.57) (0.32) --
------------- ------------- ----------- ----------- -------
Total Dividends:........ (2.14) (0.89) (0.57) (0.32) --
------------- ------------- ----------- ----------- -------
Net increase (decrease) in net
asset value.................. 3.54 2.07 1.62 (0.15) 0.69
------------- ------------- ----------- ----------- -------
Net Asset Value, End of
Period....................... $ 18.29 $ 14.75 $ 12.68 $ 11.06 $ 11.21
------------- ------------- ----------- ----------- -------
------------- ------------- ----------- ----------- -------
Total Return(5)............... 43.58% 24.77% 21.27% 1.64% 6.56%(6)
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................... $63,658 $34,402 $ 27,546 $ 19,764 $15,014
Ratios to average net assets:
Net investment income
including
reimbursement/waiver....... (0.25)% 0.08% (0.19)% (0.10)% (0.19)%(7)
Operating Expenses including
reimbursement/waiver....... 1.30% 1.40% 1.35% 1.31% 1.33%(7)
Operating Expenses excluding
reimbursement/waiver....... 1.52% 1.55% 1.85% 1.84% 1.87%(7)
Portfolio Turnover Rate....... 52% 39% 32% 29% 29%(6)
Average Commission Rate
Paid(8)...................... $0.0577 $0.0559 N/A N/A N/A
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. The Predecessor
Fund began offering Investment Shares on February 12, 1993.
(2) On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy. Prior to the reorganization, the Predecessor Fund
offered and sold two series of shares, Investment Shares and Trust Shares,
that were similar to the Fund's Retail A and Trust Shares, respectively. In
connection with the reorganization, shareholders of the Predecessor Fund
exchanged Investment Shares and Trust Shares for Retail A Shares and Trust
Shares, respectively, in the Fund.
(3) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for Retail A Shares for the years
ended October 31, 1997 and 1996 was $(0.02) and $0.01, respectively. Net
investment income (loss) per share for Retail A Shares before
reimbursement/waiver of fees by other parties for the years ended October
31, 1995 and 1994 and for the period ended October 31, 1993 was $(0.08),
$(0.06) and $(0.05), respectively (unaudited).
(4) Net investment income per share does not reflect the tax reclassifications
arising in the current period.
(5) Calculation does not include the effect of any sales charge for Retail A
Shares.
(6) Not Annualized.
(7) Annualized.
(8) Required for fiscal years beginning on or after September 1, 1995.
(9) The selected per share data was calculated using the weighted average
shares outstanding method for the year.
14
<PAGE>
GROWTH AND INCOME FUND(1)
(FOR A SHARE(2) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
1996 PERIOD
1997 -------------------- ENDED
------------------- RETAIL RETAIL OCTOBER
RETAIL RETAIL A B 31,
A SHARES B SHARES SHARES(2) SHARES(3) 1995 1994 1993(1)
-------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period... $ 13.78 $ 13.77 $ 12.35 $ 12.97 $ 11.15 $ 10.69 $ 10.23
-------- -------- --------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment
income(4,5)......... 0.18 0.10 0.21 0.07 0.24 0.22 0.15
Net realized gain
(loss) on
investments......... 3.67 3.65 2.16 0.81 1.70 0.72 0.48
-------- -------- --------- -------- -------- -------- --------
Total from
Investment
Operations:..... 3.85 3.75 2.37 0.88 1.94 0.94 0.63
-------- -------- --------- -------- -------- -------- --------
Less Dividends:
Dividends from net
investment income... (0.20) (0.10) (0.21) (0.08) (0.25) (0.20) (0.17)
Dividends from net
realized gains...... (1.19) (0.19) (0.73) -- (0.49) (0.28) --
-------- -------- --------- -------- -------- -------- --------
Total
Dividends....... (1.39) (1.29) (0.94) (0.08) (0.74) (0.48) (0.17)
-------- -------- --------- -------- -------- -------- --------
Net increase (decrease)
in net asset value.... 2.46 2.46 1.43 0.80 1.20 0.46 0.46
-------- -------- --------- -------- -------- -------- --------
Net Asset Value, End of
Period................ $ 16.24 $ 16.23 $ 13.78 $ 13.77 $ 12.35 $ 11.15 $ 10.69
-------- -------- --------- -------- -------- -------- --------
-------- -------- --------- -------- -------- -------- --------
Total Return(6)........ 30.10% 29.11% 20.25% 6.83%(7) 18.52% 9.12% 6.20%(7)
Ratios/Supplemental
Data:
Net Assets, End of
Period (000s)....... $141,884 $35,178 $ 77,776 $ 4,562 $ 51,078 $ 22,244 $16,280
Ratios to average net
assets:
Net investment income
including
reimbursement/waiver... 1.18% 0.31% 1.65% 0.79%(8) 2.10% 2.06% 1.77%(8)
Operating Expenses
including
reimbursement/
waiver.............. 1.27% 2.05% 1.34% 1.96%(8) 1.32% 1.29% 1.25%(8)
Operating Expenses
excluding
reimbursement/
waiver.............. 1.45% 2.28% 1.45% 2.11%(8) 1.77% 1.74% 1.78%(8)
Portfolio Turnover
Rate.................. 93% 93% 59% 59% 51% 73% 38%(7)
Average Commission Rate
Paid(9)............... $0.0618 $0.0618 $ 0.0654 $0.0654 N/A N/A N/A
</TABLE>
- --------------------------
(1) The Fund commenced operations on December 14, 1992 as a separate investment
portfolio (the "Predecessor Fund") of The Shawmut Funds. The Predecessor
Fund began offering Investment Shares on February 12, 1993.
(2) On December 4, 1995, the Predecessor Fund was reorganized as a new
portfolio of Galaxy. Prior to the reorganization, the Predecessor Fund
offered and sold two series of shares, Investment Shares and Trust Shares,
that were similar to the Fund's Retail A and Trust Shares, respectively. In
connection with the reorganization, shareholders of the Predecessor Fund
exchanged Investment Shares and Trust Shares for Retail A Shares and Trust
Shares, respectively, in the Fund.
(3) The Fund began issuing Retail B Shares on March 4, 1996.
(4) Net investment income per share before reimbursement/waiver of fees by
Fleet and/or the Fund's administrator for (i) Retail A Shares the years
ended October 31, 1997 and 1996 was $0.18 and $0.19, respectively, (ii)
Retail B Shares for the year ended October 31, 1997 and for the period
ended October 31, 1996 was $0.08 and $0.05, respectively. Net investment
income per share before reimbursement/waiver of fees by other parties for
Retail A Shares for the years ended October 31, 1995 and 1994 and for the
period ended October 31, 1993 was $0.22, $0.18 and $0.18, respectively
(unaudited).
(5) Net investment income per share does not reflect the tax reclassification
arising in the current period.
(6) Calculation does not include the effect of any sales charge for Retail A
Shares and Retail B Shares.
(7) Not Annualized.
(8) Annualized.
(9) Required for fiscal years beginning on or after September 1, 1995.
15
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Fleet, and, with respect to the International Equity Fund, Fleet and
Oechsle, will use their best efforts to achieve each Fund's investment
objective, although such achievement cannot be assured. The investment objective
of a Fund may not be changed without the approval of the holders of a majority
of its outstanding shares (as defined under "Miscellaneous"). Except as noted
below under "Investment Limitations," a Fund's investment policies may be
changed without shareholder approval. An investor should not consider an
investment in the Funds to be a complete investment program.
EQUITY VALUE FUND
The investment objective of the Equity Value Fund is to seek long-term
capital appreciation. Income is secondary to the objective of capital
appreciation. The Fund attempts to achieve its investment objective by investing
primarily in common stock, preferred stock (including convertible preferred
stock) and debt obligations convertible into common stock that Fleet believes to
be undervalued, as measured by various financial tests, including one or more of
the following: cash flow, return on equity, return on assets, fixed charge
coverage and ratios of market capitalization to revenues. In addition, Fleet
considers the current value of an issuer's fixed assets (including real estate),
cash items, net working capital, indebtedness and historical book value. Stocks
which appear to be undervalued are also reviewed to determine whether
unacceptable risks account for their valuation. The Fund also seeks to purchase
stock with a projected price-earnings ratio below that of the Standard & Poor's
500 Composite Stock Price Index (the "S&P 500").
Under normal market and economic conditions, the Fund invests at least 75%
of its total assets in common stock, preferred stock and debt securities
convertible into common stock that Fleet believes to be undervalued. Debt
securities convertible into common stock are purchased primarily during periods
of relative market instability and are acquired principally for income with the
potential for appreciation being a secondary consideration. Equity investments
consist primarily of common stock of companies having capitalizations that
exceed $100 million. Stocks of such companies generally are listed on a national
exchange or are unlisted securities with an established over-the-counter market.
The Fund may hold other types of securities in such proportions as, in the
opinion of Fleet, existing market and economic conditions may warrant, including
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and other high quality "money market" instruments. The Fund
may also hold cash pending investment, during temporary defensive periods or if,
in the opinion of Fleet, suitable stock or convertible debt securities are
unavailable.
The Fund may also invest up to 20% of its total assets in foreign
securities, either directly or indirectly through American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs"). In addition, the Fund may
invest in securities issued by foreign branches of U.S. banks and foreign banks.
See "Special Risk Considerations--Foreign Securities" and "Other Investment
Policies and Risk Considerations--American, European and Global Depository
Receipts" below. The Fund may also write covered call options. See "Other
Investment Policies and Risk Considerations--Options and Futures Contracts" and
"Other Investment Policies and Risk Considerations--Derivative Securities"
below. See "Other Investment Policies and Risk Considerations" below for
information regarding additional investment policies of the Equity Value Fund.
EQUITY GROWTH FUND
The Equity Growth Fund's investment objective is to seek long-term capital
appreciation. The Fund attempts to achieve its investment objective by
investing, under normal market and economic conditions, at least 75% of its
total assets in a broadly diversified portfolio of equity securities such as
common stock, preferred stock, common stock warrants and securities convertible
into common stock of companies that Fleet believes will increase future earnings
to a level above the average earnings of similar issuers. Such companies often
retain their earnings to finance current and future growth and, for this reason,
generally pay little or no dividends. Equity securities in which the Fund
invests are selected based on analysis of trends in industries and companies,
earning power, growth features, quality and depth of management, marketing and
manufacturing skills, financial conditions and other investment criteria. By
investing in convertible securities, the Fund will seek the opportunity, through
the conversion feature, to participate in the capital appreciation of the common
stock into which the securities are convertible. See "Other Investment Policies
and Risk Considerations--Convertible Securities" below.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through the purchase of ADRs and EDRs. In
addition, the Fund may invest in securities issued by foreign branches of U.S.
banks and foreign banks. See "Special Risk Considerations--Foreign Securities"
and "Other Investment Policies and Risk Considerations--American, European and
Global Depository Receipts" below. The Fund may also purchase put options and
call options and write covered call options. See
16
<PAGE>
"Other Investment Policies and Risk Considerations-- Options and Futures
Contracts" and "Other Investment Policies and Risk Considerations--Derivative
Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of Fleet, prevailing market or
economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Equity Growth Fund.
EQUITY INCOME FUND
The Equity Income Fund's investment objective is to seek current income and
capital appreciation. The Fund attempts to achieve its investment objective by
investing, under normal market and economic conditions, at least 75% of its
total assets in common stock and securities convertible into common stock that
offer income potential. Factors generally considered in selecting portfolio
securities include current income and prospects for dividend growth and capital
appreciation. However, the Fund's portfolio can be expected to include
securities that offer only growth potential or only income potential, as well as
securities that combine both these elements.
The Equity Income Fund may invest up to 20% of its total assets in foreign
securities, either directly or indirectly through the purchase of ADRs and EDRs.
In addition, the Fund may invest in securities issued by foreign branches of
U.S. banks and foreign banks. See "Special Risk Considerations--Foreign
Securities" and "Other Investment Policies and Risk Considerations--American,
European and Global Depository Receipts" below. The Fund may also purchase put
options and call options and write covered call options. See "Other Investment
Policies and Risk Considerations-- Options and Futures Contracts" and "Other
Investment Policies and Risk Considerations--Derivative Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of Fleet, prevailing market or
economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Equity Income Fund.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to seek long-term
capital appreciation. The Fund attempts to achieve its investment objective by
investing at least 75% of its total assets in equity securities of foreign
issuers. The Fund's assets will be invested at all times in the securities of
issuers located in at least three different foreign countries. Although the Fund
may earn income from dividends, interest and other sources, current income will
not be its primary consideration. The Fund emphasizes established companies,
although it may invest in companies of varying sizes as measured by assets,
sales and capitalization.
The Fund may invest in securities of issuers located in a variety of
different foreign regions and countries, including, but not limited to,
Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany,
Greece, Hong Kong, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, Thailand and the United Kingdom. More than 25% of the Fund's total
assets may be invested in the securities of issuers located in the same country.
Investment in a particular country of 25% or more of the Fund's total assets
will make the Fund's performance more dependent upon the political and economic
circumstances of a particular country than a mutual fund that is more widely
diversified among issuers in different countries. Criteria for determining the
appropriate distribution of investments among various countries and regions
include prospects for relative economic growth, expected levels of inflation,
government policies influencing business conditions, the outlook for currency
relationships, and the range of investment opportunities available to
international investors. Under normal market and economic conditions, no more
than 20% of the Fund's net assets will be invested in the aggregate in the
securities of issuers located in countries with emerging economies or emerging
securities markets.
The Fund invests in common stock and may invest in other securities with
equity characteristics, consisting of trust or limited partnership interests,
preferred stock, rights and warrants. The Fund may also invest in convertible
securities, consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock.
See "Other Investment Policies and Risk Considerations--Convertible Securities"
below. The Fund invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets,
and may invest in unlisted securities.
Securities issued in certain countries are currently accessible to the Fund
only through investment in other investment companies that are specifically
authorized to invest in such securities. The limitations on the Fund's
investment in other investment companies are described below under "Other
Investment Policies and Risk Considerations--Investment Company Securities."
17
<PAGE>
During temporary defensive periods in response to unusual and adverse
conditions affecting the equity markets, or to meet anticipated day-to-day
operating expenses, the Fund's assets may be invested in short-term debt
instruments. In addition, when the Fund experiences large cash inflows from the
issuance of new shares or the sale of portfolio securities, and desirable equity
securities that are consistent with the Fund's investment objective are
unavailable in sufficient quantities, the Fund may hold short-term investments
for a limited time pending availability of suitable equity securities. The
short-term debt instruments in which the Fund may invest may be denominated in
foreign currencies or U.S. dollars, and include foreign and domestic: (i)
short-term debt securities, including short-term obligations of national
governments, their agencies, instrumentalities, authorities or political
subdivisions; (ii) commercial paper, including master notes; (iii) bank
obligations, including negotiable certificates of deposit, time deposits,
bankers' acceptances, and Euro-currency instruments and securities; and (iv)
repurchase agreements.
Subject to applicable securities regulations, the Fund may, for the purpose
of hedging its portfolio, purchase and write covered call options on specific
portfolio securities and may purchase and write put and call options on foreign
stock indexes listed on foreign and domestic stock exchanges. In addition, the
Fund may invest up to 100% of its total assets in securities of foreign issuers
in the form of ADRs, EDRs or Global Depository Receipts ("GDRs") as described
under "Other Investment Policies and Risk Considerations." Furthermore, the Fund
may purchase and sell securities on a when-issued basis. For temporary defensive
purposes, the Fund may also invest a major portion of its assets in securities
of U.S. issuers. See "Other Investment Policies and Risk Considerations" below
regarding additional investment policies of the International Equity Fund.
SMALL COMPANY EQUITY FUND
The Small Company Equity Fund's investment objective is to seek capital
appreciation. The Fund attempts to achieve its investment objective by investing
primarily in the securities of companies with market value capitalizations of
$750 million or less ("Small Capitalization Securities") which Fleet believes
represent the potential for significant capital appreciation.
Small Capitalization Securities in which the Fund may invest include common
stock, preferred stock, securities convertible into common stock, rights and
warrants. Under normal market and economic conditions, at least 65% of the
Fund's total assets will be invested in the equity securities of companies with
market value capitalizations of $750 million or less. For temporary defensive
purposes, the Fund may also invest in corporate debt obligations.
The issuers of Small Capitalization Securities tend to be companies which
are smaller or newer than those listed on the New York or American Stock
Exchanges. As a result, Small Capitalization Securities are primarily traded on
the over-the-counter market, although they may also be listed for trading on the
New York or American Stock Exchanges. Because the issuers of Small
Capitalization Securities tend to be smaller or less well-established companies,
they may have limited product lines, markets or financial resources. As a
result, Small Capitalization Securities are often less marketable and may
experience a higher level of price volatility than the securities of larger or
more well-established companies.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through ADRs and EDRs. See "Special Risk
Considerations--Foreign Securities" and "Other Investment Policies and Risk
Considerations--American, European and Global Depository Receipts" below.
The Fund may purchase put options and call options and write covered call
options as a hedge against changes resulting from market conditions and in the
value of the securities held in the Fund or which it intends to purchase and
where the transactions are economically appropriate for the reduction of risks
inherent in the ongoing management of the Fund. See "Other Investment Policies
and Risk Considerations--Options and Futures Contracts" and "Other Investment
Policies and Risk Considerations--Derivative Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of Fleet, prevailing market or
economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Small Company Equity Fund.
ASSET ALLOCATION FUND
The investment objective of the Asset Allocation Fund is to seek a high
total return by providing both a current level of income that is greater than
that provided by the popular stock market averages as well as long-term growth
in the value of the Fund's assets. Fleet interprets the objective to refer to
the Dow Jones Industrial Average (of 30 companies listed on the New York Stock
Exchange) and the S&P 500. Due to the Fund's expenses, net income distributed to
shareholders may be less than that of these averages. The Fund attempts to
achieve its investment objective and at the same time reduce volatility by
allocating its assets among short-term obligations, common stock, preferred
stock and bonds. The proportion of
18
<PAGE>
the Fund's assets invested in each type of security will vary from time to time
as a result of Fleet's interpretation of economic and market conditions.
However, at least 25% of the Fund's total assets will at all times be invested
in fixed-income senior securities, including debt securities and preferred
stocks. In selecting common stock for purchase by the Fund, Fleet will analyze
the potential for changes in earnings and dividends for a foreseeable period.
The Fund may also invest up to 20% of its total assets in foreign
securities. Such foreign investments may be made directly, by purchasing
securities issued or guaranteed by foreign corporations, banks or governments
(or their political subdivisions or instrumentalities) or by supranational banks
or other organizations, or indirectly, by purchasing ADRs and EDRs. Examples of
supranational banks include the International Bank for Reconstruction and
Development ("World Bank"), the Asian Development Bank and the InterAmerican
Development Bank. Obligations of supranational banks may be supported by
appropriated but unpaid commitments of their member countries and there is no
assurance that those commitments will be undertaken or met in the future. See
"Special Risk Considerations--Foreign Securities" and "Other Investment Policies
and Risk Considerations--American, European and Global Depository Receipts"
below. The Fund may also invest in dollar-denominated high quality debt
obligations of U.S. corporations issued outside the United States. The Fund may
purchase put options and call options and write covered call options, purchase
asset-backed securities and mortgage-backed securities and enter into foreign
currency exchange transactions. See "Other Investment Policies and Risk
Considerations" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and U.S. Government obligations at such
times and in such proportions as, in the opinion of Fleet, prevailing market and
economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Asset Allocation Fund.
SMALL CAP VALUE FUND
The Small Cap Value Fund's investment objective is to provide long-term
capital appreciation. The Fund attempts to achieve its investment objective by
investing, under normal market and economic conditions, at least 65% of its
assets in equity securities of companies that have a market value capitalization
of up to $1 billion. Small capitalization stocks have historically been more
volatile in price than larger capitalization stocks, such as those included in
the S&P 500. This is because, among other things, smaller companies have a lower
degree of liquidity in the equity market and tend to have a greater sensitivity
to changing economic conditions. Further, in addition to exhibiting greater
volatility, these stocks may, to some degree, fluctuate independently of the
stocks of large companies. That is, the stock of small capitalization companies
may decline in price as the prices of large company stocks rise or vice versa.
Therefore, investors should expect that the Fund will be more volatile than, and
may fluctuate independently of, broad stock market indices such as the S&P 500.
The Fund may purchase convertible securities, including convertible
preferred stock, convertible bonds or debentures, units consisting of "usable"
bonds and warrants or a combination of the features of several of these
securities. See "Other Investment Policies and Risk Considerations--Convertible
Securities" below. The Fund may also buy and sell options and futures contracts
and utilize stock index futures contracts, options, swap agreements, indexed
securities, and options on futures contracts. See "Other Investment Policies and
Risk Considerations--Options and Futures Contracts", "Other Investment Policies
and Risk Considerations--Stock Index Futures, Swap Agreements, Indexed
Securities and Options" and "Other Investment Policies and Risk Considerations--
Derivative Securities" below.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of ADRs, EDRs and GDRs. Securities of a
foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Fund will not invest in the
securities of a foreign issuer if any such risk appears to Fleet to be
substantial. See "Special Risk Considerations--Foreign Securities" and "Other
Investment Policies and Risk Considerations--American, European and Global
Depository Receipts" below.
As a temporary defensive measure, in such proportions as, in the judgment of
Fleet, prevailing market conditions warrant, the Fund may invest in: (i)
short-term money market instruments (such as those listed below under "Other
Investment Policies and Risk Considerations"); (ii) securities issued and/or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies, or instrumentalities; and (iii) repurchase agreements. Additional
information about the types of money market instruments and U.S. Government
obligations in which the Small Cap Value Fund is permitted to invest is
contained in the Statement of Additional Information relating to the Fund. See
"Other Investment Policies and Risk Considerations" below for information
regarding additional investment policies of the Small Cap Value Fund.
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GROWTH AND INCOME FUND
The Growth and Income Fund's investment objective is to provide a relatively
high total return through long-term capital appreciation and current income. The
Fund attempts to achieve this objective by investing primarily in common stocks
of companies with prospects for above-average growth and dividends or of
companies where significant fundamental changes are taking place. Under normal
market conditions, the Fund will invest at least 65% of its assets in common
stocks, preferred stocks, common stock warrants and securities convertible into
common stock.
The Fund invests primarily in growth-oriented equity securities.
Growth-oriented stocks may include issuers with smaller capitalizations. See
"Small Company Equity Fund" and "Small Cap Value Fund" above for a description
of the risks associated with investments in small capitalization stocks.
Investors should expect that the Fund will be more volatile than, and may
fluctuate independently of, broad stock indices such as the S&P 500.
The Fund may purchase convertible securities, including convertible
preferred stock, convertible bonds or debentures, units consisting of "usable"
bonds and warrants or a combination of the features of several of these
securities. See "Other Investment Policies and Risk Considerations--Convertible
Securities" below. The Fund may also buy and sell options and futures contracts
and utilize stock index futures contracts, options, swap agreements, indexed
securities, and options on futures contracts. See "Other Investment Policies and
Risk Considerations--Options and Futures Contracts," "Other Investment Policies
and Risk Considerations--Stock Index Futures, Swap Agreements, Indexed
Securities and Options" and "Other Investment Policies and Risk Considerations--
Derivative Securities" below.
The Fund may invest up to 20% of its total assets in securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of ADRs, EDRs and GDRs. Securities of a
foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Fund will not invest in the
securities of foreign issuers if any such risk appears to Fleet to be
substantial. See "Special Risk Considerations--Foreign Securities" and Other
Investment Policies and Risk Considerations--American, European and Global
Depository Receipts" below.
As a temporary defensive measure, in such proportions as, in the judgment of
Fleet, prevailing market conditions warrant, the Fund may invest in: (i)
short-term money market instruments (such as those listed below under "Other
Investment Policies and Risk Considerations"); (ii) securities issued and/or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies, or instrumentalities; and (iii) repurchase agreements. Additional
information about the types of money market instruments and U.S. Government
obligations in which the Fund is permitted to invest is contained in the
Statement of Additional Information relating to the Fund. See "Other Investment
Policies and Risk Considerations" below for information regarding additional
investment policies of the Growth and Income Fund.
STRATEGIC EQUITY FUND
The investment objective of the Strategic Equity Fund is to seek long-term
capital appreciation. The Fund attempts to achieve its investment objective by
investing primarily in the securities of growth companies that Fleet believes
are reasonably priced relative to other industries, competitors and historical
price/earnings multiples. In selecting investments for the Fund, Fleet uses a
fundamental analysis which focuses on intermediate and long-term return
forecasts for a broad universe of between 300 and 400 large and
mid-capitalization stocks. Under normal market and economic conditions, the Fund
will invest at least 65% of its total assets in equity securities, including
common stocks, preferred stocks, securities convertible into common stock,
rights and warrants.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through ADRs, EDRs and GDRs. See Special Risk
Considerations--Foreign Securities" and "Other Investment Policies and Risk
Considerations--American, European and Global Depository Receipts" below.
The Fund may also buy and sell options and futures contracts and utilize
stock index futures contracts, options, swap agreements, indexed securities and
options on futures contracts. See "Other Investment Policies and Risk
Considerations--Options and Futures Contracts", "Other Investment Policies and
Risk Considerations--Stock Index Futures, Swap Agreements, Indexed Securities
and Options" and "Other Investment Policies and Risk Considerations--Derivative
Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and in U.S. Government obligations at
such times and in such proportions as, in the opinion of Fleet, prevailing
market and economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the Strategic Equity Fund.
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SPECIAL RISK CONSIDERATIONS
MARKET RISK
Each Fund invests primarily (or with respect to the Asset Allocation Fund,
to a significant degree) in equity securities. As with other mutual funds that
invest primarily or to a significant degree in equity securities, the Funds are
subject to market risks. That is, the possibility exists that common stocks will
decline over short or even extended periods of time and both the U.S. and
certain foreign equity markets tend to be cyclical, experiencing both periods
when stock prices generally increase and periods when stock prices generally
decrease.
INTEREST RATE RISK
To the extent that the Funds invest in fixed income securities, their
holdings of such securities are sensitive to changes in interest rates and the
interest rate environment. Generally, the prices of bonds and other debt
securities fluctuate inversely with interest rate changes.
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs, as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although each of the Funds may invest in securities denominated in foreign
currencies, each Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of a Fund's shares may fluctuate with U.S. dollar
exchange rates as well as with price changes of the Fund's securities in the
various local markets and currencies. Thus, an increase in the value of the U.S.
dollar compared to the currencies in which a Fund makes its investments could
reduce the effect of increases and magnify the effect of decreases in the price
of a Fund's securities in their local markets. Conversely, a decrease in the
value of the U.S. dollar will have the opposite effect of magnifying the effect
of increases and reducing the effect of decreases in the prices of a Fund's
securities in their local markets. In addition to favorable and unfavorable
currency exchange rate developments, the Funds are subject to the possible
imposition of exchange control regulations or freezes on convertibility of
currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in countries with emerging economies or
emerging securities markets. The risks of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which one or
more of the Funds have the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
RATINGS
All debt obligations, including convertible bonds, purchased by the Equity
Value, Equity Growth, Equity Income, Small Company Equity, Asset Allocation and
Strategic Equity Funds are rated investment grade by Moody's Investors Service,
Inc. ("Moody's") ("Aaa," "Aa," "A" and "Baa") or Standard & Poor's Ratings Group
("S&P") ("AAA," "AA," "A" and "BBB"), or, if not rated, are determined to be of
comparable quality by Fleet. Debt securities rated "Baa" by Moody's or "BBB" by
S&P are generally considered to be investment grade securities although they may
have speculative characteristics and changes in economic conditions or
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case for higher rated debt obligations.
The International Equity Fund may only purchase debt securities rated "A" or
higher by Moody's or S&P, or if unrated, determined by Fleet or Oechsle to be of
comparable quality. Issuers of commercial paper, bank obligations or repurchase
agreements in which the International Equity Fund invests must have, at the time
of investment, outstanding debt rated A or higher by Moody's or S&P, or, if they
are not rated, the instrument purchased must be determined to be of comparable
quality. The Small Cap Value and Growth
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and Income Funds may purchase convertible bonds rated "Ba" or higher by Moody's
or "BB" or higher by S&P or Fitch IBCA, Inc. ("Fitch IBCA"), at the time of
investment. See "Other Investment Policies and Risk Considerations-- Convertible
Securities" below for a discussion of the risks of investing in convertible
bonds rated either "Ba" or "BB". Short-term money market instruments purchased
by the Small Cap Value and Growth and Income Funds must be rated in one of the
top two rating categories by a nationally recognized statistical rating agency,
such as Moody's, S&P or Fitch IBCA.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Funds may, in accordance with their respective investment policies,
invest from time to time in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and in other "money market"
instruments, including bank obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than ten
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. With respect to each Fund other than the Small Cap Value and Growth
and Income Funds, bank obligations also include U.S. dollar-denominated
obligations of foreign branches of U.S. banks or of U.S. branches of foreign
banks, all of the same type as domestic bank obligations. Investments in bank
obligations are limited to the obligations of financial institutions having more
than $1 billion in total assets at the time of purchase. Time deposits with a
maturity longer than seven days or that do not provide for payment within seven
days after notice will be limited to 10% (15% with respect to the Small Cap
Value Fund, Growth and Income Fund and Strategic Equity Fund) of a Fund's net
assets.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject a Fund to additional risk because such
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Such investments may also subject
a Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations--Foreign Securities." The
Funds will invest in the obligations of U.S. branches of foreign banks or
foreign branches of U.S. banks only when Fleet and/or Oechsle believe that the
credit risk with respect to the instrument is minimal.
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand
payment of principal and accrued interest at a time specified in the instrument
or may resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a Fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default. The Funds may also purchase Rule 144A securities. See "Investment
Limitations" below.
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REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet and/or Oechsle under guidelines approved by Galaxy's Board
of Trustees. No Fund will enter into repurchase agreements with Fleet or Oechsle
or any of their affiliates. Unless a repurchase agreement has a remaining
maturity of seven days or less or may be terminated on demand upon notice of
seven days or less, the repurchase agreement will be considered an illiquid
security and will be subject to the 10% limit (15% with respect to the Strategic
Equity Fund) described below in Investment Limitation No. 3 under "Investment
Limitations" with respect to the Equity Value, Equity Growth, Equity Income,
International Equity, Small Company Equity, Asset Allocation and Strategic
Equity Funds, and to the 15% limit described below in Investment Limitation No.
7 under "Investment Limitations" with respect to the Small Cap Value and Growth
and Income Funds.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by a Fund at
not less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the Fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under the agreement. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action.
Each Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. The Funds would pay interest on amounts obtained pursuant to a reverse
repurchase agreement. Additional information regarding the Small Cap Value and
Growth and Income Funds' policies with respect to reverse repurchase agreements
is contained in the applicable Statement of Additional Information.
SECURITIES LENDING
Each Fund may lend its portfolio securities to financial institutions such
as banks and broker/dealers in accordance with the investment limitations
described below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term (except in the case of
the Small Cap Value and Growth and Income Funds which may loan their securities
on a long-term or short-term basis or both), will be made only to borrowers
deemed by Fleet and/or Oechsle to be of good standing and only when, in Fleet's
and/or Oechsle's judgment, the income to be earned from the loan justifies the
attendant risks. The Funds currently intend to limit the lending of their
portfolio securities so that, at any given time, securities loaned by a Fund
represent not more than one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity and Asset Allocation Funds may invest in securities issued by
other investment companies which invest in high quality, short-term debt
securities and which determine their net asset value per share based on the
amortized cost or penny-rounding method. The International Equity Fund may also
purchase shares of investment companies investing primarily in foreign
securities, including so-called "country funds." Country funds have portfolios
consisting exclusively of securities of issuers located in one foreign country.
The Small Cap Value, Growth and Income and Strategic Equity Funds may invest in
other investment companies primarily for the purpose of investing their
short-term cash which has not yet been invested in other portfolio instruments.
However, from time to time, on a temporary basis, the Small Cap Value, Growth
and Income and Strategic Equity Funds may invest exclusively in one other
investment company similar to the respective Funds. Investments in other
investment companies will cause a Fund (and, indirectly, the Fund's
shareholders) to bear proportionately the costs incurred in connection with the
investment companies' operations. Except as provided above with respect to the
Small Cap Value, Growth and Income and Strategic Equity Funds, securities of
other investment companies will be acquired by a Fund within the limits
prescribed by the Investment Company Act of 1940, as amended, (the "1940 Act").
Each Fund currently intends to limit its investments so that, as determined
immediately after a securities purchase is made: (a) not more than 5% of the
value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will
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be owned by the Fund; and (d) not more than 10% of the outstanding voting stock
of any one closed-end investment company will be owned in the aggregate by the
Fund, other investment portfolios of Galaxy, or any other investment companies
advised by Fleet or Oechsle.
REITS
Each Fund may invest up to 10% of its net assets in real estate investment
trusts ("REITs"). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of a REIT's
investments. In addition, equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, are not diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. Each Fund intends to include the gross dividends from any
investments in REITs in its periodic distributions to its shareholders and,
accordingly, a portion of the Fund's distributions may also be designated as a
return of capital. See "Taxes."
OPTIONS AND FUTURES CONTRACTS
PUT AND CALL OPTIONS--EQUITY GROWTH, EQUITY INCOME, SMALL COMPANY EQUITY AND
ASSET ALLOCATION FUNDS. The Equity Growth, Equity Income, Small Company Equity
and Asset Allocation Funds may purchase put options and call options on
securities and securities indices. A put option gives the buyer the right to
sell, and the writer the obligation to buy, the underlying security at the
stated exercise price at any time prior to the expiration of the option. A call
option gives the buyer the right to buy the underlying security at the stated
exercise price at any time prior to the expiration of the option. Options
involving securities indices provide the holder with the right to make or
receive a cash settlement upon exercise of the option based on movements in the
relevant index. Such options must be listed on a national securities exchange
and issued by the Options Clearing Corporation. The aggregate value of options
purchased by the Equity Growth, Equity Income, Small Company Equity and Asset
Allocation Fund may not exceed 5% of the value of their respective net assets.
COVERED CALL OPTIONS--EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME,
INTERNATIONAL EQUITY, SMALL COMPANY EQUITY AND ASSET ALLOCATION FUNDS. To
further increase return on their portfolio securities, in accordance with their
respective investment objectives and policies, the Equity Value, Equity Growth,
Equity Income, International Equity, Small Company Equity and Asset Allocation
Funds may engage in writing covered call options (options on securities owned by
a Fund) and may enter into closing purchase transactions with respect to such
options. Such options must be listed on a national securities exchange and
issued by the Options Clearing Corporation. The aggregate value of the
securities subject to options written by the Equity Value, Equity Growth, Equity
Income, International Equity, Small Company Equity and Asset Allocation Funds
may not exceed 25% of the value of their respective net assets. By writing a
covered call option, a Fund forgoes the opportunity to profit from an increase
in the market price of the underlying security above the exercise price, except
insofar as the premium represents such a profit. The Fund will not be able to
sell the underlying security until the option expires or is exercised or the
Fund effects a closing purchase transaction by purchasing an option of the same
series. Such options will normally be written on underlying securities as to
which Fleet and/or Oechsle does not anticipate significant short-term capital
appreciation.
OPTIONS ON FOREIGN STOCK INDEXES--INTERNATIONAL EQUITY FUND. The
International Equity Fund may, for the purpose of hedging its portfolio, subject
to applicable securities regulations purchase and write put and call options on
foreign stock indexes listed on foreign and domestic stock exchanges. A stock
index fluctuates with changes in the market values of the stocks included in the
index. Examples of foreign stock indexes are the Canadian Market Portfolio Index
(Montreal Stock Exchange), The Financial Times--Stock Exchange 100 (London Stock
Exchange) and the Toronto Stock Exchange Composite 300 (Toronto Stock Exchange).
Options on stock indexes are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a stock index
gives the holder the right to receive a cash "exercise settlement amount" equal
to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
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closing level of the stock index upon which the option is based being greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or the option may expire unexercised. For additional
information relating to option trading practices and related risks, see
"Derivative Securities" below and the Statement of Additional Information
relating to the Fund.
OPTIONS AND FUTURES CONTRACTS--SMALL CAP VALUE, GROWTH AND INCOME AND
STRATEGIC EQUITY FUNDS. The Small Cap Value, Growth and Income and Strategic
Equity Funds may buy and sell options and futures contracts to manage their
exposure to changing interest rates, security prices and currency exchange
rates. The Funds may invest in options and futures based on any type of
security, index, or currency, including options and futures based on foreign
exchanges (see "Options on Foreign Stock Indexes-- International Equity Fund"
above) and options not traded on exchanges. Some options and futures strategies,
including selling futures, buying puts, and writing calls, tend to hedge a
Fund's investments against price fluctuations. Other strategies, including
buying futures, writing puts, and buying calls, tend to increase market
exposure. Options and futures may be combined with each other or with forward
contracts in order to adjust the risk and return characteristics of the overall
strategy.
Options and futures can be volatile investments, and involve certain risks.
If Fleet applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures may lower a Fund's individual return. A Fund
could also experience losses if the prices of its options and futures positions
were poorly correlated with its other investments, or if it could not close out
its positions because of an illiquid secondary market. See the applicable
Statement of Additional Information for additional information as to the Funds'
policies on options and futures trading.
The Funds will not hedge more than 20% of their respective total assets by
selling futures, buying puts, and writing calls under normal conditions. The
Funds will not buy futures or write puts whose underlying value exceeds 20% of
their respective total assets, and will not buy calls with a value exceeding 5%
of their respective total assets.
STOCK INDEX FUTURES, SWAP AGREEMENTS, INDEXED SECURITIES AND OPTIONS--SMALL
CAP VALUE, GROWTH AND INCOME AND STRATEGIC EQUITY FUNDS. The Small Cap Value,
Growth and Income and Strategic Equity Funds may utilize stock index futures
contracts, options, swap agreements, indexed securities, and options on futures
contracts, subject to the limitation that the value of these futures contracts,
swap agreements, indexed securities, and options will not exceed 20% of the
Funds' respective total assets. The Funds will not purchase options to the
extent that more than 5% of the value of their respective total assets would be
invested in premiums on open put option positions. In addition, the Funds do not
intend to invest more than 5% of the market value of their respective total
assets in each of the following: futures contracts, swap agreements, and indexed
securities. When a Fund enters into a swap agreement, liquid assets of the Fund
equal to the value of the swap agreement will be segregated by that Fund.
There are several risks accompanying the utilization of futures contracts.
Positions in futures contracts may be closed only on an exchange or board of
trade that furnishes a secondary market for such contracts. While the Funds plan
to utilize futures contracts only if there exists an active market for such
contracts, there is no guarantee that a liquid market will exist for the
contracts at a specified time. Furthermore, because by definition, futures
contracts look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements. This could result in a distortion of
the relationship between the index and the futures market. In addition, because
the futures market imposes less burdensome margin requirements than the
securities market, an increased amount of participation by speculators in the
futures market could result in price fluctuations.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
Each Fund may invest in ADRs and EDRs. The International Equity, Small Cap
Value, Growth and Income and Strategic Equity Funds may also invest in GDRs.
ADRs are receipts issued in registered form by a U.S. bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer. EDRs
are receipts issued in Europe typically by non-U.S. banks or trust companies and
foreign branches of U.S. banks that evidence ownership of foreign or U.S.
securities. GDRs are receipts structured similarly to EDRs and are marketed
globally. ADRs may be listed on a national securities exchange or may be traded
in the over-the-counter market. EDRs are designed for use in European exchange
and over-the-counter markets. GDRs are designed for trading in non-U.S.
securities markets. ADRs, EDRs and GDRs traded in the over-the-counter market
which do not have an active or substantial secondary market will be considered
illiquid and therefore will be subject to the Funds' respective limitations with
respect to such securities. ADR prices are denominated in U.S. dollars although
the underlying securities are denominated in a foreign currency. Investments in
ADRs, EDRs and GDRs involve risks similar to those accompanying direct
investments in foreign securities. Certain of these risks are described above
under "Special Risk Considerations--Foreign Securities."
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FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because each Fund may buy and sell securities denominated in currencies
other than the U.S. dollar, and may receive interest, dividends and sale
proceeds in currencies other than the U.S. dollar, the Funds from time to time
may enter into foreign currency exchange transactions to convert the U.S. dollar
to foreign currencies, to convert foreign currencies to the U.S. dollar and to
convert foreign currencies to other foreign currencies. A Fund either enters
into these transactions on a spot (I.E., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another--for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen--at a future
date and at a specified price. Typically, the other party to a currency exchange
contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow a Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, such
contracts are rolled over in a manner consistent with a more long-term currency
decision. Because there is a risk of loss to a Fund if the other party does not
complete the transaction, forward foreign currency exchange contracts will
be entered into only with parties approved by Galaxy's Board of Trustees.
A Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency--for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S.
dollars--at a future date and at a specified price in anticipation of a decline
in the value of the currency sold short relative to the currency that the Fund
has contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash or other liquid assets equal in value to the fluctuating market value of
the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the applicable
Statement of Additional Information for additional information regarding foreign
currency exchange transactions.
ASSET-BACKED SECURITIES--ASSET ALLOCATION FUND
The Asset Allocation Fund may purchase asset-backed securities, which
represent a participation in, or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool of assets similar to
one another. Assets generating such payments will consist of such instruments as
motor vehicle installment purchase obligations, credit card receivables and home
equity loans. Payment of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with entities issuing the securities. The
estimated life of an asset-backed security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of the asset-backed security, will be primarily a function of
current market rates, although other economic and demographic factors will be
involved. See "Asset-Backed Securities" in the applicable Statement of
Additional Information.
MORTGAGE-BACKED SECURITIES--ASSET ALLOCATION FUND
The Asset Allocation Fund may invest in mortgage-backed securities
(including collateralized mortgage obligations) that represent pools of mortgage
loans assembled for sale to investors by various governmental agencies and
government-related organizations, such as the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities provide a monthly payment
consisting of interest and principal payments. Additional payment may be made
out of unscheduled repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs that may be incurred. Prepayments of principal on mortgage-backed
securities may tend to increase due to refinancing of mortgages as interest
rates decline. To the extent that the Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and prepayments of principal by mortgagors
(which may be made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The yield of the
Fund, should it invest in mortgage-backed securities, may be affected by
reinvestment of prepayments at higher or lower rates than the original
investment.
Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers, and special purpose
entities. These private mortgage-backed securities may be supported by U.S.
Government mortgage-backed securities or
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some form of non-government credit enhancement. Mortgage-backed securities have
either fixed or adjustable interest rates. The rate of return on mortgage-backed
securities may be affected by prepayments of principal on the underlying loans,
which generally increase as interest rates decline; as a result, when interest
rates decline, holders of these securities normally do not benefit from
appreciation in market value to the same extent as holders of other non-callable
debt securities. In addition, like other debt securities, the value of
mortgage-related securities, including government and government-related
mortgage pools, generally will fluctuate in response to market interest rates.
MORTGAGE DOLLAR ROLLS--ASSET ALLOCATION FUND
The Asset Allocation Fund may enter into mortgage "dollar rolls" in which
the Fund sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date not
exceeding 120 days. During the roll period, the Fund loses the right to receive
principal and interest paid on the securities sold. However, the Fund would
benefit to the extent of any difference between the price received for the
securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. Unless such benefits exceed the income, capital appreciation and gain
or loss due to mortgage prepayments that would have been realized on the
securities sold as part of the mortgage dollar roll, the use of this technique
will diminish the investment performance of the Fund compared with what such
performance would have been without the use of mortgage dollar rolls. All cash
proceeds will be invested in instruments that are permissible investments for
the Fund. The Fund will hold and maintain in a segregated account until the
settlement date cash or other liquid assets in an amount equal to the forward
purchase price.
For financial reporting and tax purposes, the Fund proposes to treat
mortgage dollar rolls as two separate transactions; one involving the purchase
of a security and a separate transaction involving a sale. The Fund does not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom
the Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the mortgage-related securities may be restricted and the instrument
which the Fund is required to repurchase may be worth less than the instrument
which the Fund originally held. Successful use of mortgage dollar rolls may
depend upon Fleet's ability to predict correctly interest rates and mortgage
prepayments. For these reasons, there is no assurance that mortgage dollar rolls
can be successfully employed.
CONVERTIBLE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, invest in convertible securities. Convertible securities
are fixed income securities which may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible securities may
take the form of convertible preferred stock, convertible bonds or debentures,
units consisting of "usable" bonds and warrants or a combination of the features
of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate bonds that can be used in whole
or in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock. When owned as part of a unit along with warrants, which
are options to buy the common stock, they function as convertible bonds, except
that the warrants generally will expire before the bond's maturity. Convertible
securities are senior to equity securities and therefore have a claim to the
assets of the issuer prior to the holders of common stock in the case of
liquidation. However, convertible securities are generally subordinated to
similar non-convertible securities of the same issuer. The interest income and
dividends from convertible bonds and preferred stocks provide a stable stream of
income with generally higher yields than common stocks, but lower than
non-convertible securities of similar quality. A Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stock in instances in which, in Fleet's and/or Oechsle's opinion, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objective. Otherwise, a Fund will hold or trade the
convertible securities. In selecting convertible securities for a Fund, Fleet
evaluates the investment characteristics of the convertible security as a fixed
income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, Fleet considers numerous factors, including the
economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.
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The Small Cap Value and Growth and Income Funds may invest in convertible
bonds rated "BB" or higher by S&P or Fitch IBCA, or "Ba" or higher by Moody's at
the time of investment. Securities rated "BB" by S&P or Fitch IBCA or "Ba" by
Moody's provide questionable protection of principal and interest in that such
securities either have speculative characteristics or are predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. Debt obligations that are not
rated, or determined to be, investment grade are high-yield, high-risk bonds,
typically subject to greater market fluctuations, and securities in the lowest
rating category may be in danger of loss of income and principal due to an
issuer's default. To a greater extent than investment grade bonds, the value of
lower-rated bonds tends to reflect short-term corporate, economic, and market
developments, as well as investor perceptions of the issuer's credit quality. In
addition, lower-rated bonds may be more difficult to dispose of or to value than
higher-rated, lower-yielding bonds. Fleet will attempt to reduce the risks
described above through diversification of each Fund's portfolio and by credit
analysis of each issuer, as well as by monitoring broad economic trends and
corporate and legislative developments. If a convertible bond is rated below
"BB" or "Ba" after a Fund has purchased it, the Fund is not required to
eliminate the convertible bond from its portfolio, but will consider appropriate
action. The investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for different investment
objectives. The Funds do not intend to invest in such lower-rated bonds during
the current fiscal year. A description of the rating categories of S&P, Moody's
and Fitch IBCA is contained in the Appendix to the Statement of Additional
Information relating to the Small Cap Value and Growth and Income Funds.
DERIVATIVE SECURITIES
The Funds may from time to time, in accordance with their respective
investment policies, purchase certain "derivative" securities. Derivative
securities are instruments that derive their value from the performance of
underlying assets, interest or currency exchange rates, or indices, and include,
but are not limited to, put and call options, stock index futures and options,
indexed securities and swap agreements, foreign currency exchange contracts and
certain asset-backed and mortgage-backed securities.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest or exchange rates or indices will
decline; credit risk that the dealer or other counterparty to the transaction
will fail to pay its obligations; volatility and leveraging risk that, if
interest or exchange rates change adversely, the value of the derivative
security will decline more than the assets, rates or indices on which it is
based; liquidity risk that a Fund will be unable to sell a derivative security
when it wants because of lack of market depth or market disruption; pricing risk
that the value of a derivative security will not correlate exactly to the value
of the underlying assets, rates or indices on which it is based; and operations
risk that loss will occur as a result of inadequate systems and controls, human
error or otherwise. Some derivative securities are more complex than others, and
for those instruments that have been developed recently, data are lacking
regarding their actual performance over complete market cycles.
Fleet and/or Oechsle will evaluate the risks presented by the derivative
securities purchased by the Funds, and will determine, in connection with their
day-to-day management of the Funds, how such securities will be used in
furtherance of the Funds' investment objectives. It is possible, however, that
Fleet's and/or Oechsle's evaluations will prove to be inaccurate or incomplete
and, even when accurate and complete, it is possible that the Funds will,
because of the risks discussed above, incur loss as a result of their
investments in derivative securities. See "Investment Objectives and
Policies--Derivative Securities" in the applicable Statement of Additional
Information for additional information.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS--
INTERNATIONAL EQUITY, SMALL CAP VALUE, GROWTH
AND INCOME AND STRATEGIC EQUITY FUNDS
The International Equity, Small Cap Value, Growth and Income and Strategic
Equity Funds may purchase eligible securities on a "when-issued" basis. The
Small Cap Value, Growth and Income and Strategic Equity Funds may also purchase
eligible securities on a "delayed settlement" basis. When-issued transactions,
which involve a commitment by a Fund to purchase or sell particular securities
with payment and delivery taking place at a future date (perhaps one or two
months later), permit the Fund to lock in a price or yield on a security it owns
or intends to purchase, regardless of future changes in interest rates. Delayed
settlement describes settlement of a securities transaction in the secondary
market which will occur sometime in the future. When-issued and delayed
settlement transactions involve the risk, however, that the yield or price
obtained in a transaction may be less favorable than the yield or price
available in the market when the securities delivery takes place.
A Fund may dispose of a commitment prior to settlement if Fleet or Oechsle,
as the case may be, deems it appropriate to do so. In addition, a Fund may enter
into transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Funds may realize short-term profits or losses
upon the sale of such commitments.
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PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
Fleet and/or Oechsle believes that such a disposition is consistent with the
Fund's investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold such investments. A portfolio
turnover rate of 100% or more is considered high, although the rate of portfolio
turnover will not be a limiting factor in making portfolio decisions. A high
rate of portfolio turnover involves correspondingly greater brokerage commission
expenses and other transaction costs, which must be ultimately borne by a Fund's
shareholders. High portfolio turnover may result in the realization of
substantial net capital gains; distributions derived from such gains will be
treated as ordinary income for federal income tax purposes. See "Financial
Highlights" and "Taxes--Federal." Although the Strategic Equity Fund can not
accurately predict its annual portfolio turnover rate, it is not expected to
exceed 100% for the Fund.
INVESTMENT OBJECTIVES AND POLICIES
The following investment limitations are matters of fundamental policy and
may not be changed with respect to a particular Fund without the affirmative
vote of the holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the applicable Statements
of Additional Information under "Investment Objectives and Policies."
The Equity Value, Equity Growth, Equity Income, International Equity, Small
Company Equity, Asset Allocation and Strategic Equity Funds may not:
1. Make loans, except that (i) each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) each Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
2. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 10%, with respect to the Equity Value Fund, or 33%, with respect
to the Equity Growth, Equity Income, International Equity, Small Company
Equity, Asset Allocation and Strategic Equity Funds, of the value of its
total assets at the time of such borrowing (provided that the Funds may
borrow pursuant to reverse repurchase agreements in accordance with their
investment policies and in amounts not in excess of 10%, with respect to the
Equity Value Fund, or 33%, with respect to the Equity Growth, Equity Income,
International Equity, Small Company Equity, Asset Allocation and Strategic
Equity Funds, of the value of their respective total assets at the time of
such borrowing); or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10%, with respect to the Equity
Value Fund, or 33%, with respect to the Equity Growth, Equity Income,
International Equity, Small Company Equity, Asset Allocation and Strategic
Equity Funds, of the value of a Fund's total assets at the time of such
borrowing. No Fund will purchase securities while borrowings (including
reverse repurchase agreements) in excess of 5% of its total assets are
outstanding.
3. Invest more than 10% (15% with respect to the Strategic Equity Fund)
of the value of its net assets in illiquid securities, including repurchase
agreements with remaining maturities in excess of seven days, time deposits
with maturities in excess of seven days, restricted securities (with respect
to the Equity Value Fund), securities which are restricted as to transfer in
their principal market (with respect to the International Equity Fund),
non-negotiable time deposits and other securities which are not readily
marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of a Fund's total
assets would be invested in such issuer, except that up to 25% of the value
of its total assets may be invested without regard to this limitation.
The Small Cap Value and Growth and Income Funds may not:
5. Borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an arrangement to buy it back on a set
date) or pledge securities except, under certain circumstances, such Funds
may borrow up to one-third of the value of their respective total assets and
pledge up to 10% of the value of their respective total assets to secure
such borrowings.
6. With respect to 75% of the value of their respective total assets,
invest more than 5% in securities of any one issuer, other than cash, cash
items, or securities issued or guaranteed by the government of the United
States or its agencies or instrumentalities and repurchase agreements
collateralized by such securities, or acquire more than 10% of the
outstanding voting securities of any one issuer.
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The following investment policy may be changed by Galaxy's Board of Trustees
without shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective:
7. The Small Cap Value and Growth and Income Funds may not invest more
than 15% of their respective net assets in securities subject to
restrictions on resale under the Securities Act of 1933 (except for
commercial paper issued under Section 4(2) of the Securities Act of 1933 and
certain securities which meet the criteria for liquidity as established by
the Board of Trustees).
In addition, the Funds may not purchase any securities which would cause 25%
or more of the value of a Fund's total assets at the time of purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry; provided, however that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry).
With respect to Investment Limitation No. 2 above, (a) the Equity Value Fund
intends to limit any borrowings (including reverse repurchase agreements) to not
more than 10% of the value of its total assets at the time of such borrowing and
each of the Equity Growth, Equity Income, International Equity, Small Company
Equity, Asset Allocation and Strategic Equity Funds intends to limit any
borrowings (including reverse repurchase agreements) to not more than 33% of the
value of its total assets at the time of such borrowing, and (b) mortgage dollar
rolls entered into by the Asset Allocation Fund that are not accounted for as
financings shall not constitute borrowings.
The Small Cap Value and Growth and Income Funds intend to invest in
restricted securities. Restricted securities are any securities in which a Fund
may otherwise invest pursuant to its investment objective and policies, but
which are subject to restriction on resale under federal securities law. Each
such Fund will limit its investments in illiquid securities, including certain
restricted securities not determined by the Board of Trustees to be liquid,
non-negotiable fixed time deposits with maturities over seven days, over-the-
counter options, and repurchase agreements providing for settlement in more than
seven days after notice, to 15% of its net assets.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. A Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of each
Fund's 10% limitation (15% with respect to the Small Cap Value, Growth and
Income and Strategic Equity Funds) on purchases of illiquid instruments
described above, Rule 144A securities will not be considered to be illiquid if
Fleet and/or Oechsle has determined, in accordance with guidelines established
by the Board of Trustees, that an adequate trading market exists for such
securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of a Fund's
portfolio securities generally will not constitute a violation of the
limitation.
PRICING OF SHARES
Net asset value per share of the Funds is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). Net asset value per share is determined on each day on
which the Exchange is open for trading. Currently, the holidays which Galaxy
observes are New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Net asset value per share for purposes of pricing sales and
redemptions is calculated separately for each series of shares by dividing the
value of all securities and other assets attributable to a particular series of
shares of a Fund, less the liabilities attributable to the shares of that series
of the Fund, by the number of outstanding shares of that series of the Fund.
VALUATION OF THE EQUITY VALUE, EQUITY GROWTH,
EQUITY INCOME, SMALL COMPANY EQUITY,
ASSET ALLOCATION, SMALL CAP VALUE, GROWTH AND INCOME
AND STRATEGIC EQUITY FUNDS
The assets in the Equity Value, Equity Growth, Equity Income, Small Company
Equity, Asset Allocation, Small Cap Value, Growth and Income and Strategic
Equity Funds which are traded on a recognized stock exchange are valued at the
last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Securities quoted on the NASD National Market System are also valued at the last
sale price. Other securities traded on over-the-counter markets are valued on
the basis of their closing over-the-counter bid prices.
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Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by Fleet under the
supervision of Galaxy's Board of Trustees. An option is generally valued at the
last sale price or, in the absence of a last sale price, the last offer price.
See "Valuation of International Equity Fund" below for a description of the
valuation of certain foreign securities held by these Funds.
VALUATION OF THE INTERNATIONAL EQUITY FUND
The International Equity Fund's portfolio securities which are primarily
traded on a domestic exchange are valued at the last sale price on that exchange
or, if there is no recent sale, at the last current bid quotation. Portfolio
securities which are primarily traded on foreign securities exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges, except when an occurrence subsequent to the time a value
was so established is likely to have changed such value, then the fair value of
those securities may be determined through consideration of other factors by or
under the direction of Galaxy's Board of Trustees. A security which is listed or
traded on more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security. Investments in debt
securities having a remaining maturity of 60 days or less are valued based upon
the amortized cost method. All other securities are valued at the last current
bid quotation if market quotations are available, or at fair value as determined
in accordance with policies established in good faith by the Board of Trustees.
For valuation purposes, quotations of foreign securities in foreign currency are
converted to U.S. dollars equivalent at the prevailing market rate on the day of
valuation. An option is generally valued at the last sale price or, in the
absence of a last sale price, the last offer price.
Certain of the securities acquired by the International Equity Fund may be
traded on foreign exchanges or over-the-counter markets on days on which the
Fund's net asset value is not calculated. In such cases, the net asset value of
the Fund's shares may be significantly affected on days when investors can
neither purchase nor redeem shares of the Fund.
HOW TO PURCHASE SHARES
DISTRIBUTOR
Shares in each Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered broker/
dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581.
GENERAL
Investments in Retail A Shares of the Funds are subject to a front-end sales
charge. Investments in Retail B Shares of the Equity Value, Equity Growth, Small
Company Equity, Asset Allocation, Growth and Income and Strategic Equity Funds
are subject to a back-end sales charge. This back-end sales charge declines over
time and is known as a "contingent deferred sales charge."
Investors should read "Characteristics of Retail A Shares and Retail B
Shares" and "Factors to Consider When Selecting Retail A Shares or Retail B
Shares" below before deciding between the two.
FD Distributors has established several procedures to enable different types
of investors to purchase Retail Shares of the Funds. The Retail Shares described
in this Prospectus may be purchased by individuals or corporations who submit a
purchase application to Galaxy, purchasing directly either for their own
accounts or for the accounts of others ("Direct Investors"). Retail Shares may
also be purchased by FIS Securities, Inc., Fleet Brokerage Securities, Inc.,
Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc.,
its affiliates, their correspondent banks and other qualified banks, savings and
loan associations and broker/dealers ("Institutions") on behalf of their
customers ("Customers"). Purchases by Direct Investors may take place only on
days on which FD Distributors and Galaxy's custodian and Galaxy's transfer agent
are open for business ("Business Days"). If an Institution accepts a purchase
order from a Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with FD Distributors' procedures.
PURCHASE PROCEDURES--CUSTOMERS OF INSTITUTIONS
Purchase orders for Retail Shares are placed by Customers of Institutions
through their Institutions. The Institution is responsible for transmitting
Customer purchase orders to FD Distributors and for wiring required funds in
payment to Galaxy's custodian on a timely basis. FD Distributors is responsible
for transmitting such orders to Galaxy's transfer
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agent for execution. Retail Shares purchased by Institutions on behalf of their
Customers will normally be held of record by the Institution and beneficial
ownership of Retail Shares will be recorded by the Institution and reflected in
the account statements provided to its Customers. Galaxy's transfer agent may
establish an account of record for each Customer of an Institution reflecting
beneficial ownership of Retail Shares. Depending on the terms of the arrangement
between a particular Institution and Galaxy's transfer agent, confirmations of
Retail Share purchases and redemptions and pertinent account statements will
either be sent by Galaxy's transfer agent directly to a Customer with a copy to
the Institution, or will be furnished directly to the Customer by the
Institution. Other procedures for the purchase of Retail Shares established by
Institutions in connection with the requirements of their Customer accounts may
apply. Customers wishing to purchase Retail Shares through their Institution
should contact such entity directly for appropriate purchase instructions.
PURCHASE PROCEDURES--DIRECT INVESTORS
PURCHASES BY MAIL. Retail Shares may be purchased by completing a purchase
application and mailing it, together with a check payable to each Fund in which
a Direct Investor wishes to invest, to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581
ALL PURCHASE ORDERS PLACED BY MAIL MUST BE ACCOMPANIED BY A PURCHASE
APPLICATION. APPLICATIONS MAY BE OBTAINED BY CALLING FD DISTRIBUTORS AT
1-800-628-0414.
Subsequent investments in an existing account in any Fund may be made at any
time by sending a check for a minimum of $100 payable to the Fund in which the
additional investment is being made to Galaxy at the address above along with
either (a) the detachable form that regularly accompanies confirmation of a
prior transaction, (b) a subsequent order form that may be obtained from FD
Distributors, or (c) a letter stating the amount of the investment, the name of
the Fund and the account number in which the investment is to be made. If a
Direct Investor's check does not clear, the purchase will be canceled.
PURCHASES BY WIRE. Direct Investors may also purchase Retail Shares by
arranging to transmit federal funds by wire to Fleet Bank of Massachusetts, N.A.
as agent for First Data Investor Services Group, Inc. ("Investor Services
Group"), Galaxy's transfer agent. Prior to making any purchase by wire, an
investor must telephone FD Distributors at 1-800-628-0414 to place an order and
for instructions. Federal funds and registration instructions should be wired
through the Federal Reserve System to:
Fleet Bank of Massachusetts, N.A.
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
[Shareholder Name]
[Shareholder Account Number]
Direct Investors making initial investments by wire must promptly complete a
purchase application and forward it to The Galaxy Fund, P.O. Box 5108, 4400
Computer Drive, Westboro, Massachusetts 01581. Applications may be obtained by
calling FD Distributors at 1-800-628-0414. Redemptions will not be processed
until the application in proper form has been received by FD Distributors.
Direct Investors making subsequent investments by wire should follow the
instructions above.
EFFECTIVE TIME OF PURCHASES. A purchase order for Retail Shares received
and accepted by FD Distributors from an Institution or a Direct Investor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be executed at the net asset value per
share determined on that date, provided that Galaxy's custodian receives the
purchase price in federal funds or other immediately available funds prior to
4:00 p.m. on the third Business Day following the receipt of such order. Such
order will be executed on the day on which the purchase price is received in
proper form. If funds are not received by such date and time, the order will not
be accepted and notice thereof will be given promptly to the Institution or
Direct Investor submitting the order. Payment for orders which are not received
or accepted will be returned. If an Institution accepts a purchase order from a
Customer on a non-Business Day, the order will not be executed until it is
received and accepted by FD Distributors on a Business Day in accordance with
the above procedures. On a Business Day when the Exchange closes early due to a
partial holiday or otherwise, Galaxy will advance the time at which purchase
orders must be received in order to be processed on that Business Day.
OTHER PURCHASE INFORMATION
INVESTMENT MINIMUMS. Except as provided under "Investor Programs" below,
the minimum initial investment by a Direct Investor, or initial aggregate
investment by an Institution investing on behalf of its Customers, is $2,500.
The
32
<PAGE>
minimum investment for subsequent purchases is $100. The minimum investment
requirement with respect to IRAs, SEPs, MERPs and Keogh Plans (see below under
"Retirement Plans") is $500 (including spousal IRA accounts). There are no
minimum investment requirements for investors participating in the Automatic
Investment Program described below. Customers may agree with a particular
Institution to varying minimum initial and minimum subsequent purchase
requirements with respect to their accounts.
Galaxy reserves the right to reject any purchase order, in whole or in part,
or to waive any minimum investment requirement. The issuance of Retail Shares to
Direct Investors and Institutions is recorded on the books of Galaxy and share
certificates will not be issued.
Investors may be charged a separate fee if they effect transactions in
Retail Shares through a broker or agent.
APPLICABLE SALES CHARGE--RETAIL A SHARES
The public offering price for Retail A Shares of the Funds is the sum of the
net asset value of the Retail A Shares purchased plus any applicable front-end
sales charge. The sales charge assessed is as follows:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE REALLOWANCE TO DEALERS
-------------------------------- -----------------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
- ------------------------------ -------------- --------------- -----------------------
<S> <C> <C> <C>
Less than $50,000............. 3.75 3.90 3.25
$50,000 but less than
$100,000..................... 3.50 3.63 3.00
$100,000 but less than
$250,000..................... 3.00 3.09 2.50
$250,000 but less than
$500,000..................... 2.50 2.56 2.00
$500,000 and over............. 0.00* 0.00* 0.00
</TABLE>
- --------------------------
(*) There is no initial sales charge on purchases of $500,000 or more of Retail
A Shares; however, a contingent deferred sales charge of 1.00% will be
imposed on the lesser of the offering price or the net asset value of such
Retail A Shares on the redemption date for Shares redeemed within one year
after purchase. The contingent deferred sales charge will not be assessed
on redemptions within one year after purchase in connection with the death
or disability of a shareholder. To receive this exemption, a Direct
Investor or Customer must explain the status of his or her redemption at
the time the Retail A Shares are redeemed.
Further reductions in the sales charges shown above are also possible. See
"Quantity Discounts" below.
FD Distributors will pay the appropriate reallowance to dealers to
broker-dealer organizations which have entered into agreements with FD
Distributors. The reallowance to dealers may be changed from time to time.
At various times FD Distributors may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, FD Distributors in its discretion may from time to time, pursuant
to objective criteria established by FD Distributors, pay fees to qualifying
dealers for certain services or activities which are primarily intended to
result in sales of Retail A Shares of a Fund. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by FD
Distributors out of its own assets and not out of the assets of the Fund. These
programs will not change the price of Retail A Shares or the amount that the
Funds will receive from such sales.
Fleet's indirect parent, Fleet National Bank, or another affiliate of Fleet,
may at its expense, provide additional compensation to Fleet Enterprises, Inc.,
a broker-dealer affiliate of Fleet, whose customers purchase significant amounts
of Retail A Shares of a Fund. Such compensation will not represent an additional
expense to the Funds or their shareholders, since it will be paid from the
assets of Fleet's affiliates.
In certain situations or for certain individuals, the front-end sales charge
for Retail A Shares of the Funds may be waived either because of the nature of
the investor or the reduced sales effort required to attract such investments.
In order to receive the sales charge waiver, an investor must explain the status
of his or her investment at the time of purchase. No sales charge is assessed on
purchases of Retail A Shares of the Funds by the following categories of
investors or in the following types of transactions:
- reinvestment of dividends and distributions;
- purchases by any retirement account, including but not limited to SIMPLE,
IRA, SEP, Keogh and Roth accounts;
- purchases by persons who were beneficial owners of shares of the Funds or
any of the other portfolios offered by Galaxy or any other funds advised by
Fleet or its affiliates before December 1, 1995;
- purchases by directors, officers and employees of broker-dealers having
agreements with FD Distributors pertaining to the sale of Retail A Shares to the
extent permitted by such organizations;
- investors who purchase pursuant to a "wrap fee" program offered by any
broker-dealer or other financial institution or financial planning organization;
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<PAGE>
- purchases made with redemption proceeds from another mutual fund complex
on which a front-end or back-end sales charge has been paid, provided the
purchase is made within 60 days after the redemption;
- purchases by current and retired members of Galaxy's Board of Trustees and
members of their immediate families;
- purchases by officers, directors, employees and retirees of Fleet
Financial Group, Inc. and any of its affiliates and members of their immediate
families;
- purchases by officers, directors, employees and retirees of First Data
Corporation and any of its affiliates and members of their immediate families;
- purchases by persons who are also plan participants in any employee
benefit plan which is the record or beneficial holder of Trust Shares of the
Funds or any of the other portfolios offered by Galaxy;
- purchases by institutional investors, including but not limited to bank
trust departments and registered investment advisers;
- purchases by investment advisers, consultants or financial planners who
place trades for their own accounts or the accounts of their clients and who
charge such clients a management, consulting, advisory or other fee;
- purchases by clients of investment advisers or financial planners who
place trades for their own accounts if such accounts are linked to the master
accounts of such investment advisers or financial planners on the books of the
broker-dealer through whom Retail A Shares are purchased;
- purchases by institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund these plans, which
place trades through an omnibus account maintained with Galaxy by the
broker-dealer; and
- any purchase pursuant to the Reinstatement Privilege described below.
QUANTITY DISCOUNTS
Direct Investors or Customers may be entitled to reduced sales charges
through Rights of Accumulation, a Letter of Intent or a combination of
investments, as described below, even if the Direct Investor or Customer does
not wish to make an investment of a size that would normally qualify for a
quantity discount.
In order to obtain quantity discount benefits, a Direct Investor or Customer
must notify Galaxy's administrator, First Data Investor Services Group, Inc.
("Investor Services Group"), at the time of purchase that he or she would like
to take advantage of any of the discount plans described below. Upon such
notification, the investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time and are subject to
confirmation of a Direct Investor's or Customer's holdings through a check of
appropriate records. For more information about quantity discounts, please
contact FD Distributors or your Institution.
RIGHTS OF ACCUMULATION. A reduced sales charge applies to any purchase of
Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where a Direct Investor's or Customer's then current aggregate
investment in Retail A Shares is $50,000 or more. "Aggregate investment" means
the total of: (a) the dollar amount of the then current purchase of shares of an
Eligible Fund; and (b) the value (based on current net asset value) of
previously purchased and beneficially owned shares of any Eligible Fund on which
a sales charge has been paid. If, for example, a Direct Investor or Customer
beneficially owns shares of one or more Eligible Funds with an aggregate current
value of $49,000 on which a sales charge has been paid and subsequently
purchases shares of an Eligible Fund having a current value of $1,000, the sales
charge applicable to the subsequent purchase would be reduced to 3.50% of the
offering price. Similarly, with respect to each subsequent investment, all
shares of Eligible Funds that are beneficially owned by the investor at the time
of investment may be combined to determine the applicable sales charge.
LETTER OF INTENT. By completing the Letter of Intent included as part of
the Account Application, a Direct Investor or Customer becomes eligible for the
reduced sales charge applicable to the total number of Eligible Fund Retail A
Shares purchased in a 13-month period pursuant to the terms and under the
conditions set forth below and in the Letter of Intent. To compute the
applicable sales charge, the offering price of Retail A Shares of an Eligible
Fund on which a sales charge has been paid and that are beneficially owned by a
Direct Investor or Customer on the date of submission of the Letter of Intent
may be used as a credit toward completion of the Letter of Intent. However, the
reduced sales charge will be applied only to new purchases.
Investor Services Group will hold in escrow Retail A Shares equal to 5% of
the amount indicated in the Letter of Intent for payment of a higher sales
charge if a Direct Investor or Customer does not purchase the full amount
indicated in the Letter of Intent. The escrow will be released when a Direct
Investor or Customer fulfills the terms of the Letter of Intent by purchasing
the specified amount. If purchases qualify for a further sales charge reduction,
the sales charge will be adjusted to reflect a Direct Investor's or Customer's
total purchases. If total purchases are less than the amount specified, a Direct
Investor or Customer will be requested to remit an amount equal to the
difference between the sales charge actually paid and the sales charge
applicable to the total purchases. If such remittance is not received within 20
days, Investor Services Group, as attorney-in-fact pursuant to the terms of the
Letter of Intent and at FD Distributors' direction, will redeem an appropriate
number of Retail A Shares held in escrow to realize the difference. Signing a
Letter of Intent does not bind a Direct Investor or Customer to purchase the
full amount indicated at the sales charge in effect at
34
<PAGE>
the time of signing, but a Direct Investor or Customer must complete the
intended purchase in accordance with the terms of the Letter of Intent to obtain
the reduced sales charge. To apply, a Direct Investor or Customer must indicate
his or her intention to do so under a Letter of Intent at the time of purchase.
QUALIFICATION FOR DISCOUNTS. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit-sharing plan established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
REINSTATEMENT PRIVILEGE. Direct Investors and Customers may reinvest all or
any portion of their redemption proceeds in Retail A Shares of the Funds or in
Retail A Shares of another portfolio of Galaxy within 90 days of the redemption
trade date without paying a sales load. Retail A Shares so reinvested will be
purchased at a price equal to the net asset value next determined after Galaxy's
transfer agent receives a reinstatement request and payment in proper form.
Direct Investors and Customers wishing to exercise this Privilege must
submit a written reinstatement request to Investor Services Group as transfer
agent stating that the investor is eligible to use the Privilege. The
reinstatement request and payment must be received within 90 days of the trade
date of the redemption. Currently, there are no restrictions on the number of
times an investor may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the Internal Revenue Code's "wash
sale" rules.
APPLICABLE SALES CHARGE--RETAIL B SHARES
The public offering price for Retail B Shares of the Equity Value, Equity
Growth, Small Company Equity, Asset Allocation, Growth and Income and Strategic
Equity Funds is the net asset value of the Retail B Shares purchased. Although
Direct Investors and Customers pay no front-end sales charge on purchases of
Retail B Shares, such Shares are subject to a contingent deferred sales charge
at the rates set forth below if they are redeemed within six years of purchase.
Securities dealers, brokers, financial institutions and other industry
professionals will receive commissions from FD Distributors in connection with
sales of Retail B Shares. These commissions may be different than the
reallowances or placement fees paid to dealers in connection with sales of
Retail A Shares. Certain affiliates of Fleet may, at their own expense, provide
additional compensation to Fleet Enterprises, Inc., a broker-dealer affiliate of
Fleet, whose customers purchase significant amounts of Retail B Shares of a
Fund. See "Applicable Sales Charge--Retail A Shares." The contingent deferred
sales charge on Retail B Shares is based on the lesser of the net asset value of
the Shares on the redemption date or the original cost of the Shares being
redeemed. As a result, no sales charge is imposed on any increase in the
principal value of a Direct Investor's or Customer's Retail B Shares. In
addition, a contingent deferred sales charge will not be assessed on Retail B
Shares purchased through reinvestment of dividends or capital gains
distributions.
The amount of any contingent deferred sales charge Direct Investors and
Customers must pay depends on the number of years that elapse between the
purchase date and the date such Retail B Shares are redeemed. Solely for
purposes of this determination, all payments during a month will be aggregated
and deemed to have been made on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
(AS A PERCENTAGE OF
DOLLAR AMOUNT
NUMBER OF YEARS SUBJECT TO THE
ELAPSED SINCE PURCHASE CHARGE)
-------------------------- --------------------
<S> <C>
Less than one..................................... 5.00%
More than one but less than two................... 4.00%
More than two but less than three................. 3.00%
More than three but less than four................ 3.00%
More than four but less than five................. 2.00%
More than five but less than six.................. 1.00%
After six......................................... None
</TABLE>
When a Direct Investor or Customer redeems his or her Retail B Shares, the
redemption request is processed to minimize the amount of the contingent
deferred sales charge that will be charged. Retail B Shares are redeemed first
from those shares that are not subject to a contingent deferred sales charge
(I.E., Retail B Shares that were acquired through reinvestment of dividends or
distributions or that qualify for other deferred sales charge exemptions) and
after that from the Retail B Shares that have been held the longest.
The proceeds from the contingent deferred sales charge that a Direct
Investor or Customer may pay upon redemption go to FD Distributors, which may
use such amounts to defray the expenses associated with the distribution-related
services involved in selling Retail B Shares.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. Certain types of
redemptions may also qualify for an exemption from the contingent deferred sales
charge. To receive exemptions (i), (vi) or (viii) listed below, a Direct
Investor or Customer must explain the status of his or her redemption at the
time Retail B Shares are redeemed. The contingent deferred sales charge with
respect to Retail B Shares is not
35
<PAGE>
assessed on: (i) exchanges described under "Investor Programs--Exchange
Privilege" below; (ii) redemptions in connection with required (or, in some
cases, discretionary) distributions to participants or beneficiaries of an
employee pension, profit-sharing or other trust or qualified retirement or Keogh
plan, individual retirement account or custodial account maintained pursuant to
Section 403(b)(7) of the Internal Revenue Code of 1986, as amended, (the
"Code"); (iii) redemptions in connection with required (or, in some cases,
discretionary) distributions to participants in qualified retirement or Keogh
plans, individual retirement accounts or custodial accounts maintained pursuant
to Section 403 (b)(7) of the Code due to death, disability or the attainment of
a specified age; (iv) redemptions effected pursuant to a Fund's right to
liquidate a shareholder's account if the aggregate net asset value of Retail B
Shares held in the account is less than the minimum account size; (v)
redemptions in connection with the combination of a Fund with any other
investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (vi) redemptions in connection with the
death or disability of a shareholder; (vii) redemptions resulting from a
tax-free return of an excess contribution pursuant to Section 408(d)(4) or (5)
of the Code; or (viii) any redemption of Retail B Shares held by Direct
Investors or Customers, provided the Direct Investor or Customer was the
beneficial owner of shares of a Fund (or any of the other portfolios offered by
Galaxy or otherwise advised by Fleet or its affiliates) before December 1, 1995.
In addition to the foregoing exemptions, no contingent deferred sales charge
will be imposed on redemptions made pursuant to the Systematic Withdrawal Plan,
subject to the limitations set forth under "Investor Programs--Automatic
Investment Program and Systematic Withdrawal Plan" below.
CHARACTERISTICS OF RETAIL A SHARES AND RETAIL B SHARES
The primary difference between Retail A Shares and Retail B Shares lies in
their sales charge structures and shareholder servicing/distribution expenses. A
Direct Investor or Customer should understand that the purpose and function of
the sales charge structures and shareholder servicing/ distribution arrangements
for both Retail A Shares and Retail B Shares are the same.
Retail A Shares of the Funds are sold at their net asset value plus a
front-end sales charge of up to 3.75%. This front-end sales charge may be
reduced or waived in some cases. (See "Applicable Sales Charges--Retail A
Shares" and "Quantity Discounts"). Retail A Shares of a Fund are currently
subject to ongoing shareholder servicing fees at an annual rate of up to .30% of
the Fund's average daily net assets attributable to its Retail A Shares.
Retail B Shares of the Equity Value, Equity Growth, Small Company Equity,
Asset Allocation, Growth and Income and Strategic Equity Funds are sold at net
asset value without an initial sales charge. Normally, however, a deferred sales
charge is paid if the Shares are redeemed within six years of investment. (See
"Applicable Sales Charges-- Retail B Shares.") Retail B Shares of a Fund are
currently subject to ongoing shareholder servicing and distribution fees at an
annual rate of up to .95% of the Fund's average daily net assets attributable to
its Retail B Shares. These ongoing fees, which are higher than those charged on
Retail A Shares, will cause Retail B Shares to have a higher expense ratio and
pay lower dividends than Retail A Shares.
Six years after purchase, Retail B Shares of the Equity Value, Equity
Growth, Small Company Equity, Asset Allocation, Growth and Income and Strategic
Equity Funds will convert automatically to Retail A Shares of the Funds. The
purpose of the conversion is to relieve a holder of Retail B Shares of the
higher ongoing expenses charged to those shares, after enough time has passed to
allow FD Distributors to recover approximately the amount it would have received
if a front-end sales charge had been charged. The conversion from Retail B
Shares to Retail A Shares takes place at net asset value, as a result of which a
Direct Investor or Customer receives dollar-for-dollar the same value of Retail
A Shares as he or she had of Retail B Shares. The conversion occurs six years
after the beginning of the calendar month in which the Shares are purchased.
Upon conversion, the converted shares will be relieved of the distribution and
shareholder servicing fees borne by Retail B Shares, although they will be
subject to the shareholder servicing fees borne by Retail A Shares.
Retail B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charge--Retail B Shares")
are also converted at the earlier of two dates--six years after the beginning of
the calendar month in which the reinvestment occurred or the date of conversion
of the most recently purchased Retail B Shares that were not acquired through
reinvestment of dividends or distributions. For example, if a Direct Investor or
Customer makes a one-time purchase of Retail B Shares of a Fund, and
subsequently acquires additional Retail B Shares of such Fund only through
reinvestment of dividends and/or distributions, all of such Direct Investor's or
Customer's Retail B Shares in the Fund, including those acquired through
reinvestment, will convert to Retail A Shares of such Fund on the same date.
FACTORS TO CONSIDER WHEN SELECTING RETAIL A SHARES OR
RETAIL B SHARES
Before purchasing Retail A Shares or Retail B Shares of the Equity Value,
Equity Growth, Small Company Equity, Asset Allocation, Growth and Income and
Strategic Equity Funds, Direct Investors and Customers should consider whether,
during the anticipated periods of their investments in the particular Funds, the
accumulated distribution and
36
<PAGE>
shareholder servicing fees and potential contingent deferred sales charge on
Retail B Shares prior to conversion would be less than the initial sales charge
and accumulated shareholder servicing fees on Retail A Shares purchased at the
same time, and to what extent such differential would be offset by the higher
yield of Retail A Shares. In this regard, to the extent that the sales charge
for Retail A Shares is waived or reduced by one of the methods described above,
investments in Retail A Shares become more desirable. An investment of $250,000
or more in Retail B Shares would not be in most shareholders' best interest.
Shareholders should consult their financial advisers and/or brokers with respect
to the advisability of purchasing Retail B Shares in amounts exceeding $250,000.
Although Retail A Shares are subject to a shareholder servicing fee, they
are not subject to the higher distribution and shareholder servicing fee
applicable to Retail B Shares. For this reason, Retail A Shares can be expected
to pay correspondingly higher dividends per Share. However, because initial
sales charges are deducted at the time of purchase, purchasers of Retail A
Shares (that do not qualify for exemptions from or reductions in the initial
sales charge) would have less of their purchase price initially invested in
these Funds than purchasers of Retail B Shares in the Funds.
As described above, purchasers of Retail B Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Retail B Shares. Because a Fund's future returns cannot
be predicted, there can be no assurance that this will be the case. Holders of
Retail B Shares would, however, own shares that are subject to a contingent
deferred sales charge of up to 5.00% upon redemption, depending upon the year of
redemption. Direct Investors or Customers expecting to redeem during this
six-year period should compare the cost of the contingent deferred sales charge
plus the aggregate distribution and shareholder servicing fees on Retail B
Shares to the cost of the initial sales charge and shareholder servicing fees on
the Retail A Shares. Over time, the expense of the annual distribution and
shareholder servicing fees on the Retail B Shares may equal or exceed the
initial sales charge and annual shareholder servicing fee applicable to Retail A
Shares. For example, if net asset value remains constant, the aggregate
distribution and shareholder servicing fees with respect to Retail B Shares of a
Fund would equal or exceed the initial sales charge and aggregate shareholder
servicing fees of Retail A Shares approximately six years after the purchase. In
order to reduce such fees for investors that hold Retail B Shares for more than
six years, Retail B Shares will be automatically converted to Retail A Shares as
described above at the end of such six-year period.
HOW TO REDEEM SHARES
GENERAL
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Proceeds from the redemptions of Retail B Shares
of the Equity Value, Equity Growth, Small Company Equity, Asset Allocation,
Growth and Income and Strategic Equity Funds will be reduced by the amount of
any applicable contingent deferred sales charge. Galaxy reserves the right to
transmit redemption proceeds within seven days after receiving the redemption
order if, in its judgment, an earlier payment could adversely affect a Fund.
REDEMPTION PROCEDURES--CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or part of their Retail Shares in
accordance with procedures governing their accounts at Institutions. It is the
responsibility of the Institutions to transmit redemption orders to FD
Distributors and credit their Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy, although Institutions may charge a Customer's account for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institutions.
Payments for redemption orders received by FD Distributors on a Business Day
will normally be wired on the third Business Day to the Institutions.
Direct Investors may redeem all or part of their Retail Shares in accordance
with any of the procedures described below.
37
<PAGE>
REDEMPTION PROCEDURES--DIRECT INVESTORS
REDEMPTION BY MAIL. Retail Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581
A written redemption request must (i) state the name of the Fund and the
number of shares to be redeemed, (ii) identify the shareholder account number
and tax identification number, and (iii) be signed by each registered owner
exactly as the shares are registered. A redemption request for an amount in
excess of $50,000, or for any amount where (i) the proceeds are to be sent
elsewhere than the address of record (excluding the transfer of assets to a
successor custodian), (ii) the proceeds are to be sent to an address of record
which has changed in the preceding 30 days, or (iii) the check is to be made
payable to someone other than the registered owner(s), must be accompanied by
signature guarantees. The guarantor of a signature must be a bank that is a
member of the FDIC, a trust company, a member firm of a national securities
exchange or any other eligible guarantor institution. FD Distributors will not
accept guarantees from notaries public. FD Distributors may require additional
supporting documents for redemptions made by corporations, executors,
administrators, trustees and guardians. A redemption request will not be deemed
to be properly received until FD Distributors receives all required documents in
proper form. The Funds ordinarily will make payment for Retail Shares redeemed
by mail within three Business Days after proper receipt by FD Distributors of
the redemption request. Questions with respect to the proper form for redemption
requests should be directed to FD Distributors at 1-800-628-0414.
REDEMPTION BY TELEPHONE. Direct Investors who have not otherwise indicated
on the application, or in a subsequent notification in writing, may redeem
Retail Shares by calling 1-800-628-0414 and instructing FD Distributors to mail
a check for redemption proceeds of up to $50,000 to the address of record. A
redemption request for an amount in excess of $50,000 or for any amount where
(i) the proceeds are to be sent elsewhere than the address of record (excluding
the transfer of assets to a successor custodian), (ii) the proceeds are to be
sent to an address of record which has changed in the preceding 30 days, or
(iii) the check is to be made payable to someone other than the registered
owner(s), must be accompanied by signature guarantees. (See "Redemption by Mail"
above for details regarding signature guarantees.)
REDEMPTION BY WIRE. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
Retail Shares by instructing FD Distributors by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to a Direct Investor's account at
any commercial bank in the United States. FD Distributors charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption proceeds.
The redemption proceeds must be paid to the same bank and account as designated
on the application or in written instructions subsequently received by FD
Distributors. To request redemption of Retail Shares by wire, Direct Investors
should call FD Distributors at 1-800-628-0414.
In order to arrange for redemption by wire after an account has been opened
or to change the bank or account designated to receive redemption proceeds, a
written request must be sent to Galaxy at the address listed above under
"Redemption by Mail." Such requests must be signed by the investor and
accompanied by a signature guarantee (see "Redemption by Mail" above for details
regarding signature guarantees). Further documentation may be requested from
corporations, executors, administrators, trustees, or guardians. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures for transactions
by wire or mail which are described above.
Galaxy reserves the right to refuse a wire or telephone redemption if it
believes it is advisable to do so. Procedures for redeeming Retail Shares by
wire or telephone may be modified or terminated at any time by Galaxy or FD
Distributors. In attempting to confirm that telephone instructions are genuine,
Galaxy will use such procedures as are considered reasonable, including
recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security number, address and/or bank). If Galaxy fails to follow established
procedures for the authentication of telephone instructions, it may be liable
for losses due to unauthorized or fraudulent telephone transactions.
NO REDEMPTION BY A DIRECT INVESTOR IN ANY FUND WILL BE PROCESSED UNTIL
GALAXY HAS RECEIVED A COMPLETED APPLICATION WITH RESPECT TO THE DIRECT
INVESTOR'S ACCOUNT.
IF ANY PORTION OF THE RETAIL SHARES TO BE REDEEMED REPRESENTS AN INVESTMENT
MADE BY PERSONAL CHECK, GALAXY RESERVES THE RIGHT TO DELAY PAYMENT OF PROCEEDS
UNTIL FD DISTRIBUTORS IS REASONABLY SATISFIED THAT THE CHECK HAS BEEN COLLECTED,
WHICH COULD TAKE UP TO 15 DAYS FROM THE PURCHASE DATE. A DIRECT INVESTOR WHO
ANTICIPATES THE NEED FOR MORE IMMEDIATE ACCESS TO HIS OR HER INVESTMENT SHOULD
PURCHASE RETAIL SHARES BY FEDERAL FUNDS OR BANK WIRE OR BY CERTIFIED OR
CASHIER'S CHECK. BANKS NORMALLY IMPOSE A CHARGE IN CONNECTION WITH THE USE OF
BANK WIRES, AS WELL AS CERTIFIED CHECKS, CASHIER'S CHECKS AND FEDERAL FUNDS.
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OTHER REDEMPTION INFORMATION
Except as provided under "Investor Programs" below, Galaxy reserves the
right to redeem accounts (other than retirement plan accounts) involuntarily,
upon 60 days' written notice, if the account's net asset value falls below $250
as a result of redemptions. In addition, if an investor has agreed with a
particular Institution to maintain a minimum balance in his or her account at
the Institution with respect to Retail Shares of a Fund, and the balance in such
account falls below that minimum, the Customer may be obliged by the Institution
to redeem all of his or her shares.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Direct Investors and Customers of Institutions may, after appropriate prior
authorization, exchange Retail A Shares of a Fund having a value of at least
$100 for Retail A Shares of any of the other Funds or portfolios offered by
Galaxy or for shares of any other investment portfolios otherwise advised by
Fleet or its affiliates in which the Direct Investor or Customer maintains an
existing account, provided that such other shares may legally be sold in the
state of the investor's residence. Direct Investors and Customers of
Institutions may exchange Retail B Shares of the Equity Value, Equity Growth,
Small Company Equity, Asset Allocation, Growth and Income and Strategic Equity
Funds for Retail B Shares of the Money Market, Short-Term Bond, High Quality
Bond and Tax-Exempt Bond Funds offered by Galaxy, provided that such other
Retail B Shares may legally be sold in the state of the investor's residence.
No additional sales charge will be incurred when exchanging Retail A Shares
of a Fund for Retail A Shares of another Galaxy portfolio that imposes a sales
charge. Retail B Shares may be exchanged without the payment of any contingent
deferred sales charge at the time the exchange is made. In determining the
holding period for calculating the contingent deferred sales charge payable on
redemptions of Retail B Shares, the holding period of the Retail B Shares
originally held will be added to the holding period of the Retail B Shares
acquired through exchange.
The minimum initial investment to establish an account in another Fund or
portfolio by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless at the time of the exchange the Direct Investor or
Customer elects, with respect to the Fund or portfolio into which the exchange
is being made, to participate in the Automatic Investment Program described
below, in which event there is no minimum initial investment requirement, or in
the College Investment Program described below, in which event the minimum
initial investment is generally $100. The minimum initial investment to
establish an account by exchange in the Institutional Government Money Market
Fund is $2 million.
An exchange involves a redemption of all or a portion of the Retail Shares
of a Fund and the investment of the redemption proceeds in Retail Shares of
another Fund or portfolio offered by Galaxy or, with respect to Retail A Shares,
otherwise advised by Fleet or its affiliates. The redemption will be made at the
per share net asset value next determined after the exchange request is
received. The Retail Shares of a Fund or portfolio to be acquired will be
purchased at the per share net asset value next determined after acceptance of
the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege, Direct
Investors should call Investor Services Group at 1-800-628-0414. Customers of
Institutions should call their Institution for such information. Customers
exercising the exchange privilege into other portfolios should request and
review these portfolios' prospectuses prior to making an exchange. Telephone
1-800-628-0414 for a prospectus or to make an exchange. See "How to Redeem
Shares--Redemption Procedures--Direct Investors--Redemptions by Wire" above for
a description of Galaxy's policy regarding telephone transactions.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the Securities and Exchange Commission ("SEC").
Galaxy does not charge any exchange fee. However, Institutions may charge
such fees with respect to either all exchange requests or with respect to any
request which exceeds the permissible number of free exchanges during a
particular period. Customers of Institutions should contact their Institutions
for applicable information.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, a Customer or Direct Investor should consult a tax
or other financial adviser to determine the tax consequences.
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RETIREMENT PLANS
Retail Shares of the Funds are available for purchase in connection with the
following tax-deferred prototype retirement plans:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") (including traditional, Roth and
Education IRAs and "rollovers" from existing retirement plans), a
retirement-savings vehicle for qualifying individuals. The minimum initial
investment for an IRA account is $500 (including a spousal account).
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPS"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
MULTI-EMPLOYEE PENSION PLANS ("MERPS"), a retirement vehicle established by
employers for their employees which is qualified under Section 401(k) and 403(b)
of the Internal Revenue Code. The minimum initial investment for a MERP is $500.
KEOGH PLANS, a retirement vehicle for self-employed individuals. The minimum
initial investment for a Keogh Plan is $500.
Investors purchasing Retail Shares pursuant to a retirement plan are not
subject to the minimum investment provisions described above under "How to
Purchase Shares-- Other Purchase Information." Detailed information concerning
eligibility and other matters related to these plans and
the form of application is available from FD Distributors
(call 1-800-628-0414) with respect to IRAs, SEPs and Keogh Plans and from Fleet
Brokerage Securities, Inc. (call 1-800-221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits a Direct Investor to purchase
Retail Shares of a Fund (minimum of $50 per transaction) each month or each
quarter. Provided the Direct Investor's financial institution allows automatic
withdrawals, Retail Shares are purchased by transferring funds from a Direct
Investor's checking, bank money market, NOW or savings account designated by the
Direct Investor. The account designated will be debited in the specified amount,
and Retail Shares will be purchased, on a monthly or quarterly basis, on any
Business Day designated by a Direct Investor. If the designated day falls on a
weekend or holiday, the purchase will be made on the Business Day closest to the
designated day. Only an account maintained at a domestic financial institution
which is an Automated Clearing House member may be so designated.
The Systematic Withdrawal Plan permits a Direct Investor to automatically
redeem Retail Shares on a monthly, quarterly, semi-annual, or annual basis on
any Business Day designated by a Direct Investor, if the account has a starting
value of at least $10,000. If the designated day falls on a weekend or holiday,
the redemption will be made on the Business Day closest to the designated day.
Proceeds of the redemption will be sent to the shareholder's address of record
or financial institution within three Business Days of the redemption. If
redemptions exceed purchases and dividends, the number of shares in the account
will be reduced. Investors may terminate the Systematic Withdrawal Plan at any
time upon written notice to Investor Services Group, Galaxy's transfer agent
(but not less than five days before a payment date). There is no charge for this
service. Purchases of additional Retail A Shares concurrently with withdrawals
are ordinarily not advantageous because of the sales charge involved in the
additional purchases. No contingent deferred sales charge will be assessed on
redemptions of Retail B Shares made through the Systematic Withdrawal Plan that
do not exceed 12% of an account's net asset value on an annualized basis. For
example, monthly, quarterly and semi-annual Systematic Withdrawal Plan
redemptions of Retail B Shares will not be subject to the contingent deferred
sales charge if they do not exceed 1%, 3% and 6%, respectively, of an account's
net asset value on the redemption date. Systematic Withdrawal Plan redemptions
of Retail B Shares in excess of this limit are still subject to the applicable
contingent deferred sales charge.
PAYROLL DEDUCTION PROGRAM
The Payroll Deduction Program provides Direct Investors with a convenient,
systematic way to purchase Fund shares by deducting a minimum amount of $25 per
pay period from their paycheck. To be eligible for the Program, the payroll
department of a Direct Investor's employer must have the capability to forward
transactions directly through the Automated Clearing House (ACH), or indirectly
through a third party payroll processing company that has access to the ACH. A
Direct Investor must complete and submit a Galaxy Payroll Deduction Application
to his or her employer's payroll department, which will arrange for the
specified amount to be debited from the Direct Investor's paycheck each pay
period. Retail Shares of Galaxy will be purchased within three days after the
debit occurred. If the designated day falls on a weekend or non-Business Day,
the purchase will be made on the Business Day closest to the designated day. A
Direct Investor should allow between two to four weeks for the Payroll Deduction
Program to be established after submitting an application to the employer's
payroll department.
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COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits a Direct
Investor to open an account with Galaxy and purchase Retail Shares of a Fund
with a minimum amount of $100 for initial or subsequent investments, except that
if the Direct Investor purchases Retail Shares through the Automatic Investment
Program, the minimum per transaction is $50. The College Program is designed to
assist Direct Investors who want to finance a college savings plan. See
"Investor Programs--Automatic Investment Program and Systematic Withdrawal Plan"
for information on the Automatic Investment Program. Galaxy reserves the right
to redeem accounts participating in the College Program involuntarily, upon 60
days' written notice, if the account's net asset value falls below the
applicable minimum initial investment as a result of redemptions. See "How to
Redeem Shares--Other Redemption Information" above for further information.
Direct Investors in the College Program will receive consolidated monthly
statements of their accounts. Detailed information concerning College Program
accounts and applications may be obtained from FD Distributors (call
1-800-628-0414).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for the
Direct Deposit Program. This Program enables a Direct Investor to purchase
Retail Shares of a Fund by having social security payments automatically
deposited into his or her Fund account. There is no minimum deposit requirement.
For instructions on how to enroll in the Direct Deposit Program, Direct
Investors should call FD Distributors at 1-800-628-0414. Death or legal
incapacity will terminate a Direct Investor's participation in the Program. A
Direct Investor may elect at any time to terminate his or her participation by
notifying in writing the Social Security Administration. Further, Galaxy may
terminate a Direct Investor's participation upon 30 days' notice to the Direct
Investor.
INFORMATION SERVICES
GALAXY INFORMATION CENTER--24 HOUR INFORMATION SERVICE
The Galaxy Information Center provides Fund performance and investment
information 24 hours a day, seven days a week. To access the Galaxy Information
Center, just call 1-800-628-0414.
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to Fund
and account information as well as the ability to make telephone redemptions and
exchanges. These transactions are subject to the terms and conditions described
above under "How to Redeem Shares" and "Investor Programs". To access the Voice
Response System, just call 1-800-628-0414 from any touch-tone telephone and
follow the recorded instructions.
GALAXY SHAREHOLDER SERVICES
For account information and recent exchange transactions, Direct Investors
can call Galaxy Shareholder Services Monday through Friday, between the hours of
9:00 a.m. to 5:00 p.m. (Eastern Time) at 1-800-628-0414.
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
Direct Investors residing outside the United States can contact Galaxy by
calling 1-508-855-5237.
Investment returns and principal values will vary with market conditions so
that an investor's Retail Shares, when redeemed, may be worth more or less than
their original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price,
deduction of any applicable sales charge, and reinvestment of dividends and
capital gains distributions, if any.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Equity Value, Equity Growth,
Equity Income, Small Company Equity, Asset Allocation, Small Cap Value, Growth
and Income and Strategic Equity Funds are declared and paid quarterly. Dividends
from net investment income of the International Equity Fund are declared and
paid annually. Dividends on each share of a Fund are determined in the same
manner, irrespective of series, but may differ in amount
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because of the difference in the expenses paid by the respective series. Net
realized capital gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers and Direct
Investors may elect to have their dividends reinvested in additional Retail
Shares of the same series of a Fund at the net asset value of such shares on the
ex-dividend date. Such election, or any revocation thereof, must be communicated
in writing to Galaxy's transfer agent (see "Custodian and Transfer Agent" below)
and will become effective with respect to dividends paid after its receipt.
TAXES
FEDERAL
The Equity Value Fund, Equity Growth Fund, Equity Income Fund, International
Equity Fund, Small Company Equity Fund, Asset Allocation Fund, Small Cap Value
Fund and Growth and Income Fund Fund each qualified during its last taxable year
and intends to continue to qualify, and the Strategic Equity Fund intends to
qualify, as a "regulated investment company" under the Code. Such qualification
generally relieves a Fund of liability for federal income taxes to the extent
the Fund's earnings are distributed in accordance with the Code.
The policy of each Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional Retail Shares.
(Federal income taxes for distributions to an IRA or a qualified retirement plan
are deferred under the Code.) Such ordinary income distributions will qualify
for the dividends received deduction for corporations to the extent of the total
qualifying dividends received by the distributing Fund from domestic
corporations for the taxable year.
Distribution by a Fund of "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, of a Fund,
is taxable to shareholders as long-term capital gain, regardless of how long the
shareholder has held shares and whether such gains are received in cash or
reinvested in additional Retail Shares. Such long-term capital gain will
constitute 20% or 28% rate gain, depending upon the Fund's holding period for
the assets the sale of which generated the gain. Such distributions are not
eligible for the dividends received deduction.
The dividends received deduction is not available for dividends attributable
to distributions made by a REIT to a Fund. In addition, distributions paid by
REITs often include a "return of capital." The Code requires a REIT to
distribute at least 95% of its taxable income to investors. In many cases,
however, because of "non-cash" expenses such as property depreciation, an equity
REIT's cash flow will exceed its taxable income. The REIT may distribute this
excess cash to offer a more competitive yield. This portion of the distribution
is deemed a return of capital and is generally not taxable to shareholders.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
If you are considering buying shares of a Fund on or just before the record
date of a dividend or capital gain distribution, you should be aware that the
amount of the forthcoming distribution payment, although in effect a return of
capital to the shareholder, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of a Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
It is expected that the International Equity Fund will be subject to foreign
withholding taxes with respect to income received from sources within foreign
countries. So long as more than 50% of the value of the Fund's total assets at
the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect, for U.S. federal income tax purposes, to treat
certain foreign taxes paid by it, including generally any withholding taxes and
other foreign income taxes, as paid by its shareholders. If the Fund makes this
election, the amount of such foreign taxes paid by the Fund will be included in
its shareholders' income pro rata (in addition to taxable distributions actually
received by them), and shareholders would be entitled either (a) to credit their
proportionate amount of such taxes against their U.S. federal income tax
liabilities, subject to certain limitations described in the Statement of
Additional Information relating to the Fund, or (b) if they itemize their
deductions, to deduct such proportionate amount from their U.S. income, should
they so choose. Shareholders of the Equity Value, Equity Growth, Equity Income,
Small Company Equity, Asset Allocation, Small Cap Value, Growth and Income and
Strategic Equity Funds should not expect to claim a foreign tax credit or
deduction.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Funds and their shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Funds should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
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STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
MANAGEMENT OF THE FUNDS
The business and affairs of the Funds are managed under the direction of
Galaxy's Board of Trustees. The applicable Statements of Additional Information
contain the names of and general background information concerning the Trustees.
INVESTMENT ADVISER AND SUB-ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Funds. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients and
manages the other investment portfolios of Galaxy.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with each Fund's investment policies, Fleet manages each Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records (except with respect to such
functions that have been delegated to Oechsle, the International Equity Fund's
sub-adviser, as described below).
For the services provided and expenses assumed with respect to the Equity
Value, Equity Growth, Equity Income, Small Company Equity, Asset Allocation,
Small Cap Value, Growth and Income and Strategic Equity Funds, Fleet is entitled
to receive advisory fees, computed daily and paid monthly, at the annual rate of
.75% of the average daily net assets of each Fund. For the services provided and
expenses assumed with respect to the International Equity Fund, Fleet is
entitled to receive advisory fees, computed daily and paid monthly, at the
annual rate of 1.15% of the first $50 million of the Fund's average daily net
assets, plus .95% of the next $50 million of such assets, plus .85% of net
assets in excess of $100 million.
Fleet may from time to time, in its discretion, waive advisory fees payable
by the Funds in order to help maintain a competitive expense ratio and may from
time to time allocate a portion of its advisory fees to Fleet Bank or other
subsidiaries of Fleet Financial Group, Inc., in consideration for administrative
and/or shareholder support services which they provide to beneficial
shareholders. For the fiscal year ended October 31, 1997, Fleet received
advisory fees (after fee waivers) at the effective annual rates of .75%, .75%,
.75%, .68%, .75%, .75%, .75% and .75% of the average daily net assets of the
Equity Value, Equity Growth, Equity Income, International Equity, Small Company
Equity, Asset Allocation, Small Cap Value and Growth and Income Funds,
respectively. In addition to fee waivers, during the fiscal year ended October
31, 1997, Fleet also reimbursed each of the Funds for certain operating
expenses, which reimbursement may be revised or discontinued at any time. The
Strategic Equity Fund did not conduct investment operations during the fiscal
year ended October 31, 1997.
The advisory agreement between Galaxy and Fleet with respect to the
International Equity Fund provides that Fleet will provide a continuous
investment program for the Fund, including research and management with respect
to all securities and investments and cash equivalents in the Fund. In addition,
the advisory agreement authorizes Fleet to engage a sub-adviser to assist it in
the performance of its services. Pursuant to such authorization, Fleet has
appointed Oechsle, a Delaware limited partnership with principal offices at One
International Place, Boston, Massachusetts 02210, as the sub-adviser to the
International Equity Fund. The general partner of Oechsle is Oechsle Group,
L.P., and the managing general partner of Oechsle Group, L.P. is Walter Oechsle.
Oechsle currently manages approximately $10.2 billion in assets.
Under its sub-advisory agreement with Fleet, Oechsle determines which
securities and other investments will be purchased, retained or sold for the
Fund; places orders for the Fund; manages the Fund's overall cash position; and
provides Fleet with foreign broker research and a quarterly review of
international economic and investment developments. Fleet, among other things,
assists and consults with Oechsle in connection with the Fund's continuous
investment program; approves lists of foreign countries recommended by Oechsle
for investment; reviews the investment policies and restrictions of the Fund and
recommends appropriate changes to the Board of Trustees; and provides the Board
of Trustees and Oechsle with information concerning relevant economic and
political developments.
For the services provided and the expenses assumed pursuant to the
sub-advisory agreement, Fleet pays a fee to Oechsle, computed daily and paid
quarterly, at the annual rate of .40% of the first $50 million of the
International Equity Fund's average daily net assets, plus .35% of average daily
net assets in excess of $50 million. For the fiscal year ended October 31, 1997,
Oechsle received sub-advisory fees from Fleet at the effective annual rate of
.36% of the Fund's average daily net assets.
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The Equity Value Fund's portfolio manager, G. Jay Evans, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Evans has been with Fleet and its predecessors since 1978, is a senior Vice
President, and has been the Fund's portfolio manager since the spring of 1993.
The Equity Growth Fund's portfolio manager, Robert G. Armknecht, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Armknecht, an Executive Vice President, has been with Fleet and
its predecessors since 1989 and has been the Fund's portfolio manager since its
inception.
The Equity Income Fund's portfolio manager, J. Edward Klisiewicz, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Klisiewicz, a Senior Vice President, has been with Fleet and its
predecessors since 1970 and has been the Fund's portfolio manager since its
inception.
The International Equity Fund's portfolio managers, David von Hemert of
Fleet, and S. Dewey Keesler, Jr. and Kathleen Harris of Oechsle, are primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. von Hemert, a Senior Vice President, has been with Fleet and its
predecessors since 1980 and has been managing the Fund since August 1994. Mr.
Keesler, General Partner and Portfolio Manager, has been with Oechsle since its
founding in 1986. Ms. Harris has been a Portfolio Manager at Oechsle since
January 1995. Prior thereto, she was Portfolio Manager and Investment Director
for the State of Wisconsin Investment Board and a Fund Manager and Equity
Analyst for Northern Trust Company. Mr. Keesler and Ms. Harris have been
managing the Fund since August 1996.
The Small Company Equity Fund's portfolio manager, Stephen D. Barbaro, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Barbaro, a Vice President and Senior Portfolio Manager, has been
with Fleet and its predecessors since 1976 and has been the Fund's portfolio
manager since its inception.
The Asset Allocation Fund's co-portfolio managers, Donald Jones and David
Lindsay, are primarily responsible for the day-to-day management of the Fund's
investment portfolio. Mr. Jones determines the allocation of the Fund's assets
between equity and fixed income investments and manages the equity portion of
the Fund's investment portfolio. Mr. Lindsay manages the fixed income portion of
the Fund's investment portfolio. Mr. Jones, who currently serves as a Vice
President, has been with Fleet and its predecessors as a portfolio manager since
1988 and has been the Fund's portfolio manager since May 1, 1995. Mr. Lindsay, a
Senior Vice President, has been with Fleet and its predecessors since 1986. He
has managed the fixed income portion of the Fund's portfolio since January 1997.
The Small Cap Value Fund's portfolio manager, Peter Larson, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Larson served as the portfolio manager of the Predecessor Small Cap Value
Fund since its inception in 1992. Prior to joining Fleet in 1995, he was
associated with Shawmut Bank since 1963 as an investment officer and was a Vice
President in charge of its Small Cap Equity Management product since 1982.
The Growth and Income Fund's portfolio manager, Brendan Henebry, is
primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Henebry served as portfolio manager for the Predecessor Growth
and Income Fund since its inception in 1992. Prior to joining Fleet in 1995, he
was associated with Shawmut Bank and its predecessor since 1965 and was a Vice
President since 1978. While at Shawmut Bank he served as manager of its Growth
and Income Equity Management Group.
The Strategic Equity Fund's portfolio manager, Peter B. Hathaway, is
primarily responsible for the day-to-day management of the Fund's portfolio. Mr.
Hathaway, a Vice President, has been associated with Fleet since 1995. Prior to
joining Fleet, he was with Shawmut Investment Advisors and its predecessors as
an institutional fund manager. He has over 30 years of investment experience.
Fleet and Oechsle are authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions, including, to the extent
permitted by law or order of the SEC, financial institutions that are affiliated
with Fleet or Oechsle or that have sold shares of the Funds, if Fleet or
Oechsle, as the case may be, believes that the quality of the transaction and
the commission are comparable to what they would be with other qualified
brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Retail
Shares of the Funds, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which agree to provide shareholder support services that are banks
or bank affiliates are subject to such banking laws and regulations. Should
legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Funds,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Funds' method of operation would not
44
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affect a Fund's net asset value per share or result in financial loss to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Funds' administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Funds in their administration
and operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For the services provided to the Funds, Investor Services
Group is entitled to receive administration fees, computed daily and paid
monthly, at the annual rate of .09% of the first $2.5 billion of the combined
average daily net assets of the Funds and the other portfolios offered by Galaxy
(collectively, the "Portfolios"), .085% of the next $2.5 billion of combined
average daily net assets and .075% of combined average daily net assets over $5
billion. In addition, Investor Services Group also receives a separate annual
fee from each Portfolio for certain fund accounting services. From time to time,
Investor Services Group may waive voluntarily all or a portion of the
administration fee payable to it by the Funds. For the fiscal year ended October
31, 1997, the Equity Value, Equity Growth, Equity Income, International Equity,
Small Company Equity, Asset Allocation, Small Cap Value and Growth and Income
Funds paid Investor Services Group administration fees at the effective annual
rate of .082% of each Fund's average daily net assets. The Strategic Equity Fund
did not conduct investment operations during the fiscal year ended October 31,
1997.
DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in each of the series in the Funds as follows:
Class C shares (Trust Shares), Class C--Special Series 1 shares (Retail A
Shares) and Class C--Special Series 2 shares (Retail B Shares), each series
representing interests in the Equity Value Fund; Class G--Series 1 shares (Trust
Shares) and Class G-- Series 2 shares (Retail A Shares), both series
representing interests in the International Equity Fund; Class H--Series 1
shares (Trust Shares), Class H--Series 2 shares (Retail A Shares) and Class
H--Series 3 shares (Retail B Shares), each series representing interests in the
Equity Growth Fund; Class I--Series 1 shares (Trust Shares) and Class I--Series
2 shares (Retail A Shares), both series representing interests in the Equity
Income Fund; Class K--Series 1 shares (Trust Shares), Class K--Series 2 shares
(Retail A Shares) and Class K--Series 3 shares (Retail B Shares), each series
representing interests in the Small Company Equity Fund; Class N--Series 1
shares (Trust Shares), Class N--Series 2 shares (Retail A Shares) and Class
N--Series 3 shares (Retail B Shares), each series representing interests in the
Asset Allocation Fund; Class U--Series 1 shares (Trust Shares), Class U--Series
2 shares (Retail A Shares) and Class U--Series 3 shares (Retail B Shares), each
series representing interest in the Growth and Income Fund; Class X-- Series 1
shares (Trust Shares) and Class X--Series 2 shares (Retail A Shares), each
series representing interests in the Small Cap Value Fund; and Class AA--Series
1 shares (Trust Shares), Class AA--Series 2 shares (Retail A Shares) and Class
AA--Series 3 shares (Retail B Shares), each series representing interest in the
Strategic Equity Fund. Each Fund is classified as a diversified company under
the 1940 Act. The Board of Trustees has also authorized the issuance of
additional classes and series of shares representing interests in other
portfolios of Galaxy. For information regarding the Funds' Trust Shares and
these other portfolios, which are offered through separate prospectuses, contact
FD Distributors at 1-800-628-0414.
Shares of each series in a Fund bear their pro rata portion of all operating
expenses paid by that Fund except as follows. Holders of a Fund's Retail A
Shares bear the fees that are paid to Institutions under Galaxy's Shareholder
Services Plan described below. Holders of Retail B Shares of the Equity Value,
Equity Growth, Small Company Equity, Asset Allocation, Growth and Income and
Strategic Equity Funds bear the fees that are paid under Galaxy's Distribution
and Services Plan described below. In addition, shares of each series in a Fund
bear differing transfer agency expenses. Standardized yield and total return
quotations are computed separately for each series of shares. The differences in
the expenses paid by the respective series will affect their performance.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class (irrespective of series
designation), and is entitled to such dividends and distributions out of the
income earned on the assets belonging to such investment portfolio as are
declared in the discretion of Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted
45
<PAGE>
on affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
provides that Galaxy will pay fees for such services at an annual rate of up to
.50% of the average daily net asset value of Retail A Shares owned beneficially
by Customers. Institutions may receive up to one-half of this fee for providing
one or more of the following services to such Customers: aggregating and
processing purchase and redemption requests and placing net purchase and
redemption orders with FD Distributors; processing dividend payments from a
Fund; providing sub-accounting with respect to Retail A Shares or the
information necessary for sub-accounting; and providing periodic mailings to
Customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such Customers: providing
Customers with information as to their positions in Retail A Shares; responding
to Customer inquiries; and providing a service to invest the assets of Customers
in Retail A Shares. These services are described more fully in the applicable
Statements of Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Funds, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of each Fund, and
to limit the payment under these servicing agreements for each Fund to an
aggregate fee of not more than .30% (on an annualized basis) of the average
daily net asset value of the Retail A Shares of the Fund beneficially owned by
Customers of Institutions. Galaxy understands that Institutions may charge fees
to their Customers who are the beneficial owners of Retail A Shares in
connection with their accounts with such Institutions. Any such fees would be in
addition to any amounts which may be received by an Institution under the
Shareholder Services Plan. Under the terms of each servicing agreement entered
into with Galaxy, Institutions are required to provide to their Customers a
schedule of any fees that they may charge in connection with Customer
investments in Retail A Shares.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act with respect to Retail B Shares of the Equity Value, Equity
Growth, Small Company Equity, Asset Allocation, Growth and Income and Strategic
Equity Funds. Under the Distribution and Services Plan, Galaxy may pay (a) FD
Distributors or another person for expenses and activities intended to result in
the sale of Retail B Shares, including the payment of commissions to
broker-dealers and other industry professionals who sell Retail B Shares and the
direct or indirect cost of financing such payments, (b) Institutions for
shareholder liaison services, which means personal services for holders of
Retail B Shares and/or the maintenance of shareholder accounts, such as
responding to customer inquiries and providing information on accounts, and (c)
Institutions for administrative support services, which include but are not
limited to (i) transfer agent and sub-transfer agent services for beneficial
owners of Retail B Shares; (ii) aggregating and processing purchase and
redemption orders; (iii) providing beneficial owners with statements showing
their positions in Retail B Shares; (iv) processing dividend payments; (v)
providing sub-accounting services for Retail B Shares held beneficially; (vi)
forwarding shareholder communications, such as proxies, shareholder reports,
dividend and tax notices, and updating prospectuses to beneficial owners; and
(vii) receiving, translating and transmitting proxies executed by beneficial
owners.
Under the Distribution and Services Plan for Retail B Shares, payments by
Galaxy (i) for distribution expenses may not exceed the annualized rate of .65%
of the average daily net assets attributable to each such Fund's outstanding
Retail B Shares, and (ii) to an Institution for shareholder liaison services
and/or administrative support services may not exceed the annual rates of .25%
and .25%, respectively, of the average daily net assets attributable to each
such Fund's outstanding Retail B Shares which are owned of record or
beneficially by that Institution's Customers for whom the Institution is the
dealer of record or shareholder of record or with whom it has a servicing
relationship. As of the date of this Prospectus, Galaxy intends to limit each
Fund's payments for shareholder liaison and administrative support services
under the Plan to an aggregate fee of not more than .30% (on an annualized
basis) of the average daily net asset value of
46
<PAGE>
Retail B Shares owned of record or beneficially by Customers of Institutions.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-accounting and administrative functions ("Sub-Account Services") on
a per account basis with respect to Trust Shares of each Fund held by defined
contribution plans, including maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Funds to Investor Services Group have
been increased by an amount equal to these fees. In substance, therefore, the
holders of Trust Shares of these Funds indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as the custodian of the Funds' assets. Chase
Manhattan may employ sub-custodians for the Funds for the purpose of providing
custodial services for the Funds' foreign assets held outside the United States.
First Data Investor Services Group, Inc. ("Investor Services Group"), a
wholly-owned subsidiary of First Data Corporation, serves as the Funds' transfer
and dividend disbursing agent. Services performed by these entities for the
Funds are described in the applicable Statements of Additional Information.
Communications to Investor Services Group should be directed to Investor
Services Group at P.O. Box 5108, 4400 Computer Drive, Westboro, Massachusetts
01581.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Funds. Galaxy bears
the expenses incurred in the Funds' operations including: taxes; interest; fees
(including fees paid to its trustees and officers who are not affiliated with
Investor Services Group); SEC fees; state securities fees; costs of preparing
and printing prospectuses for regulatory purposes and for distribution to
existing shareholders; advisory, administration, shareholder servicing, Rule
12b-1 distribution (if applicable), fund accounting and custody fees; charges of
the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholder reports and meetings; and any extraordinary expenses. The
Funds also pay for brokerage fees and commissions in connection with the
purchase of portfolio securities.
PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Funds may be quoted and compared to that of other mutual
funds with similar investment objectives and to stock or other relevant indices
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Funds may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds, S&P 500, an unmanaged index of groups of common
stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange. In addition, the performance of the International
Equity Fund may be compared to the Morgan Stanley Capital International Index or
the FT World Actuaries Index and the performance of the Small Company Equity
Fund and Small Cap Value Fund may be compared to the NASDAQ Composite Index, an
unmanaged index of over-the-counter stock prices.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES, or publications of a local or regional nature may also
be used in comparing the performance of the Funds. Performance data will be
calculated separately for Trust Shares, Retail A Shares and/or Retail B Shares
of the Funds.
The standard yield is computed by dividing a Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the maximum public offering price per share
on the
47
<PAGE>
last day of the period, and annualizing the result on a semi-annual basis. Each
Fund may also advertise its "effective yield" which is calculated similarly but,
when annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Funds may also advertise their performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in a Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of a Fund's operations, or on a year-by-year
basis. Each Fund may also use aggregate total return figures for various
periods, representing the cumulative change in the value of an investment in a
Fund for the specified period. Both methods of calculating total return reflect
the maximum front-end sales load for Retail A Shares of the Funds and the
applicable contingent deferred sales charge for Retail B Shares of the Equity
Value, Equity Growth, Small Company Equity, Asset Allocation, Growth and Income
and Strategic Equity Funds and assume that dividends and capital gain
distributions made by a Fund during the period are reinvested in Fund shares.
The Funds may also advertise total return data without reflecting the sales
charges imposed on the purchase of Retail A Shares or the redemption of Retail B
Shares in accordance with the rules of the SEC. Quotations that do not reflect
the sales charges will be higher than quotations that do reflect the sales
charges.
The performance of the Funds will fluctuate and any quotation of performance
should not be considered as representative of the future performance of the
Funds. Since yields fluctuate, yield data cannot necessarily be used to compare
an investment in a Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Retail Shares of a Fund will not be
included in performance calculations.
The portfolio managers of the Funds and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the Funds'
investment operations and annual financial statements audited by independent
certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of a particular Fund or a particular series of shares in a
Fund means, with respect to the approval of an investment advisory agreement, a
distribution plan or a change in an investment objective or fundamental
investment policy, the affirmative vote of the holders of the lesser of (a) more
than 50% of the outstanding shares of such Fund or such series of shares, or (b)
67% or more of the shares of such Fund or such series of shares present at a
meeting if more than 50% of the outstanding shares of such Fund or such series
of shares are represented at the meeting in person or by proxy.
48
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENTS OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUNDS OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
------------------------------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
HIGHLIGHTS................................................................ 1
EXPENSE SUMMARY........................................................... 3
FINANCIAL HIGHLIGHTS...................................................... 6
INVESTMENT OBJECTIVES AND POLICIES........................................ 16
Equity Value Fund....................................................... 16
Equity Growth Fund...................................................... 16
Equity Income Fund...................................................... 17
International Equity Fund............................................... 17
Small Company Equity Fund............................................... 18
Asset Allocation Fund................................................... 18
Small Cap Value Fund.................................................... 19
Growth and Income Fund.................................................. 20
Strategic Equity Fund................................................... 20
Special Risk Considerations............................................. 21
Other Investment Policies and Risk Considerations....................... 21
INVESTMENT OBJECTIVES AND POLICIES........................................ 29
PRICING OF SHARES......................................................... 30
HOW TO PURCHASE SHARES.................................................... 31
Distributor............................................................. 31
General................................................................. 31
Purchase Procedures--Customers of Institutions.......................... 31
Purchase Procedures--Direct Investors................................... 32
Other Purchase Information.............................................. 32
Applicable Sales Charge--Retail A Shares................................ 33
Quantity Discounts...................................................... 34
Applicable Sales Charge--Retail B Shares................................ 35
Characteristics of Retail A Shares and Retail B Shares.................. 36
Factors to Consider When Selecting Retail A Shares or Retail B Shares... 36
HOW TO REDEEM SHARES...................................................... 37
General................................................................. 37
<CAPTION>
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<S> <C>
Redemption Procedures--Customers of Institutions........................ 37
Redemption Procedures--Direct Investors................................. 38
Other Redemption Information............................................ 39
INVESTOR PROGRAMS......................................................... 39
Exchange Privilege...................................................... 39
Retirement Plans........................................................ 40
Automatic Investment Program and Systematic Withdrawal Plan............. 40
Payroll Deduction Program............................................... 40
College Investment Program.............................................. 41
Direct Deposit Program.................................................. 41
INFORMATION SERVICES...................................................... 41
Galaxy Information Center--24 Hour Information Service.................. 41
Voice Response System................................................... 41
Galaxy Shareholder Services............................................. 41
DIVIDENDS AND DISTRIBUTIONS............................................... 41
TAXES..................................................................... 42
Federal................................................................. 42
State and Local......................................................... 43
MANAGEMENT OF THE FUNDS................................................... 43
Investment Adviser and Sub-Adviser...................................... 43
Authority to Act as Investment Adviser.................................. 44
Administrator........................................................... 45
DESCRIPTION OF GALAXY AND ITS SHARES...................................... 45
Shareholder Services Plan............................................... 46
Distribution and Services Plan.......................................... 46
Agreements for Sub-Account Services..................................... 47
CUSTODIAN AND TRANSFER AGENT.............................................. 47
EXPENSES.................................................................. 47
PERFORMANCE REPORTING..................................................... 47
MISCELLANEOUS............................................................. 48
</TABLE>
[LOGO]
50% Recycled Paper
10% Post-Consumer Waste
<PAGE>
RETAIL SHARES
THE GALAXY FUND
MIDCAP EQUITY FUND
PROSPECTUS
FEBRUARY 28, 1998
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
FIRST DATA DISTRIBUTORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUND OR BY FIRST DATA DISTRIBUTORS, INC. IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
HIGHLIGHTS............................................................ 2
EXPENSE SUMMARY....................................................... 4
INVESTMENT OBJECTIVE AND POLICIES..................................... 6
Special Risk Considerations......................................... 6
Other Investment Policies and Risk Considerations................... 7
INVESTMENT LIMITATIONS................................................ 14
PRICING OF SHARES..................................................... 16
HOW TO PURCHASE SHARES................................................ 16
Distributor......................................................... 16
General............................................................. 16
Purchase Procedures--Customers of Institutions...................... 17
Purchase Procedures--Direct Investors............................... 17
Other Purchase Information.......................................... 18
Applicable Sales Charge--Retail A Shares............................ 19
Quantity Discounts.................................................. 21
Applicable Sales Charge--Retail B Shares............................ 22
Characteristics of Retail A Shares and Retail B Shares.............. 24
Factors to Consider When Selecting Retail A Shares or Retail B
Shares............................................................. 25
HOW TO REDEEM SHARES.................................................. 25
General............................................................. 25
Redemption Procedures--Customers of Institutions.................... 26
Redemption Procedures--Direct Investors............................. 26
Other Redemption Information........................................ 27
<CAPTION>
PAGE
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<S> <C>
INVESTOR PROGRAMS..................................................... 28
Exchange Privilege.................................................. 28
Retirement Plans.................................................... 29
Automatic Investment Program and Systematic Withdrawal Plan......... 29
Payroll Deduction Program........................................... 30
College Investment Program.......................................... 30
Direct Deposit Program.............................................. 31
INFORMATION SERVICES.................................................. 31
Galaxy Information Center--24 Hour Information Service.............. 31
Voice Response System............................................... 31
Galaxy Shareholder Services......................................... 31
DIVIDENDS AND DISTRIBUTIONS........................................... 32
TAXES................................................................. 32
Federal............................................................. 32
State and Local..................................................... 33
Miscellaneous.......................................................
MANAGEMENT OF THE FUND................................................ 33
Investment Adviser.................................................. 33
Authority to Act as Investment Adviser.............................. 34
Administrator....................................................... 34
DESCRIPTION OF GALAXY AND ITS SHARES.................................. 34
Shareholder Services Plan........................................... 35
Distribution and Services Plan...................................... 36
Agreements for Sub-Account Services................................. 37
CUSTODIAN AND TRANSFER AGENT.......................................... 37
EXPENSES.............................................................. 37
PERFORMANCE REPORTING................................................. 37
MISCELLANEOUS......................................................... 38
</TABLE>
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<PAGE>
THE GALAXY FUND
4400 Computer Drive For an application and information
Westboro, Massachusetts 01581-5108 regarding purchases, redemptions,
exchanges and other shareholder services
or for current performance call
1-800-628-0414.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes the Retail A Shares and the Retail B Shares which
represent interests in the MIDCAP EQUITY FUND (the "Fund") offered by Galaxy
(Retail A Shares and Retail B Shares are referred to herein collectively as
"Retail Shares").
The Fund's investment objective is to seek long-term capital appreciation.
The Fund attempts to achieve this objective by investing primarily in the
securities of companies with market value capitalizations of between $750
million and $3.5 billion that the Fund's investment adviser believes are
undervalued and represent the potential for future earnings growth. Under normal
market and economic conditions, the Fund will invest at least 65% of its total
assets in the equity securities of companies with market value capitalizations
of between $750 million and $3.5 billion.
Retail A Shares are sold with a front-end sales charge. Retail B Shares are
sold with a contingent deferred sales charge. Retail Shares are offered to
customers ("Customers") of FIS Securities, Inc., Fleet Brokerage Securities,
Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group,
Inc., its affiliates, their correspondent banks, and other qualified banks,
savings and loan associations and broker/ dealers ("Institutions"). Retail
Shares may also be purchased directly by individuals, corporations or other
entities, who submit a purchase application to Galaxy, purchasing either for
their own account or for the accounts of others ("Direct Investors"). Galaxy is
also authorized to issue an additional series of shares in the Fund ("Trust
Shares"), which are offered under a separate prospectus primarily to investors
maintaining qualified accounts at bank and trust institutions, including
institutions affiliated with Fleet Financial Group, Inc., and to participants in
employer-sponsored defined contribution plans. Retail A Shares, Retail B Shares
and Trust Shares in the Fund represent equal pro rata interests in the Fund,
except they bear different expenses that reflect the difference in the range of
services provided to them. See "Management of the Fund" and "Description of
Galaxy and Its Shares" herein.
The Fund is advised by Fleet Investment Advisors Inc. and sponsored and
distributed by First Data Distributors, Inc., which is not affiliated with Fleet
or its parent, Fleet Financial Group, Inc., and affiliates.
This Prospectus sets forth concisely the information that prospective
investors should consider before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in the Statement of Additional Information relating to the Fund
and bearing the same date, has been filed with the Securities and Exchange
Commission. The current Statement of Additional Information is available upon
request without charge by contacting Galaxy at its telephone number or address
provided above. The Statement of Additional Information, as it may be amended
from time to time, is incorporated by reference in its entirety into this
Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUND ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF, OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUND, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
FEBRUARY 28, 1998
<PAGE>
HIGHLIGHTS
Q: WHAT IS THE GALAXY FUND?
A: Galaxy is an open-end management investment company (commonly known as a
mutual fund) that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives and policies.
This Prospectus describes Galaxy's MIDCAP EQUITY FUND. Prospectuses for Galaxy's
MONEY MARKET, GOVERNMENT, U.S. TREASURY, TAX-EXEMPT, CONNECTICUT MUNICIPAL MONEY
MARKET, MASSACHUSETTS MUNICIPAL MONEY MARKET, INSTITUTIONAL GOVERNMENT MONEY
MARKET, EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME, INTERNATIONAL EQUITY, SMALL
COMPANY EQUITY, ASSET ALLOCATION, GROWTH AND INCOME, SMALL CAP VALUE, STRATEGIC
EQUITY, SHORT-TERM BOND, INTERMEDIATE GOVERNMENT INCOME, HIGH QUALITY BOND,
CORPORATE BOND, TAX-EXEMPT BOND, NEW JERSEY MUNICIPAL BOND, NEW YORK MUNICIPAL
BOND, CONNECTICUT MUNICIPAL BOND, MASSACHUSETTS MUNICIPAL BOND AND RHODE ISLAND
MUNICIPAL BOND FUNDS may be obtained by calling 1-800-628-0414.
Q: WHO ADVISES THE FUND?
A: The Fund is managed by Fleet Investment Advisors Inc. ("Fleet"), an
indirect wholly-owned subsidiary of Fleet Financial Group, Inc. Fleet Financial
Group, Inc. is a financial services company with total assets as of December 31,
1997 of approximately $85.5 billion. See "Management of the Fund-- Investment
Adviser."
Q: WHAT ADVANTAGES DOES THE FUND OFFER?
A: The Fund offers investors the opportunity to invest in a professionally
managed investment portfolio without having to become involved with the detailed
accounting and safekeeping procedures normally associated with direct
investments in securities. The Fund also offers the economic advantages of block
trading in portfolio securities and the availability of a family of twenty-seven
mutual funds should your investment goals change.
Q: HOW DOES ONE BUY AND REDEEM SHARES?
A: The Fund is distributed by First Data Distributors, Inc. Retail Shares of
the Fund are sold to individuals, corporations or other entities, who submit a
purchase application to Galaxy, purchasing either for their own accounts or for
the accounts of others ("Direct Investors"). Retail Shares may also be purchased
on behalf of customers ("Customers") of FIS Securities, Inc., Fleet Brokerage
Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet
Financial Group, Inc., its affiliates, their correspondent banks and other
qualified banks, savings and loan associations and broker/dealers
("Institutions"). Retail A Shares of the Fund may be purchased at their net
asset value plus a maximum initial sales charge of 3.75%. Retail A Shares are
currently subject to a shareholder servicing fee of up to .30% of the average
daily net asset value of such shares. Retail B Shares of the Fund may be
purchased at their net asset value subject to a contingent deferred sales charge
("CDSC"). The CDSC is paid on certain share redemptions made within six years of
the purchase date at a maximum rate of 5.00% of the lower of (i) the net asset
value of the redeemed shares or (ii) the original purchase price of the redeemed
shares. Retail B Shares are subject to shareholder servicing and distribution
fees of up to .95% of the average daily net asset value of such shares. Share
purchase and redemption information for both Direct Investors and Customers is
provided below under "How to Purchase Shares" and "How to Redeem Shares." Except
as provided below under "Investor Programs," the minimum initial investment for
Direct Investors and the minimum initial aggregate investment for Institutions
purchasing on behalf of their Customers is $2,500. The minimum investment for
subsequent purchases is $100. There are no minimum investment requirements for
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<PAGE>
investors participating in the Automatic Investment Program described below. The
minimum initial investment in the College Investment Program described below is
$100 ($50 minimum per transaction if investment is made through the Automatic
Investment Program). Institutions may require Customers to maintain certain
minimum investments in Retail Shares. See "How to Purchase Shares--Other
Purchase Information" and "How to Redeem Shares--Other Redemption Information"
below.
Q: WHEN ARE DIVIDENDS PAID?
A: Dividends from net investment income of the Fund are declared and paid
quarterly. Net realized capital gains of the Fund are distributed at least
annually. Dividends and distributions are paid in cash, although shareholders
may choose to have dividends and distributions automatically reinvested in
additional shares of the same series of shares with respect to which the
dividend or distribution was declared without sales or CDSC charge. See
"Dividends and Distributions."
Q: WHAT POTENTIAL RISKS ARE PRESENTED BY THE FUND'S INVESTMENT PRACTICES?
A: The Fund invests primarily in equity securities of companies with market
capitalizations of between $750 million and $3.5 billion, including common
stocks, preferred stocks, securities convertible into common stock, rights and
warrants. The Fund may invest in foreign securities, directly or indirectly,
through American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs") and Global Depository Receipts ("GDRs"). Investments in foreign
securities incur higher costs than investments in U.S. securities, including
higher transaction costs, as well as the imposition of additional taxes by
foreign governments. In addition, foreign investments may include additional
risks associated with currency exchange rates, less complete financial
information about individual companies, less market liquidity, and political
instability. See "Investment Objectives and Policies--Special Risk
Considerations--Foreign Securities." The Fund may also invest in certain
"derivative" securities, such as put and call options, stock index futures and
options, indexed securities and swap agreements, and foreign currency exchange
transactions. Derivative securities derive their value from the performance of
underlying assets, interest or currency exchange rates and indices and as a
result entail additional market and credit risks. See "Investment Objectives and
Policies--Other Investment Policies and Risk Considerations--Derivative
Securities." The Fund may lend its securities and enter into repurchase
agreements and reverse repurchase agreements with qualifying banks and
broker/dealers. The Fund may purchase securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" or "delayed
settlement" basis. See "Investment Objective and Policies."
Q: WHAT SHAREHOLDER PRIVILEGES ARE OFFERED BY THE FUND?
A: Retail A Shares of the Fund may be exchanged for Retail A Shares of any
other Galaxy portfolio which offers Retail A Shares and for shares of any other
investment portfolio otherwise advised by Fleet or its affiliates. Retail B
Shares of the Fund may be exchanged for Retail B Shares of any other Galaxy
portfolio which offers Retail B Shares. In either case, exchanges are not
subject to sales or additional CDSC charges. Galaxy offers Individual Retirement
Accounts ("IRAs"), Simplified Employee Pension Plan ("SEP") and Keogh Plan
accounts which can be established by contacting First Data Distributors, Inc.
Retail Shares are also available for purchase through Multi-Employee Retirement
Plan ("MERP") accounts which can be established by Customers directly with Fleet
Brokerage Securities, Inc. or its affiliates. Galaxy also offers an Automatic
Investment Program which allows investors to automatically invest in Retail
Shares of the Fund on a monthly or quarterly basis, as well as certain other
shareholder privileges. See "Investor Programs."
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<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of (i) the shareholder transaction expenses
imposed by the Fund with respect to its Retail A Shares and Retail B Shares, and
(ii) the operating expenses for Retail A Shares and Retail B Shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or selling
shares of the Fund. ANNUAL FUND OPERATING EXPENSES are paid out of the Fund's
assets and include fees for portfolio management, maintenance of shareholder
accounts, general Fund administration, accounting and other services. Examples
based on the summary are also shown.
<TABLE>
<CAPTION>
MIDCAP
EQUITY
FUND
------------------
RETAIL RETAIL
A B
SHARES SHARES
------- -------
<S> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
- ------------------------------
Maximum Front-End Sales Charge
Imposed on Purchases (as a
percentage of offering
price)....................... 3.75%(1) None
Maximum Deferred Sales Charge
(as a percentage of offering
price) ...................... None 5.00%(2)
Sales Charge Imposed on
Reinvested Dividends ........ None None
Redemption Fees(3)............ None None
Exchange Fees................. None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
- ------------------------------
Advisory Fees (After Fee
Waivers)..................... .55% .55%
12b-1 Fees(4)................. None .95%
Other Expenses (After Fee
Waivers) .................... .95% .60%
------- -------
Total Fund Operating Expenses
(After Fee Waivers).......... 1.50% 2.10%
</TABLE>
- --------------------------
(1) Reduced front-end sales charges may be available. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Retail A Shares that
are purchased with no initial sales charge as part of an investment of
$500,000 or more. See "How to Purchase Shares--Applicable Sales
Charges--Retail A Shares."
(2) This amount applies to redemptions made during the first year. The charge
decreases to 4.00%, 3.00%, 3.00%, 2.00% and 1.00% for redemptions made
during the second through sixth years, respectively. Retail B Shares
automatically convert to Retail A Shares after six years. See "How to
Purchase Shares-- Applicable Sales Charges--Retail B Shares."
(3) Direct Investors are charged a $5.00 fee if redemption proceeds are paid by
wire.
(4) Retail A Shares do not currently pay 12b-1 fees. Long-term investors in
Retail B Shares may pay more than the economic equivalent of the maximum
front-end sales charges permitted by the rules of the National Association
of Securities Dealers, Inc.
4
<PAGE>
- ---------------------------------
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- --------
<S> <C> <C> <C> <C>
MidCap Equity Fund (Retail A Shares)(1)........... $53 $83 N/A N/A
MidCap Equity Fund (Retail B Shares)
Assuming complete redemption at end of
period(2)...................................... $71 $95 N/A N/A
Assuming no redemption.......................... $21 $65 N/A N/A
</TABLE>
- --------------------------
(1) Assumes deduction at time of purchase of maximum applicable front-end sales
charge.
(2) Assumes deduction of maximum applicable contingent deferred sales charge.
The Expense Summary and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly. The information in the Expense Summary and Example with
respect to the Fund is based on expenses which the Fund expects to incur during
the current fiscal year on its Retail A Shares and Retail B Shares. Without
voluntary fee waivers by Fleet, (i) Advisory Fees would be .75%, Other Expenses
would be 1.23%, and Total Fund Operating Expenses would be 1.98% for Retail A
Shares of the Fund, and (ii) Advisory Fees would be .75%, 12b-1 Fees would be
.95% and Total Fund Operating Expenses would be 2.30% for Retail B Shares of the
Fund. Fleet is under no obligation to waive fees and/or reimburse expenses but
has advised Galaxy that it intends to waive fees and/or reimburse expenses
during the current year to the extent necessary to maintain the Fund's operating
expenses at the level set forth in the above table. For more complete
descriptions of these costs and expenses, see "How to Purchase Shares," "How to
Redeem Shares," "Management of the Fund" and "Description of Galaxy and Its
Shares" in this Prospectus and the financial statements and notes incorporated
by reference into the Statements of Additional Information. Any fees that are
charged by affiliates of Fleet or other Institutions directly to their Customer
accounts for services related to an investment in Retail Shares of the Fund are
in addition to and not reflected in the fees and expenses described above.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN.
5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The investment objective of the Fund is to seek long- term capital
appreciation. The Fund attempts to achieve its investment objective by investing
primarily in the securities of companies with market value capitalizations of
between $750 million and $3.5 billion that Fleet Investment Advisors Inc.
("Fleet"), the Fund's investment adviser, believes are undervalued and represent
the potential for future earnings growth. In selecting investments for the Fund,
Fleet uses a qualitative analysis which seeks to identify companies undergoing
positive fundamental changes, such as new product introductions, corporate
restructurings or management changes, which are likely to result in positive
earnings growth and improving valuation ratios. Industry position and economic
trends are also considered.
Under normal market and economic conditions, the Fund will invest at least
65% of its total assets in the equity securities of companies with market value
capitalizations of between $750 million and $3.5 billion, including common
stocks, preferred stocks, securities convertible into common stock, rights and
warrants.
The Fund may invest up to 20% of its total assets in foreign securities,
either directly or indirectly through American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs").
See Special Risk Considerations--Foreign Securities" and "Other Investment
Policies and Risk Considerations--American, European and Global Depository
Receipts" below.
The Fund may also buy and sell options and futures contracts and utilize
stock index futures contracts, options, swap agreements, indexed securities and
options on futures contracts. See "Other Investment Policies and Risk
Considerations--Options and Futures Contracts", "Other Investment Policies and
Risk Considerations--Stock Index Futures, Swap Agreements, Indexed Securities
and Options" and "Other Investment Policies and Risk Considerations-- Derivative
Securities" below.
As a temporary defensive measure, the Fund may invest without limitation in
cash, "money market" instruments (such as those listed under "Other Investment
Policies and Risk Considerations" below) and in U.S. Government obligations at
such times and in such proportions as, in the opinion of Fleet, prevailing
market and economic conditions warrant. See "Other Investment Policies and Risk
Considerations" below for information regarding additional investment policies
of the MidCap Equity Fund.
Fleet will use its best efforts to achieve the Fund's investment objective,
although its achievement cannot be assured. The investment objective of the Fund
may not be changed without the approval of the holders of a majority of its
outstanding shares (as defined under "Miscellaneous"). Except as noted below
under "Investment Limitations," the Fund's investment policies may be changed
without shareholder approval. An investor should not consider an investment in
the Fund to be a complete investment program.
SPECIAL RISK CONSIDERATIONS
MARKET RISK
The Fund invests primarily in equity securities. As with other mutual funds
that invest primarily in equity securities, the Fund is subject to market risks.
That is, the possibility exists that common stocks will decline over short or
even extended periods of time and both the U.S. and certain foreign equity
markets
6
<PAGE>
tend to be cyclical, experiencing both periods when stock prices generally
increase and periods when stock prices generally decrease.
INTEREST RATE RISK
To the extent that the Fund invests in fixed income securities, its holdings
of such securities are sensitive to changes in interest rates and the interest
rate environment. Generally, the prices of bonds and other debt securities
fluctuate inversely with interest rate change.
FOREIGN SECURITIES
Investments in foreign securities may involve higher costs than investments
in U.S. securities, including higher transaction costs, as well as the
imposition of additional taxes by foreign governments. In addition, foreign
investments may include additional risks associated with currency exchange
rates, less complete financial information about the issuers, less market
liquidity, and political instability. Future political and economic
developments, the possible imposition of withholding taxes on interest income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls, or the adoption of other governmental
restrictions, might adversely affect the payment of dividends or principal and
interest on foreign obligations.
Although the Fund may invest in securities denominated in foreign
currencies, the Fund values its securities and other assets in U.S. dollars. As
a result, the net asset value of the Fund's shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of the Fund's securities in
the various local markets and currencies. Thus, an increase in the value of the
U.S. dollar compared to the currencies in which the Fund makes its investments
could reduce the effect of increases and magnify the effect of decreases in the
prices of the Fund's securities in their local markets. Conversely, a decrease
in the value of the U.S. dollar will have the opposite effect of magnifying the
effect of increases and reducing the effect of decreases in the prices of the
Fund's securities in their local markets. In addition to favorable and
unfavorable currency exchange rate developments, the Fund is subject to the
possible imposition of exchange control regulations or freezes on convertibility
of currency.
Certain of the risks associated with investments in foreign securities are
heightened with respect to investments in countries with emerging economies or
emerging securities markets. The risks of expropriation, nationalization and
social, political and economic instability are greater in those countries than
in more developed capital markets.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Investment methods described in this Prospectus are among those which one or
more of the Funds have the power to utilize. Some may be employed on a regular
basis; others may not be used at all. Accordingly, reference to any particular
method or technique carries no implication that it will be utilized or, if it
is, that it will be successful.
RATINGS
All debt obligations, including convertible bonds, purchased by the Fund are
rated investment grade by Moody's Investment Services, Inc. ("Moody's") ("Aaa,"
"Aa," "A" and "Baa") or Standard & Poor's Ratings Group ("S&P") ("AAA," "AA,"
"A" and "BBB"), or, if not rated, are determined to be of
7
<PAGE>
comparable quality by Fleet. Debt securities rated "Baa" by Moody's or "BBB" by
S&P are generally considered to be investment grade securities although they may
have speculative characteristics and changes in economic conditions or
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case for higher rated obligations.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
The Fund may, in accordance with its investment policies, invest from time
to time in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities and in "money market" instruments, including bank
obligations and commercial paper.
Obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and time of issuance: Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of more than 10
years. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank which is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank which is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Time deposits with a maturity longer
than seven days or that do not provide for payment within seven days after
notice will be limited to 15% of the Fund's net assets.
Domestic and foreign banks are subject to extensive but different government
regulation which may limit the amount and types of their loans and the interest
rates that may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds to finance
lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and U.S.
branches of foreign banks may subject the Fund to additional risk because such
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Such investments may also subject
the Fund to investment risks similar to those accompanying direct investments in
foreign securities. See "Special Risk Considerations--Foreign Securities." The
Fund will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet believes that the credit risk with
respect to the instrument is minimal.
8
<PAGE>
Commercial paper may include variable and floating rate instruments which
are unsecured instruments that permit the indebtedness thereunder to vary.
Variable rate instruments provide for periodic adjustments in the interest rate.
Floating rate instruments provide for automatic adjustment of the interest rate
whenever some other specified interest rate changes. Some variable and floating
rate obligations are direct lending arrangements between the purchaser and the
issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, the Fund may
demand payment of principal and accrued interest at a time specified in the
instrument or may resell the instrument to a third party. In the event that an
issuer of a variable or floating rate obligation defaulted on its payment
obligation, the Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. The Fund may also purchase Rule 144A
securities. See "Investment Limitations" below.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may purchase portfolio securities subject to the seller's agreement
to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet under guidelines approved by Galaxy's Board of Trustees.
The Fund will not enter into repurchase agreements with Fleet or any of its
affiliates. Unless a repurchase agreement has a remaining maturity of seven days
or less or may be terminated on demand upon notice of seven days or less, the
repurchase agreement will be considered an illiquid security and will be subject
to the 15% limit described in Investment Limitation No. 3 under "Investment
Limitations" in this Prospectus.
The seller under a repurchase agreement will be required to maintain the
value of the securities which are subject to the agreement and held by the Fund
at not less than the agreed upon repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
were less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action.
The Fund may also borrow funds for temporary purposes by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by the Fund may decline below the repurchase
price. The Fund would pay interest on amounts obtained pursuant to a reverse
repurchase agreement.
SECURITIES LENDING
The Fund may lend its portfolio securities to financial institutions such as
banks and broker/dealers in accordance with the investment limitations described
below. Such loans would involve risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral, should the borrower of the securities fail financially. Any
portfolio securities purchased with cash collateral would also be subject to
possible depreciation. Loans will generally be short-term, will be made only to
borrowers deemed by Fleet to be of good standing and only when, in Fleet's
judgment, the income to be earned from the loan justifies the attendant risks.
The Fund currently intends to limit the lending of its
9
<PAGE>
portfolio securities so that, at any given time, securities loaned by the Fund
represent not more than one-third of the value of its total assets.
INVESTMENT COMPANY SECURITIES
The Fund may invest in other investment companies primarily for the purpose
of investing its short-term cash which has not yet been invested in other
portfolio instruments. However, from time to time, on a temporary basis, the
Fund may invest exclusively in one other investment company similar to the Fund.
Investments in other investment companies will cause the Fund (and, indirectly,
the Fund's shareholders) to bear proportionately the costs incurred in
connection with the investment companies' operations. Except as provided above,
securities of other investment companies will be acquired by the Fund within the
limits prescribed by the Investment Company Act of 1940, as amended, (the "1940
Act"). The Fund currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of other investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Fund; and (d) not more than 10% of the
outstanding voting stock of any one closed-end investment company will be owned
in the aggregate by the Fund, other investment portfolios of Galaxy, or any
other investment companies advised by Fleet.
REITS
The Fund may invest up to 10% of its net assets in real estate investment
trusts ("REITs"). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the value of a REIT's
investments. In addition, equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, are not diversified and are subject to the
risks of financing projects. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code and to maintain exemption from the 1940 Act. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed a REIT's taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from any investments
in REITs in its periodic distributions to its shareholders and, accordingly, a
portion of its distributions may also be designated as a return of capital. See
"Taxes."
OPTIONS AND FUTURES CONTRACTS
The Fund may buy and sell options and futures contracts to manage its
exposure to changing interest rates, security prices and currency exchange
rates. The Fund may invest in options and futures based on any type of security,
index or currency, including options and futures based on foreign exchanges and
options not traded on exchanges. Some options and futures strategies, including
selling futures, buying
10
<PAGE>
puts, and writing calls, tend to hedge the Fund's investments against price
fluctuations. Other strategies, including buying futures, writing puts, and
buying calls, tend to increase market exposure. Options and futures may be
combined with each other or with forward contracts in order to adjust the risk
and return characteristics of the overall strategy.
Options and futures can be volatile investments, and involve certain risks.
If Fleet applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures may lower the Fund's individual return. The
Fund could also experience losses if the prices of its options and futures
positions were poorly correlated with its other investments, or if it could not
close out its positions because of an illiquid secondary market. See the
Statement of Additional Information relating to the Fund for additional
information as to the Fund's policies on options and futures trading.
The Fund will not hedge more than 20% of its total assets by selling
futures, buying puts, and writing calls under normal conditions. The Fund will
not buy futures or write puts whose underlying value exceeds 20% of its total
assets, and will not buy calls with a value exceeding 5% of its total assets.
STOCK INDEX FUTURES, SWAP AGREEMENTS, INDEXED SECURITIES AND OPTIONS
The Fund may utilize stock index futures contracts, options, swap
agreements, indexed securities, and options on futures contracts, subject to the
limitation that the value of these futures contracts, swap agreements, indexed
securities, and options will not exceed 20% of the Fund's total assets. The Fund
will not purchase options to the extent that more than 5% of the value of its
total assets would be invested in premiums on open put option positions. In
addition, the Fund does not intend to invest more than 5% of the market value of
its total assets in each of the following: futures contracts, swap agreements,
and indexed securities. When the Fund enters into a swap agreement, liquid
assets of the Fund equal to the value of the swap agreement will be segregated
by the Fund.
There are several risks accompanying the utilization of futures contracts.
Positions in futures contracts may be closed only on an exchange or board of
trade that furnishes a secondary market for such contracts. While the Fund plans
to utilize futures contracts only if there exists an active market for such
contracts, there is no guarantee that a liquid market will exist for the
contracts at a specified time. Furthermore, because by definition, futures
contracts look to projected price levels in the future and not to current levels
of valuation, market circumstances may result in there being a discrepancy
between the price of the stock index future and the movement in the
corresponding stock index. The absence of a perfect price correlation between
the futures contract and its underlying stock index could stem from investors
choosing to close futures contracts by offsetting transactions, rather than
satisfying additional margin requirements. This could result in a distortion of
the relationship between the index and the futures market. In addition, because
the futures market imposes less burdensome margin requirements than the
securities market, an increased amount of participation by speculators in the
futures market could result in price fluctuations.
AMERICAN, EUROPEAN AND GLOBAL DEPOSITORY RECEIPTS
The Fund may invest in ADRs, EDRs and GDRs. ADRs are receipts issued in
registered form by a U.S. bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. EDRs are receipts issued in
Europe typically by non-U.S. banks or trust companies and foreign branches of
U.S. banks that evidence ownership of foreign or U.S. securities. GDRs are
receipts structured similarly to EDRs and are marketed globally. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs are designed for use in European exchange and
over-the-counter
11
<PAGE>
markets. GDRs are designed for trading in non-U.S. securities markets. ADRs,
EDRs and GDRs traded in the over-the-counter market which do not have an active
or substantial secondary market will be considered illiquid and therefore will
be subject to the Fund's limitation with respect to such securities. ADR prices
are denominated in U.S. dollars although the underlying securities are
denominated in a foreign currency. Investments in ADRs, EDRs and GDRs involve
risks similar to those accompanying direct investments in foreign securities.
Certain of these risks are described above under "Special Risk
Considerations--Foreign Securities."
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Fund may buy and sell securities denominated in currencies other
than the U.S. dollar, and may receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Fund from time to time may enter into
foreign currency exchange transactions to convert the U.S. dollar to foreign
currencies, to convert foreign currencies to the U.S. dollar and to convert
foreign currencies to other foreign currencies. The Fund either enters into
these transactions on a spot (I.E. cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another--for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen--at a future
date and at a specified price. Typically, the other party to a currency exchange
contract will be a commercial bank or other financial institution.
Forward foreign currency exchange contracts also allow the Fund to hedge the
currency risk of portfolio securities denominated in a foreign currency. This
technique permits the assessment of the merits of a security to be considered
separately from the currency risk. By separating the asset and the currency
decision, it is possible to focus on the opportunities presented by the security
apart from the currency risk. Although forward foreign currency exchange
contracts are of short duration, generally between one and twelve months, such
contracts are rolled over in a manner consistent with a more long-term currency
decision. Because there is a risk of loss to the Fund if the other party does
not complete the transaction, forward foreign currency exchange contracts will
be entered into only with parties approved by Galaxy's Board of Trustees.
The Fund may maintain "short" positions in forward foreign currency exchange
transactions, which would involve the Fund's agreeing to exchange currency that
it currently does not own for another currency--for example, to exchange an
amount of Japanese yen that it does not own for a certain amount of U.S.
dollars--at a future date and at a specified price in anticipation of a decline
in the value of the currency sold short relative to the currency that the Fund
has contracted to receive in the exchange. In order to ensure that the short
position is not used to achieve leverage with respect to the Fund's investments,
the Fund will establish with its custodian a segregated account consisting of
cash or other liquid assets equal in value to the fluctuating market value of
the currency as to which the short position is being maintained. The value of
the securities in the segregated account will be adjusted at least daily to
reflect changes in the market value of the short position. See the Statement of
Additional Information relating to the Fund for additional information regarding
foreign currency exchange transactions.
CONVERTIBLE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
invest in convertible securities. Convertible securities are fixed income
securities which may be exchanged or converted into a
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<PAGE>
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible securities in
which the Fund may invest may take the form of convertible preferred stock and
convertible bonds or debentures.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Convertible securities are senior to equity securities and
therefore have a claim to the assets of the issuer prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same issuer.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in Fleet's opinion,
the investment characteristics of the underlying common shares will assist the
Fund in achieving its investment objective. Otherwise, the Fund will hold or
trade the convertible securities. In selecting convertible securities for the
Fund, Fleet evaluates the investment characteristics of the convertible security
as a fixed income instrument, and the investment potential of the underlying
equity security for capital appreciation. In evaluating these matters with
respect to a particular convertible security, Fleet considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
DERIVATIVE SECURITIES
The Fund may from time to time, in accordance with its investment policies,
purchase certain "derivative" securities. Derivative securities are instruments
that derive their value from the performance of underlying assets, interest or
currency exchange rates, or indices, and include, but are not limited to, put
and call options, stock index futures and options, indexed securities and swap
agreements, and foreign currency exchange contracts.
Derivative securities present, to varying degrees, market risk that the
performance of the underlying assets, interest rates or indices will decline;
credit risk that the dealer or other counterparty to the transaction will fail
to pay its obligations; volatility and leveraging risk that, if interest or
exchange rates change adversely, the value of the derivative security will
decline more than the assets, rates or indices on which it is based; liquidity
risk that the Fund will be unable to sell a derivative security when it wants
because of lack of market depth or market disruption; pricing risk that the
value of a derivative security will not correlate exactly to the value of the
underlying assets, rates or indices on which it is based; and operations risk
that loss will occur as a result of inadequate systems and controls, human error
or otherwise. Some derivative securities are more complex than others, and for
those instruments that have been developed recently, data are lacking regarding
their actual performance over complete market cycles.
Fleet will evaluate the risks presented by the derivative securities
purchased by the Fund, and will determine, in connection with its day-to-day
management of the Fund, how such securities will be used in furtherance of the
Fund's investment objective. It is possible, however, that Fleet's evaluations
will prove to be inaccurate or incomplete and, even when accurate and complete,
it is possible that the Fund will, because of the risks discussed above, incur
loss as a result of its investments in derivative securities. See
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<PAGE>
"Investment Objectives and Policies--Derivative Securities" in the Statement of
Additional relating to the Fund for additional information.
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
The Fund may purchase eligible securities on a "when-issued" or "delayed
settlement" basis. When-issued transactions, which involve a commitment by the
Fund to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later), permit the Fund to
lock in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. Delayed settlement describes
settlement of a securities transaction in the secondary market which will occur
sometime in the future. When-issued and delayed settlement transactions involve
the risk, however, that the yield or price obtained in a transaction may be less
favorable than the yield or price available in the market when the securities
delivery takes place.
The Fund may dispose of a commitment prior to settlement if Fleet deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
PORTFOLIO TURNOVER
The Fund may sell a portfolio investment soon after its acquisition if Fleet
believes that such a disposition is consistent with the Fund's investment
objective. Portfolio investments may be sold for a variety of reasons, such as a
more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A portfolio rate of 100% or
more is considered high although the rate of turnover will not be a limiting
factor on making portfolio decisions. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expenses and other transaction
costs, which must be ultimately borne by the Fund's shareholders. High portfolio
turnover may result in the realization of substantial net capital gains;
distributions derived from such gains will be treated as ordinary income for
federal income tax purposes. See "Taxes--Federal." Although the Fund cannot
accurately predict its annual portfolio turnover rate, it is not expected to
exceed 100%.
INVESTMENT LIMITATIONS
The following investment limitations are matters of fundamental policy and
may not be changed with respect to the Fund without the affirmative vote of the
holders of a majority of its outstanding shares (as defined under
"Miscellaneous"). Other investment limitations that also cannot be changed
without such a vote of shareholders are contained in the Statement of Additional
Information relating to the Fund under "Investment Objectives and Policies."
The Fund may not:
1. Make loans, except that (i) the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, and
may enter into repurchase agreements with respect to portfolio securities,
and (ii) the Fund may lend portfolio securities against collateral
consisting of cash or securities which are consistent with its permitted
investments, where the value of the collateral is equal at all times to at
least 100% of the value of the securities loaned.
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<PAGE>
2. Borrow money or issue senior securities, except that each Fund may
borrow from domestic banks for temporary purposes and then in amounts not in
excess of 33% of the value of its total assets at the time of such borrowing
(provided that the Fund may borrow pursuant to reverse repurchase agreements
in accordance with its investment policies and in amounts not in excess of
33% of the value of its total assets at the time of such borrowing); or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 33% of the value of the Fund's total assets at the time
of such borrowing. The Fund will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding.
3. Invest more than 15% of the value of its net assets in illiquid
securities, including repurchase agreements with remaining maturities in
excess of seven days, time deposits with maturities in excess of seven days,
restricted securities, non-negotiable time deposits and other securities
which are not readily marketable.
4. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of the Fund's
total assets would be invested in such issuer, except that up to 25% of the
value of its total assets may be invested without regard to this limitation.
In addition, the Fund may not purchase any securities which would cause 25%
or more of the value of its total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their principal business
activities in the same industry; provided, however, that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
(c) utilities will be classified according to their services. (For example, gas,
gas transmission, electric and gas, electric and telephone each will be
considered a separate industry.)
With respect to Investment Limitation No. 2 above, the Fund intends to limit
any borrowings (including reverse repurchase agreements) to not more than 33% of
the value of its total assets at the time of such borrowing.
Rule 144A under the Securities Act of 1933, as amended, (the "1933 Act")
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act for resales of
certain securities to qualified institutional buyers. The Fund's investment in
Rule 144A securities could have the effect of increasing the level of
illiquidity of the Fund during any period that qualified institutional buyers
were no longer interested in purchasing these securities. For purposes of the
15% limitation on purchases of illiquid instruments described under Investment
Limitation No. 3 above, Rule 144A securities will not be considered to be
illiquid if Fleet has determined, in accordance with guidelines established by
the Board of Trustees, that an adequate trading market exists for such
securities.
If a percentage limitation is satisfied at the time of investment, a later
increase in such percentage resulting from a change in the value of the Fund's
portfolio securities generally will not constitute a violation of the
limitation.
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<PAGE>
PRICING OF SHARES
Net asset value per share of the Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (the "Exchange"), currently
4:00 p.m. (Eastern Time). The net asset value per share is determined on each
day on which the Exchange is open for trading. Currently, the holidays which
Galaxy observes are New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. Net asset value per share for purposes of pricing sales and
redemptions is calculated separately for each series of shares by dividing the
value of all securities and other assets attributable to a particular series of
shares of the Fund, less the liabilities attributable to the shares of that
series of the Fund, by the number of outstanding shares of that series of the
Fund.
The assets in the Fund which are traded on a recognized stock exchange are
valued at the last sale price on the securities exchange on which such
securities are primarily traded or at the last sale price on the national
securities market. Securities quoted on the NASD National Market System are also
valued at the last sale price. Other securities traded on over-the-counter
markets are valued on the basis of their closing over-the-counter bid prices.
Securities for which there were no transactions are valued at the average of the
most recent bid and asked prices. Investments in debt securities with remaining
maturities of 60 days or less are valued based upon the amortized cost method.
Restricted securities, securities for which market quotations are not readily
available, and other assets are valued at fair value by Fleet under the
supervision of Galaxy's Board of Trustees. An option is generally valued at the
last sale price or, in the absence of a last sale price, the last offer price.
Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except when an occurrence subsequent
to the time a value was so established is likely to have changed such value,
then the fair value of those securities will be determined through consideration
of other factors by or under the direction of the Board of Trustees. A security
which is listed or traded on more than one exchange is valued at the quotation
on the exchange determined to be the primary market for such security. For
valuation purposes, quotations of foreign securities in foreign currency are
converted to U.S. dollars equivalent at the prevailing market rate on the day of
valuation.
HOW TO PURCHASE SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
GENERAL
Investments in Retail A Shares of the Fund are subject to a front-end sales
charge. Investments in Retail B Shares of the Fund are subject to a back-end
sales charge. This back-end sales charge declines over time and is known as a
"contingent deferred sales charge."
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<PAGE>
Investors should read "Characteristics of Retail A Shares and Retail B
Shares" and "Factors to Consider When Selecting Retail A Shares or Retail B
Shares" below before deciding between the two.
FD Distributors has established several procedures to enable different types
of investors to purchase Retail Shares of the Fund. The Retail Shares described
in this Prospectus may be purchased by individuals or corporations who submit a
purchase application to Galaxy, purchasing directly either for their own
accounts or for the accounts of others ("Direct Investors"). Retail Shares may
also be purchased by FIS Securities, Inc., Fleet Brokerage Securities, Inc.,
Fleet Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc.,
its affiliates, their correspondent banks and other qualified banks, savings and
loan associations and broker/dealers ("Institutions") on behalf of their
customers ("Customers"). Purchases by Direct Investors may take place only on
days on which FD Distributors and Galaxy's custodian and Galaxy's transfer agent
are open for business ("Business Days"). If an Institution accepts a purchase
order from a Customer on a non-Business Day, the order will not be executed
until it is received and accepted by FD Distributors on a Business Day in
accordance with FD Distributors' procedures.
PURCHASE PROCEDURES--CUSTOMERS OF INSTITUTIONS
Purchase orders for Retail Shares are placed by Customers of Institutions
through their Institutions. The Institution is responsible for transmitting
Customer purchase orders to FD Distributors and for wiring required funds in
payment to Galaxy's custodian on a timely basis. FD Distributors is responsible
for transmitting such orders to Galaxy's transfer agent for execution. Retail
Shares purchased by Institutions on behalf of their Customers will normally be
held of record by the Institution and beneficial ownership of Retail Shares will
be recorded by the Institution and reflected in the account statements provided
to its Customers. Galaxy's transfer agent may establish an account of record for
each Customer of an Institution reflecting beneficial ownership of Retail
Shares. Depending on the terms of the arrangement between a particular
Institution and Galaxy's transfer agent, confirmations of Retail Share purchases
and redemptions and pertinent account statements will either be sent by Galaxy's
transfer agent directly to a Customer with a copy to the Institution, or will be
furnished directly to the Customer by the Institution. Other procedures for the
purchase of Retail Shares established by Institutions in connection with the
requirements of their Customer accounts may apply. Customers wishing to purchase
Retail Shares through their Institution should contact such entity directly for
appropriate purchase instructions.
PURCHASE PROCEDURES--DIRECT INVESTORS
PURCHASES BY MAIL. Retail Shares may be purchased by completing a purchase
application and mailing it, together with a check payable to the Fund in which a
Direct Investor wishes to invest, to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581
ALL PURCHASE ORDERS PLACED BY MAIL MUST BE ACCOMPANIED BY A PURCHASE
APPLICATION. APPLICATIONS MAY BE OBTAINED BY CALLING FD DISTRIBUTORS AT
1-800-628-0414.
Subsequent investments in an existing account in the Fund may be made at any
time by sending a check for a minimum of $100 payable to the Fund to Galaxy at
the address above along with either (a) the detachable form that regularly
accompanies confirmation of a prior transaction, (b) a subsequent order
17
<PAGE>
form that may be obtained from FD Distributors, or (c) a letter stating the
amount of the investment, the name of the Fund and the account number in which
the investment is to be made. If a Direct Investor's check does not clear, the
purchase will be canceled.
PURCHASES BY WIRE. Direct Investors may also purchase Retail Shares by
arranging to transmit federal funds by wire to Fleet Bank of Massachusetts, N.A.
as agent for First Data Investor Services Group, Inc. ("Investor Services
Group"), Galaxy's transfer agent. Prior to making any purchase by wire, an
investor must telephone FD Distributors at 1-800-628-0414 to place an order and
for instructions. Federal funds and registration instructions should be wired
through the Federal Reserve System to:
Fleet Bank of Massachusetts, N.A.
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref:The Galaxy Fund
[Shareholder Name]
[Shareholder Account Number]
Direct Investors making initial investments by wire must promptly complete a
purchase application and forward it to The Galaxy Fund, P.O. Box 5108, 4400
Computer Drive, Westboro, Massachusetts 01581. Applications may be obtained by
calling FD Distributors at 1-800-628-0414. Redemptions will not be processed
until the application in proper form has been received by FD Distributors.
Direct Investors making subsequent investments by wire should follow the
instructions above.
EFFECTIVE TIME OF PURCHASES. A purchase order for Retail Shares received
and accepted by FD Distributors from an Institution or a Direct Investor on a
Business Day prior to the close of regular trading hours on the Exchange
(currently, 4:00 p.m. Eastern Time) will be executed at the net asset value per
share determined on that date, provided that Galaxy's custodian receives the
purchase price in federal funds or other immediately available funds prior to
4:00 p.m. on the third Business Day following the receipt of such order. Such
order will be executed on the day on which the purchase price is received in
proper form. If funds are not received by such date and time, the order will not
be accepted and notice thereof will be given promptly to the Institution or
Direct Investor submitting the order. Payment for orders which are not received
or accepted will be returned. If an Institution accepts a purchase order from a
Customer on a non-Business Day, the order will not be executed until it is
received and accepted by FD Distributors on a Business Day in accordance with
the above procedures. On a Business Day when the Exchange closes early due to a
partial holiday or otherwise, Galaxy will advance the time at which purchase
orders must be received in order to be processed on that Business Day.
OTHER PURCHASE INFORMATION
INVESTMENT MINIMUMS. Except as provided under "Investor Programs" below,
the minimum initial investment by a Direct Investor, or initial aggregate
investment by an Institution investing on behalf of its Customers, is $2,500.
The minimum investment for subsequent purchases is $100. The minimum investment
requirement with respect to IRAs, SEPs, MERPs and Keogh Plans (see below under
"Retirement Plans") is $500 (including spousal IRA accounts). There are no
minimum investment requirements for investors participating in the Automatic
Investment Program described below. Customers may agree with a
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<PAGE>
particular Institution to varying minimum initial and minimum subsequent
purchase requirements with respect to their accounts.
Galaxy reserves the right to reject any purchase order, in whole or in part,
or to waive any minimum investment requirement. The issuance of Retail Shares to
Direct Investors and Institutions is recorded on the books of Galaxy and share
certificates will not be issued.
Investors may be charged a separate fee if they effect transactions in
Retail Shares through a broker or agent.
APPLICABLE SALES CHARGE--RETAIL A SHARES
The public offering price for Retail A Shares of the Fund is the sum of the
net asset value of the Retail A Shares purchased plus any applicable front-end
sales charge. The sales charge assessed is as follows:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE REALLOWANCE TO DEALERS
-------------------------------- -----------------------
AS A % OF AS A % OF AS A % OF
OFFERING PRICE NET ASSET OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE VALUE PER SHARE PER SHARE
- ------------------------------ -------------- --------------- -----------------------
<S> <C> <C> <C>
Less than $50,000............. 3.75 3.90 3.25
$50,000 but less than
$100,000..................... 3.50 3.63 3.00
$100,000 but less than
$250,000..................... 3.00 3.09 2.50
$250,000 but less than
$500,000..................... 2.50 2.56 2.00
$500,000 and over............. 0.00* 0.00* 0.00
</TABLE>
- --------------------------
(*) There is no initial sales charge on purchases of $500,000 or more of Retail
A Shares; however, a contingent deferred sales charge of 1.00% will be
imposed on the lesser of the offering price or the net asset value of such
Retail A Shares on the redemption date for Shares redeemed within one year
after purchase. The contingent deferred sales charge will not be assessed
on redemptions within one year after purchase in connection with the death
or disability of a shareholder. To receive this exemption, a Direct
Investor or Customer must explain the status of his or her redemption at
the time the Retail A Shares are redeemed.
Further reductions in the sales charges shown above are also possible. See
"Quantity Discounts" below.
FD Distributors will pay the appropriate reallowance to dealers to
broker-dealer organizations which have entered into agreements with FD
Distributors. The reallowance to dealers may be changed from time to time.
At various times FD Distributors may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. Also, FD Distributors in its discretion may from time to time, pursuant
to objective criteria established by FD Distributors, pay fees to qualifying
dealers for certain services or activities which are primarily intended to
result in sales of Retail A Shares of the Fund. If any such program is made
available to any dealer, it will be made available to all dealers on the same
terms and conditions. Payments made under such programs will be made by FD
Distributors out of its own assets and not out of the assets of the Fund. These
programs will not change the price of Retail A Shares or the amount that the
Fund will receive from such sales.
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<PAGE>
Fleet's indirect parent, Fleet National Bank, or another affiliate of Fleet,
may at its expense, provide additional compensation to Fleet Enterprises, Inc.,
a broker-dealer affiliate of Fleet, whose customers purchase significant amounts
of Retail A Shares of the Fund. Such compensation will not represent an
additional expense to the Fund or their shareholders, since it will be paid from
the assets of Fleet's affiliates.
In certain situations or for certain individuals, the front-end sales charge
for Retail A Shares of the Fund may be waived either because of the nature of
the investor or the reduced sales effort required to attract such investments.
In order to receive the sales charge waiver, an investor must explain the status
of his or her investment at the time of purchase. No sales charge is assessed on
purchases of Retail A Shares of the Fund by the following categories of
investors or in the following types of transactions:
- reinvestment of dividends and distributions;
- purchases by any retirement account, including but not limited to SIMPLE,
IRA, SEP, Keogh and Roth accounts;
- purchases by persons who were beneficial owners of shares of the Fund or
any of the other portfolios offered by Galaxy or any other funds advised
by Fleet or its affiliates before December 1, 1995;
- purchases by directors, officers and employees of broker-dealers having
agreements with FD Distributors pertaining to the sale of Retail A Shares
to the extent permitted by such organizations;
- investors who purchase pursuant to a "wrap fee" program offered by any
broker-dealer or other financial institution or financial planning
organization;
- purchases made with redemption proceeds from another mutual fund complex
on which a front-end or back-end sales charge has been paid, provided the
purchase is made within 60 days after the redemption;
- purchases by current and retired members of Galaxy's Board of Trustees and
members of their immediate families;
- purchases by officers, directors, employees and retirees of Fleet
Financial Group, Inc. and any of its affiliates and members of their
immediate families;
- purchases by officers, directors, employees and retirees of First Data
Corporation and any of its affiliates and members of their immediate
families;
- purchases by persons who are also plan participants in any employee
benefit plan which is the record or beneficial holder of Trust Shares of
the Fund or any of the other portfolios offered by Galaxy;
- purchases by institutional investors, including but not limited to bank
trust departments and registered investment advisers;
- purchases by investment advisers, consultants or financial planners who
place trades for their own accounts or the accounts of their clients and
who charge such clients a management, consulting, advisory or other fee;
- purchases by clients of investment advisers or financial planners who
place trades for their own accounts if such accounts are linked to the
master accounts of such investment advisers or financial planners on the
books of the broker-dealer through whom Retail A Shares are purchased;
- purchases by institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund these plans,
which place trades through an omnibus account maintained with Galaxy by
the broker-dealer; and
- any purchase pursuant to the Reinstatement Privilege described below.
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<PAGE>
QUANTITY DISCOUNTS
Direct Investors or Customers may be entitled to reduced sales charges
through Rights of Accumulation, a Letter of Intent or a combination of
investments, as described below, even if the Direct Investor or Customer does
not wish to make an investment of a size that would normally qualify for a
quantity discount.
In order to obtain quantity discount benefits, a Direct Investor or Customer
must notify Galaxy's administrator, First Data Investor Services Group, Inc.
("Investor Services Group"), at the time of purchase that he or she would like
to take advantage of any of the discount plans described below. Upon such
notification, the investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time and are subject to
confirmation of a Direct Investor's or Customer's holdings through a check of
appropriate records. For more information about quantity discounts, please
contact FD Distributors or your Institution.
RIGHTS OF ACCUMULATION. A reduced sales charge applies to any purchase of
Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where a Direct Investor's or Customer's then current aggregate
investment in Retail A Shares is $50,000 or more. "Aggregate investment" means
the total of: (a) the dollar amount of the then current purchase of shares of an
Eligible Fund; and (b) the value (based on current net asset value) of
previously purchased and beneficially owned shares of any Eligible Fund on which
a sales charge has been paid. If, for example, a Direct Investor or Customer
beneficially owns shares of one or more Eligible Funds with an aggregate current
value of $49,000 on which a sales charge has been paid and subsequently
purchases shares of an Eligible Fund having a current value of $1,000, the sales
charge applicable to the subsequent purchase would be reduced to 3.50% of the
offering price. Similarly, with respect to each subsequent investment, all
shares of Eligible Funds that are beneficially owned by the investor at the time
of investment may be combined to determine the applicable sales charge.
LETTER OF INTENT. By completing the Letter of Intent included as part of
the Account Application, a Direct Investor or Customer becomes eligible for the
reduced sales charge applicable to the total number of Eligible Fund Retail A
Shares purchased in a 13-month period pursuant to the terms and under the
conditions set forth below and in the Letter of Intent. To compute the
applicable sales charge, the offering price of Retail A Shares of an Eligible
Fund on which a sales charge has been paid and that are beneficially owned by a
Direct Investor or Customer on the date of submission of the Letter of Intent
may be used as a credit toward completion of the Letter of Intent. However, the
reduced sales charge will be applied only to new purchases.
Investor Services Group will hold in escrow Retail A Shares equal to 5% of
the amount indicated in the Letter of Intent for payment of a higher sales
charge if a Direct Investor or Customer does not purchase the full amount
indicated in the Letter of Intent. The escrow will be released when a Direct
Investor or Customer fulfills the terms of the Letter of Intent by purchasing
the specified amount. If purchases qualify for a further sales charge reduction,
the sales charge will be adjusted to reflect a Direct Investor's or Customer's
total purchases. If total purchases are less than the amount specified, a Direct
Investor or Customer will be requested to remit an amount equal to the
difference between the sales charge actually paid and the sales charge
applicable to the total purchases. If such remittance is not received within 20
days, Investor Services Group, as attorney-in-fact pursuant to the terms of the
Letter of Intent and at FD Distributors' direction, will redeem an appropriate
number of Retail A Shares held in
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<PAGE>
escrow to realize the difference. Signing a Letter of Intent does not bind a
Direct Investor or Customer to purchase the full amount indicated at the sales
charge in effect at the time of signing, but a Direct Investor or Customer must
complete the intended purchase in accordance with the terms of the Letter of
Intent to obtain the reduced sales charge. To apply, a Direct Investor or
Customer must indicate his or her intention to do so under a Letter of Intent at
the time of purchase.
QUALIFICATION FOR DISCOUNTS. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit-sharing plan established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
REINSTATEMENT PRIVILEGE. Direct Investors and Customers may reinvest all or
any portion of their redemption proceeds in Retail A Shares of the Fund or in
Retail A Shares of another portfolio of Galaxy within 90 days of the redemption
trade date without paying a sales load. Retail A Shares so reinvested will be
purchased at a price equal to the net asset value next determined after Galaxy's
transfer agent receives a reinstatement request and payment in proper form.
Direct Investors and Customers wishing to exercise this Privilege must
submit a written reinstatement request to Investor Services Group as transfer
agent stating that the investor is eligible to use the Privilege. The
reinstatement request and payment must be received within 90 days of the trade
date of the redemption. Currently, there are no restrictions on the number of
times an investor may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the Internal Revenue Code's "wash
sale" rules.
APPLICABLE SALES CHARGE--RETAIL B SHARES
The public offering price for Retail B Shares of the Fund is the net asset
value of the Retail B Shares purchased. Although Direct Investors and Customers
pay no front-end sales charge on purchases of Retail B Shares, such Shares are
subject to a contingent deferred sales charge at the rates set forth below if
they are redeemed within six years of purchase. Securities dealers, brokers,
financial institutions and other industry professionals will receive commissions
from FD Distributors in connection with sales of Retail B Shares. These
commissions may be different than the reallowances or placement fees paid to
dealers in connection with sales of Retail A Shares. Certain affiliates of Fleet
may, at their own expense, provide additional compensation to Fleet Enterprises,
Inc., a broker-dealer affiliate of Fleet, whose customers purchase significant
amounts of Retail B Shares of the Fund. See "Applicable Sales Charge--Retail A
Shares." The contingent deferred sales charge on Retail B Shares is based on the
lesser of the net asset value of the Shares on the redemption date or the
original cost of the Shares being redeemed. As a result, no sales charge is
imposed on any increase in the principal value of a Direct Investor's or
Customer's Retail B Shares. In addition, a contingent deferred sales charge will
not be assessed on Retail B Shares purchased through reinvestment of dividends
or capital gains distributions.
The amount of any contingent deferred sales charge Direct Investors and
Customers must pay depends on the number of years that elapse between the
purchase date and the date such Retail B Shares
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<PAGE>
are redeemed. Solely for purposes of this determination, all payments during a
month will be aggregated and deemed to have been made on the first day of the
month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
(AS A PERCENTAGE OF
DOLLAR AMOUNT
NUMBER OF YEARS SUBJECT TO THE
ELAPSED SINCE PURCHASE CHARGE)
-------------------------- --------------------
<S> <C>
Less than one..................................... 5.00%
More than one but less than two................... 4.00%
More than two but less than three................. 3.00%
More than three but less than four................ 3.00%
More than four but less than five................. 2.00%
More than five but less than six.................. 1.00%
After six......................................... None
</TABLE>
When a Direct Investor or Customer redeems his or her Retail B Shares, the
redemption request is processed to minimize the amount of the contingent
deferred sales charge that will be charged. Retail B Shares are redeemed first
from those shares that are not subject to a contingent deferred sales charge
(I.E., Retail B Shares that were acquired through reinvestment of dividends or
distributions or that qualify for other deferred sales charge exemptions) and
after that from the Retail B Shares that have been held the longest.
The proceeds from the contingent deferred sales charge that a Direct
Investor or Customer may pay upon redemption go to FD Distributors, which may
use such amounts to defray the expenses associated with the distribution-related
services involved in selling Retail B Shares.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. Certain types of
redemptions may also qualify for an exemption from the contingent deferred sales
charge. To receive exemptions (i), (vi) or (viii) listed below, a Direct
Investor or Customer must explain the status of his or her redemption at the
time Retail B Shares are redeemed. The contingent deferred sales charge with
respect to Retail B Shares is not assessed on: (i) exchanges described under
"Investor Programs--Exchange Privilege" below; (ii) redemptions in connection
with required (or, in some cases, discretionary) distributions to participants
or beneficiaries of an employee pension, profit-sharing or other trust or
qualified retirement or Keogh plan, individual retirement account or custodial
account maintained pursuant to Section 403(b)(7) of the Internal Revenue Code of
1986, as amended, (the "Code"); (iii) redemptions in connection with required
(or, in some cases, discretionary) distributions to participants in qualified
retirement or Keogh plans, individual retirement accounts or custodial accounts
maintained pursuant to Section 403 (b)(7) of the Code due to death, disability
or the attainment of a specified age; (iv) redemptions effected pursuant to a
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of Retail B Shares held in the account is less than the minimum account
size; (v) redemptions in connection with the combination of a Fund with any
other investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; (vi) redemptions in connection with the
death or disability of a shareholder; (vii) redemptions resulting from a
tax-free return of an excess contribution pursuant to Section 408(d)(4) or (5)
of the Code; or (viii) any redemption of Retail B Shares held by Direct
Investors or Customers, provided the Direct Investor or Customer was the
beneficial owner of shares of a Fund (or any of the other portfolios offered by
Galaxy or otherwise advised by Fleet or its affiliates) before December 1, 1995.
In addition to the foregoing exemptions, no contingent deferred sales charge
will be imposed on
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<PAGE>
redemptions made pursuant to the Systematic Withdrawal Plan, subject to the
limitations set forth under "Investor Programs--Automatic Investment Program and
Systematic Withdrawal Plan" below.
CHARACTERISTICS OF RETAIL A SHARES AND RETAIL B SHARES
The primary difference between Retail A Shares and Retail B Shares lies in
their sales charge structures and shareholder servicing/distribution expenses. A
Direct Investor or Customer should understand that the purpose and function of
the sales charge structures and shareholder servicing/distribution arrangements
for both Retail A Shares and Retail B Shares are the same.
Retail A Shares of the Fund are sold at their net asset value plus a
front-end sales charge of up to 3.75%. This front-end sales charge may be
reduced or waived in some cases. (See "Applicable Sales Charges--Retail A
Shares" and "Quantity Discounts"). Retail A Shares of the Fund are currently
subject to ongoing shareholder servicing fees at an annual rate of up to .30% of
the Fund's average daily net assets attributable to its Retail A Shares.
Retail B Shares of the Fund are sold at net asset value without an initial
sales charge. Normally, however, a deferred sales charge is paid if the Shares
are redeemed within six years of investment. (See "Applicable Sales
Charges--Retail B Shares.") Retail B Shares of the Fund are currently subject to
ongoing shareholder servicing and distribution fees at an annual rate of up to
.95% of the Fund's average daily net assets attributable to its Retail B Shares.
These ongoing fees, which are higher than those charged on Retail A Shares, will
cause Retail B Shares to have a higher expense ratio and pay lower dividends
than Retail A Shares.
Six years after purchase, Retail B Shares of the Fund will convert
automatically to Retail A Shares of the Fund. The purpose of the conversion is
to relieve a holder of Retail B Shares of the higher ongoing expenses charged to
those shares, after enough time has passed to allow FD Distributors to recover
approximately the amount it would have received if a front-end sales charge had
been charged. The conversion from Retail B Shares to Retail A Shares takes place
at net asset value, as a result of which a Direct Investor or Customer receives
dollar-for-dollar the same value of Retail A Shares as he or she had of Retail B
Shares. The conversion occurs six years after the beginning of the calendar
month in which the Shares are purchased. Upon conversion, the converted shares
will be relieved of the distribution and shareholder servicing fees borne by
Retail B Shares, although they will be subject to the shareholder servicing fees
borne by Retail A Shares.
Retail B Shares acquired through a reinvestment of dividends or
distributions (as discussed under "Applicable Sales Charge--Retail B Shares")
are also converted at the earlier of two dates--six years after the beginning of
the calendar month in which the reinvestment occurred or the date of conversion
of the most recently purchased Retail B Shares that were not acquired through
reinvestment of dividends or distributions. For example, if a Direct Investor or
Customer makes a one-time purchase of Retail B Shares of the Fund, and
subsequently acquires additional Retail B Shares of the Fund only through
reinvestment of dividends and/or distributions, all of such Direct Investor's or
Customer's Retail B Shares in the Fund, including those acquired through
reinvestment, will convert to Retail A Shares of the Fund on the same date.
24
<PAGE>
FACTORS TO CONSIDER WHEN SELECTING RETAIL A SHARES OR RETAIL B SHARES
Before purchasing Retail A Shares or Retail B Shares of the Fund, Direct
Investors and Customers should consider whether, during the anticipated periods
of their investments in the Fund, the accumulated distribution and shareholder
servicing fees and potential contingent deferred sales charge on Retail B Shares
prior to conversion would be less than the initial sales charge and accumulated
shareholder servicing fees on Retail A Shares purchased at the same time, and to
what extent such differential would be offset by the higher yield of Retail A
Shares. In this regard, to the extent that the sales charge for Retail A Shares
is waived or reduced by one of the methods described above, investments in
Retail A Shares become more desirable. An investment of $250,000 or more in
Retail B Shares would not be in most shareholders' best interest. Shareholders
should consult their financial advisers and/or brokers with respect to the
advisability of purchasing Retail B Shares in amounts exceeding $250,000.
Although Retail A Shares are subject to a shareholder servicing fee, they
are not subject to the higher distribution and shareholder servicing fee
applicable to Retail B Shares. For this reason, Retail A Shares can be expected
to pay correspondingly higher dividends per Share. However, because initial
sales charges are deducted at the time of purchase, purchasers of Retail A
Shares (that do not qualify for exemptions from or reductions in the initial
sales charge) would have less of their purchase price initially invested in the
Fund than purchasers of Retail B Shares in the Fund.
As described above, purchasers of Retail B Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Retail B Shares. Because the Fund's future returns
cannot be predicted, there can be no assurance that this will be the case.
Holders of Retail B Shares would, however, own shares that are subject to a
contingent deferred sales charge of up to 5.00% upon redemption, depending upon
the year of redemption. Direct Investors or Customers expecting to redeem during
this six-year period should compare the cost of the contingent deferred sales
charge plus the aggregate distribution and shareholder servicing fees on Retail
B Shares to the cost of the initial sales charge and shareholder servicing fees
on the Retail A Shares. Over time, the expense of the annual distribution and
shareholder servicing fees on the Retail B Shares may equal or exceed the
initial sales charge and annual shareholder servicing fee applicable to Retail A
Shares. For example, if net asset value remains constant, the aggregate
distribution and shareholder servicing fees with respect to Retail B Shares of
the Fund would equal or exceed the initial sales charge and aggregate
shareholder servicing fees of Retail A Shares approximately six years after the
purchase. In order to reduce such fees for investors that hold Retail B Shares
for more than six years, Retail B Shares will be automatically converted to
Retail A Shares as described above at the end of such six-year period.
HOW TO REDEEM SHARES
GENERAL
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by FD Distributors. On a Business Day when
the Exchange closes early due to a partial holiday or otherwise, Galaxy will
advance the time at which redemption orders must be received in order to be
processed on that Business Day. Proceeds from the redemptions of Retail B Shares
of the Fund will be reduced by the amount of any applicable contingent deferred
sales charge. Galaxy reserves the right to
25
<PAGE>
transmit redemption proceeds within seven days after receiving the redemption
order if, in its judgment, an earlier payment could adversely affect the Fund.
REDEMPTION PROCEDURES--CUSTOMERS OF INSTITUTIONS
Customers of Institutions may redeem all or part of their Retail Shares in
accordance with procedures governing their accounts at Institutions. It is the
responsibility of the Institutions to transmit redemption orders to FD
Distributors and credit their Customers' accounts with the redemption proceeds
on a timely basis. No charge for wiring redemption payments to Institutions is
imposed by Galaxy, although Institutions may charge a Customer's account for
redemption services. Information relating to such redemption services and
charges, if any, is available from the Institutions.
Payments for redemption orders received by FD Distributors on a Business Day
will normally be wired on the third Business Day to the Institutions.
Direct Investors may redeem all or part of their Retail Shares in accordance
with any of the procedures described below.
REDEMPTION PROCEDURES--DIRECT INVESTORS
REDEMPTION BY MAIL. Retail Shares may be redeemed by a Direct Investor by
submitting a written request for redemption to:
The Galaxy Fund
P.O. Box 5108
4400 Computer Drive
Westboro, MA 01581
A written redemption request must (i) state the name of the Fund and the
number of shares to be redeemed, (ii) identify the shareholder account number
and tax identification number, and (iii) be signed by each registered owner
exactly as the shares are registered. A redemption request for an amount in
excess of $50,000, or for any amount where (i) the proceeds are to be sent
elsewhere than the address of record (excluding the transfer of assets to a
successor custodian), (ii) the proceeds are to be sent to an address of record
which has changed in the preceding 30 days, or (iii) the check is to be made
payable to someone other than the registered owner(s), must be accompanied by
signature guarantees. The guarantor of a signature must be a bank that is a
member of the FDIC, a trust company, a member firm of a national securities
exchange or any other eligible guarantor institution. FD Distributors will not
accept guarantees from notaries public. FD Distributors may require additional
supporting documents for redemptions made by corporations, executors,
administrators, trustees and guardians. A redemption request will not be deemed
to be properly received until FD Distributors receives all required documents in
proper form. The Fund ordinarily will make payment for Retail Shares redeemed by
mail within three Business Days after proper receipt by FD Distributors of the
redemption request. Questions with respect to the proper form for redemption
requests should be directed to FD Distributors at 1-800-628-0414.
REDEMPTION BY TELEPHONE. Direct Investors who have not otherwise indicated
on the application, or in a subsequent notification in writing, may redeem
Retail Shares by calling 1-800-628-0414 and instructing FD Distributors to mail
a check for redemption proceeds of up to $50,000 to the address of record. A
redemption request for an amount in excess of $50,000 or for any amount where
(i) the proceeds are to be sent elsewhere than the address of record (excluding
the transfer of assets to a successor custodian),
26
<PAGE>
(ii) the proceeds are to be sent to an address of record which has changed in
the preceding 30 days, or (iii) the check is to be made payable to someone other
than the registered owner(s), must be accompanied by signature guarantees. (See
"Redemption by Mail" above for details regarding signature guarantees.)
REDEMPTION BY WIRE. Direct Investors who have so indicated on the
application, or have subsequently arranged in writing to do so, may redeem
Retail Shares by instructing FD Distributors by wire or telephone to wire the
redemption proceeds of $1,000 or more directly to a Direct Investor's account at
any commercial bank in the United States. FD Distributors charges a $5.00 fee
for each wire redemption and the fee is deducted from the redemption proceeds.
The redemption proceeds must be paid to the same bank and account as designated
on the application or in written instructions subsequently received by FD
Distributors. To request redemption of Retail Shares by wire, Direct Investors
should call FD Distributors at 1-800-628-0414.
In order to arrange for redemption by wire after an account has been opened
or to change the bank or account designated to receive redemption proceeds, a
written request must be sent to Galaxy at the address listed above under
"Redemption by Mail." Such requests must be signed by the investor and
accompanied by a signature guarantee (see "Redemption by Mail" above for details
regarding signature guarantees). Further documentation may be requested from
corporations, executors, administrators, trustees, or guardians. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures for transactions
by wire or mail which are described above.
Galaxy reserves the right to refuse a wire or telephone redemption if it
believes it is advisable to do so. Procedures for redeeming Retail Shares by
wire or telephone may be modified or terminated at any time by Galaxy or FD
Distributors. In attempting to confirm that telephone instructions are genuine,
Galaxy will use such procedures as are considered reasonable, including
recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security number, address and/ or bank). If Galaxy fails to follow established
procedures for the authentication of telephone instructions, it may be liable
for losses due to unauthorized or fraudulent telephone transactions.
NO REDEMPTION BY A DIRECT INVESTOR IN THE FUND WILL BE PROCESSED UNTIL
GALAXY HAS RECEIVED A COMPLETED APPLICATION WITH RESPECT TO THE DIRECT
INVESTOR'S ACCOUNT.
IF ANY PORTION OF THE RETAIL SHARES TO BE REDEEMED REPRESENTS AN INVESTMENT
MADE BY PERSONAL CHECK, GALAXY RESERVES THE RIGHT TO DELAY PAYMENT OF PROCEEDS
UNTIL FD DISTRIBUTORS IS REASONABLY SATISFIED THAT THE CHECK HAS BEEN COLLECTED,
WHICH COULD TAKE UP TO 15 DAYS FROM THE PURCHASE DATE. A DIRECT INVESTOR WHO
ANTICIPATES THE NEED FOR MORE IMMEDIATE ACCESS TO HIS OR HER INVESTMENT SHOULD
PURCHASE RETAIL SHARES BY FEDERAL FUNDS OR BANK WIRE OR BY CERTIFIED OR
CASHIER'S CHECK. BANKS NORMALLY IMPOSE A CHARGE IN CONNECTION WITH THE USE OF
BANK WIRES, AS WELL AS CERTIFIED CHECKS, CASHIER'S CHECKS AND FEDERAL FUNDS.
OTHER REDEMPTION INFORMATION
Except as provided under "Investor Programs" below, Galaxy reserves the
right to redeem accounts (other than retirement plan accounts) involuntarily,
upon 60 days' written notice, if the account's net asset value falls below $250
as a result of redemptions. In addition, if an investor has agreed with a
particular Institution to maintain a minimum balance in his or her account at
the Institution with respect to Retail
27
<PAGE>
Shares of the Fund, and the balance in such account falls below that minimum,
the Customer may be obliged by the Institution to redeem all of his or her
shares.
INVESTOR PROGRAMS
EXCHANGE PRIVILEGE
Direct Investors and Customers of Institutions may, after appropriate prior
authorization, exchange Retail A Shares of the Fund having a value of at least
$100 for Retail A Shares of any of the other Funds or portfolios offered by
Galaxy or for shares of any other investment portfolios otherwise advised by
Fleet or its affiliates in which the Direct Investor or Customer maintains an
existing account, provided that such other shares may legally be sold in the
state of the investor's residence. Direct Investors and Customers of
Institutions may exchange Retail B Shares of the Fund for Retail B Shares of the
Equity Value, Equity Growth, Small Company Equity, Asset Allocation, Growth and
Income, Strategic Equity, Money Market, Short-Term Bond, High Quality Bond and
Tax-Exempt Bond Funds offered by Galaxy, provided that such other Retail B
Shares may legally be sold in the state of the investor's residence.
No additional sales charge will be incurred when exchanging Retail A Shares
of the Fund for Retail A Shares of another Galaxy portfolio that imposes a sales
charge. Retail B Shares may be exchanged without the payment of any contingent
deferred sales charge at the time the exchange is made. In determining the
holding period for calculating the contingent deferred sales charge payable on
redemptions of Retail B Shares, the holding period of the Retail B Shares
originally held will be added to the holding period of the Retail B Shares
acquired through exchange.
The minimum initial investment to establish an account in another Fund or
portfolio by exchange, except for the Institutional Government Money Market
Fund, is $2,500, unless at the time of the exchange the Direct Investor or
Customer elects, with respect to the Fund or portfolio into which the exchange
is being made, to participate in the Automatic Investment Program described
below, in which event there is no minimum initial investment requirement, or in
the College Investment Program described below, in which event the minimum
initial investment is generally $100. The minimum initial investment to
establish an account by exchange in the Institutional Government Money Market
Fund is $2 million.
An exchange involves a redemption of all or a portion of the Retail Shares
of the Fund and the investment of the redemption proceeds in Retail Shares of
another Fund or portfolio offered by Galaxy or, with respect to Retail A Shares,
otherwise advised by Fleet or its affiliates. The redemption will be made at the
per share net asset value next determined after the exchange request is
received. The Retail Shares of the Fund or portfolio to be acquired will be
purchased at the per share net asset value next determined after acceptance of
the exchange request, plus any applicable sales charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in the Fund. For
further information regarding Galaxy's exchange privilege, Direct Investors
should call Investor Services Group at 1-800-628-0414. Customers of Institutions
should call their Institution for such information. Customers exercising the
exchange privilege into other portfolios should request and review these
portfolios' prospectuses prior to making an exchange. Telephone 1-800-628-0414
for a prospectus or to make an exchange. See "How to Redeem Shares--Redemption
Procedures--Direct Investors--Redemptions by Wire" above for a description of
Galaxy's policy regarding telephone transactions.
28
<PAGE>
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, Galaxy reserves the right to terminate the exchange privilege of
any shareholder who requests more than three exchanges a year. Galaxy will
determine whether to do so based on a consideration of both the number of
exchanges that any particular shareholder or group of shareholders has requested
and the time period over which their exchange requests have been made, together
with the level of expense to Galaxy which will result from effecting additional
exchange requests. The exchange privilege may be modified or terminated at any
time. At least 60 days' notice of any material modification or termination will
be given to shareholders except where notice is not required under the
regulations of the Securities and Exchange Commission ("SEC").
Galaxy does not charge any exchange fee. However, Institutions may charge
such fees with respect to either all exchange requests or with respect to any
request which exceeds the permissible number of free exchanges during a
particular period. Customers of Institutions should contact their Institutions
for applicable information.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, a capital gain or loss may be realized by an investor. Before
making an exchange request, a Customer or Direct Investor should consult a tax
or other financial adviser to determine the tax consequences.
RETIREMENT PLANS
Retail Shares of the Fund are available for purchase in connection with the
following tax-deferred prototype retirement plans:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS") (including traditional, Roth and
Education IRAs and "rollovers" from existing retirement plans), a
retirement-savings vehicle for qualifying individuals. The minimum initial
investment for an IRA account is $500 (including a spousal account).
SIMPLIFIED EMPLOYEE PENSION PLANS ("SEPS"), a form of retirement plan for
sole proprietors, partnerships and corporations. The minimum initial investment
for a SEP account is $500.
MULTI-EMPLOYEE PENSION PLANS ("MERPS"), a retirement vehicle established by
employers for their employees which is qualified under Section 401(k) and 403(b)
of the Internal Revenue Code. The minimum initial investment for a MERP is $500.
KEOGH PLANS, a retirement vehicle for self-employed individuals. The minimum
initial investment for a Keogh Plan is $500.
Investors purchasing Retail Shares pursuant to a retirement plan are not
subject to the minimum investment provisions described above under "How to
Purchase Shares--Other Purchase Information." Detailed information concerning
eligibility and other matters related to these plans and the form of application
is available from FD Distributors (call 1-800-628-0414) with respect to IRAs,
SEPs and Keogh Plans and from Fleet Brokerage Securities, Inc. (call
1-800-221-8210) with respect to MERPs.
AUTOMATIC INVESTMENT PROGRAM AND SYSTEMATIC WITHDRAWAL PLAN
The Automatic Investment Program permits a Direct Investor to purchase
Retail Shares of the Fund (minimum of $50 per transaction) each month or each
quarter. Provided the Direct Investor's financial institution allows automatic
withdrawals, Retail Shares are purchased by transferring funds from a Direct
Investor's checking, bank money market, NOW or savings account designated by the
Direct Investor. The
29
<PAGE>
account designated will be debited in the specified amount, and Retail Shares
will be purchased, on a monthly or quarterly basis, on any Business Day
designated by a Direct Investor. If the designated day falls on a weekend or
holiday, the purchase will be made on the Business Day closest to the designated
day. Only an account maintained at a domestic financial institution which is an
Automated Clearing House member may be so designated.
The Systematic Withdrawal Plan permits a Direct Investor to automatically
redeem Retail Shares on a monthly, quarterly, semi-annual, or annual basis on
any Business Day designated by a Direct Investor, if the account has a starting
value of at least $10,000. If the designated day falls on a weekend or holiday,
the redemption will be made on the Business Day closest to the designated day.
Proceeds of the redemption will be sent to the shareholder's address of record
or financial institution within three Business Days of the redemption. If
redemptions exceed purchases and dividends, the number of shares in the account
will be reduced. Investors may terminate the Systematic Withdrawal Plan at any
time upon written notice to Investor Services Group, Galaxy's transfer agent
(but not less than five days before a payment date). There is no charge for this
service. Purchases of additional Retail A Shares concurrently with withdrawals
are ordinarily not advantageous because of the sales charge involved in the
additional purchases. No contingent deferred sales charge will be assessed on
redemptions of Retail B Shares made through the Systematic Withdrawal Plan that
do not exceed 12% of an account's net asset value on an annualized basis. For
example, monthly, quarterly and semi-annual Systematic Withdrawal Plan
redemptions of Retail B Shares will not be subject to the contingent deferred
sales charge if they do not exceed 1%, 3% and 6%, respectively, of an account's
net asset value on the redemption date. Systematic Withdrawal Plan redemptions
of Retail B Shares in excess of this limit are still subject to the applicable
contingent deferred sales charge.
PAYROLL DEDUCTION PROGRAM
The Payroll Deduction Program provides Direct Investors with a convenient,
systematic way to purchase Fund shares by deducting a minimum amount of $25 per
pay period from their paycheck. To be eligible for the Program, the payroll
department of a Direct Investor's employer must have the capability to forward
transactions directly through the Automated Clearing House (ACH), or indirectly
through a third party payroll processing company that has access to the ACH. A
Direct Investor must complete and submit a Galaxy Payroll Deduction Application
to his or her employer's payroll department, which will arrange for the
specified amount to be debited from the Direct Investor's paycheck each pay
period. Retail Shares of Galaxy will be purchased within three days after the
debit occurred. If the designated day falls on a weekend or non-Business Day,
the purchase will be made on the Business Day closest to the designated day. A
Direct Investor should allow between two to four weeks for the Payroll Deduction
Program to be established after submitting an application to the employer's
payroll department.
COLLEGE INVESTMENT PROGRAM
The College Investment Program (the "College Program") permits a Direct
Investor to open an account with Galaxy and purchase Retail Shares of the Fund
with a minimum amount of $100 for initial or subsequent investments, except that
if the Direct Investor purchases Retail Shares through the Automatic Investment
Program, the minimum per transaction is $50. The College Program is designed to
assist Direct Investors who want to finance a college savings plan. See
"Investor Programs--Automatic Investment Program and Systematic Withdrawal Plan"
for information on the Automatic Investment Program. Galaxy reserves the right
to redeem accounts participating in the College Program involuntarily, upon 60
days'
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written notice, if the account's net asset value falls below the applicable
minimum initial investment as a result of redemptions. See "How to Redeem
Shares--Other Redemption Information" above for further information.
Direct Investors in the College Program will receive consolidated monthly
statements of their accounts. Detailed information concerning College Program
accounts and applications may be obtained from FD Distributors (call
1-800-628-0414).
DIRECT DEPOSIT PROGRAM
Direct Investors receiving social security benefits are eligible for the
Direct Deposit Program. This Program enables a Direct Investor to purchase
Retail Shares of the Fund by having social security payments automatically
deposited into his or her Fund account. There is no minimum deposit requirement.
For instructions on how to enroll in the Direct Deposit Program, Direct
Investors should call FD Distributors at 1-800-628-0414. Death or legal
incapacity will terminate a Direct Investor's participation in the Program. A
Direct Investor may elect at any time to terminate his or her participation by
notifying in writing the Social Security Administration. Further, Galaxy may
terminate a Direct Investor's participation upon 30 days' notice to the Direct
Investor.
INFORMATION SERVICES
GALAXY INFORMATION CENTER--24 HOUR INFORMATION SERVICE
The Galaxy Information Center provides Fund performance and investment
information 24 hours a day, seven days a week. To access the Galaxy Information
Center, just call 1-800-628-0414.
VOICE RESPONSE SYSTEM
The Voice Response System provides Direct Investors automated access to Fund
and account information as well as the ability to make telephone redemptions and
exchanges. These transactions are subject to the terms and conditions described
above under "How to Redeem Shares" and "Investor Programs". To access the Voice
Response System, just call 1-800-628-0414 from any touch-tone telephone and
follow the recorded instructions.
GALAXY SHAREHOLDER SERVICES
For account information and recent exchange transactions, Direct Investors
can call Galaxy Shareholder Services Monday through Friday, between the hours of
9:00 a.m. to 5:00 p.m. (Eastern Time) at 1-800-628-0414.
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
Direct Investors residing outside the United States can contact Galaxy by
calling 1-508-855-5237.
Investment returns and principal values will vary with market conditions so
that an investor's Retail Shares, when redeemed, may be worth more or less than
their original cost. Past performance is no guarantee of future results. Unless
otherwise indicated, total return figures include changes in share price,
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<PAGE>
deduction of any applicable sales charge, and reinvestment of dividends and
capital gains distributions, if any.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund are declared and paid
quarterly. Dividends on each share of the Fund are determined in the same
manner, irrespective of series, but may differ in amount because of the
difference in the expenses paid by the respective series. Net realized capital
gains are distributed at least annually.
Dividends and distributions will be paid in cash. Customers and Direct
Investors may elect to have their dividends reinvested in additional Retail
Shares of the same series of the Fund at the net asset value of such shares on
the ex-dividend date. Such election, or any revocation thereof, must be
communicated in writing to Galaxy's transfer agent (see "Custodian and Transfer
Agent" below) and will become effective with respect to dividends paid after its
receipt.
TAXES
FEDERAL
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). Such qualification
generally relieves the Fund of liability for federal income taxes to the extent
the Fund's earnings are distributed in accordance with the Code.
The policy of the Fund is to distribute as dividends substantially all of
its investment company taxable income and any net tax-exempt interest income
each year. Such dividends will be taxable as ordinary income to the Fund's
shareholders who are not currently exempt from federal income taxes, whether
such dividends are received in cash or reinvested in additional Trust Shares.
(Federal income taxes for distributions to an IRA or a qualified retirement plan
are deferred under the Code.) Such ordinary income distributions will qualify
for the dividends received deduction for corporations to the extent of the total
qualifying dividends received by the Fund from domestic corporations for the
taxable year.
Distribution by the Fund of "net capital gain" (the excess of its net
long-term capital gain over its net short-term capital loss), if any, of the
Fund, is taxable to shareholders as long-term capital gain, regardless of how
long the shareholder has held shares and whether such gains are received in cash
or reinvested in additional Trust Shares. Such long-term capital gain will
constitute 20% or 28% rate gain, depending upon the Fund's holding period for
the assets the sale of which generated the gain. Such distributions are not
eligible for the dividends received deduction.
The dividends received deduction is not available for dividends attributable
to distributions made by a REIT to the Fund. In addition, distributions paid by
REITs often include a "return of capital." The Code requires a REIT to
distribute at least 95% of its taxable income to investors. In many cases,
however, because of "non-cash" expenses such as property depreciation, an equity
REIT's cash flow will exceed its taxable income. The REIT may distribute this
excess cash to offer a more competitive yield. This portion of the distribution
is deemed a return of capital and is generally not taxable to shareholders.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and
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<PAGE>
paid by the Fund on December 31 of such year if such dividends are actually paid
during January of the following year.
If you are considering buying shares of the Fund on or just before the
record date of a dividend or capital gain distribution, you should be aware that
the amount of the forthcoming distribution payment, although in effect a return
of capital, generally will be taxable to you.
A taxable gain or loss may be realized by a shareholder upon redemption,
transfer or exchange of shares of the Fund depending upon the tax basis of such
shares and their price at the time of redemption, transfer or exchange.
The foregoing summarizes some of the important federal tax considerations
generally affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, potential investors in the
Fund should consult their tax advisers with specific reference to their own tax
situation. Shareholders will be advised annually as to the federal income tax
consequences of distributions made each year.
STATE AND LOCAL
Investors are advised to consult their tax advisers concerning the
application of state and local taxes, which may have different consequences from
those of the federal income tax law described above.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
Galaxy's Board of Trustees. The Statement of Additional Information contains the
names of and general background information concerning the Trustees.
INVESTMENT ADVISER
Fleet, with principal offices at 75 State Street, Boston, Massachusetts
02109, serves as the investment adviser to the Fund. Fleet is an indirect
wholly-owned subsidiary of Fleet Financial Group, Inc., a registered bank
holding company with total assets of approximately $85.5 billion at December 31,
1997. Fleet, which commenced operations in 1984, also provides investment
management and advisory services to individual and institutional clients and
manages the other investment portfolios of Galaxy: the Money Market, Government,
U.S. Treasury, Tax-Exempt, Connecticut Municipal Money Market, Massachusetts
Municipal Money Market, Institutional Government Money Market, Equity Value,
Equity Growth, Equity Income, International Equity, Asset Allocation, Small
Company Equity, Small Cap Value, Growth and Income, Strategic Equity, Short-Term
Bond, Intermediate Government Income, High Quality Bond, Corporate Bond,
Tax-Exempt Bond, New Jersey Municipal Bond, New York Municipal Bond, Connecticut
Municipal Bond, Massachusetts Municipal Bond Fund and Rhode Island Municipal
Bond Funds.
Subject to the general supervision of Galaxy's Board of Trustees and in
accordance with the Fund's investment policies, Fleet manages the Fund, makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities and maintains related records.
For the services provided and expenses assumed with respect to the Fund,
Fleet is entitled to receive advisory fees, computed daily and paid monthly, at
the annual rate of .75% of the average daily net assets of the Fund.
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Fleet may from time to time, in its discretion, waive all or a portion of
the advisory fees payable by the Fund in order to help maintain a competitive
expense ratio and may from time to time allocate a portion of its advisory fees
to Fleet Bank or other subsidiaries of Fleet Financial Group, Inc., in
consideration for administrative and/or shareholder support services which they
provide to beneficial shareholders.
The organizational arrangements of Fleet require that all investment
decisions with respect to the Fund be made by Fleet's Equity Policy Committee
and no one person is primarily responsible for making recommendations to that
Committee.
Fleet is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, to the extent permitted
by law or order of the Securities and Exchange Commission ("SEC"), financial
institutions that are affiliated with Fleet or that have sold shares of the
Funds, if Fleet believes that the quality of the transaction and the commission
are comparable to what they would be with other qualified brokerage firms.
AUTHORITY TO ACT AS INVESTMENT ADVISER
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling, or distributing securities such as Trust
Shares of the Fund, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. Fleet, the custodian and
Institutions which agree to provide shareholder support services that are banks
or bank affiliates are subject to such banking laws and regulations. Should
legislative, judicial or administrative action prohibit or restrict the
activities of such companies in connection with their services to the Fund,
Galaxy might be required to alter materially or discontinue its arrangements
with such companies and change its method of operation. It is anticipated,
however, that any resulting change in the Fund's method of operation would not
affect the Fund's net asset value per share or result in financial loss to any
shareholder.
ADMINISTRATOR
First Data Investor Services Group, Inc. ("Investor Services Group"),
located at 4400 Computer Drive, Westboro, Massachusetts 01581-5108, serves as
the Fund's administrator. Investor Services Group is a wholly-owned subsidiary
of First Data Corporation.
Investor Services Group generally assists the Fund in its administration and
operation. Investor Services Group also serves as administrator to the other
portfolios of Galaxy. For services provided to the Fund, Investor Services Group
is entitled to receive administration fees, computed daily and paid monthly, at
the annual rate of .09% of the first $2.5 billion of the combined average daily
net assets of the Fund and the other portfolios offered by Galaxy (collectively,
the "Portfolios"), .085% of the next $2.5 billion of combined average daily net
assets and .075% of combined average daily net assets over $5 billion. In
addition, Investor Services Group also receives a separate annual fee from each
Portfolio for certain fund accounting services. From time to time, Investor
Services Group may waive voluntarily all or a portion of the administration fee
payable to it by the Fund.
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DESCRIPTION OF GALAXY AND ITS SHARES
Galaxy was organized as a Massachusetts business trust on March 31, 1986.
Galaxy's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares into one or more classes or series of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
an unlimited number of shares in the Fund: Class Z-Series 1 shares (Trust
Shares), Class Z-Series 2 shares (Retail A Shares) and Class Z-Series 3 shares
(Retail B Shares), each series representing interests in the Fund. The Fund is
classified as a diversified company under the 1940 Act. The Board of Trustees
has also authorized the issuance of additional classes and series of shares
representing interests in other portfolios of Galaxy. For information regarding
the Fund's Retail Shares and these other portfolios, which are offered through
separate prospectuses, contact FD Distributors at 1-800-628-0414.
Trust Shares, Retail A Shares and Retail B Shares in the Fund bear their pro
rata portion of all operating expenses paid by the Fund except as follows.
Holders of the Fund's Retail A Shares bear the fees that are paid to
Institutions under Galaxy's Shareholder Services Plan described below and
holders of the Fund's Retail B Shares bear the fees described in the prospectus
for such Shares that are paid under Galaxy's Distribution and Services Plan at
an annual rate of up to .95% of the average daily net asset value of the Fund's
outstanding Retail B Shares. Currently, these payments are not made with respect
to the Fund's Trust Shares. In addition, Trust Shares, Retail A Shares and
Retail B Shares in the Fund bear differing transfer agency expenses.
Standardized yield and total return quotations are computed separately for each
series of shares. The differences in the expenses paid by the respective series
will affect their performance.
Retail A Shares of the Fund are sold with a maximum front-end sales charge
of 3.75%. Retail B Shares of the Fund are sold with a maximum contingent
deferred sales charge of 5.0% and automatically convert to Retail A Shares of
the Fund six years after the date of purchase. Retail A Shares and Retail B
Shares have certain exchange and other privileges which are not available with
respect to Trust Shares.
Each share of Galaxy (irrespective of series designation) has a par value of
$.001 per share, represents an equal proportionate interest in the related
investment portfolio with other shares of the same class, and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to such investment portfolio as are declared in the discretion of
Galaxy's Board of Trustees.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Galaxy is not required under Massachusetts law to hold annual shareholder
meetings and intends to do so only if required by the 1940 Act. Shareholders
have the right to remove Trustees.
SHAREHOLDER SERVICES PLAN
Galaxy has adopted a Shareholder Services Plan pursuant to which it intends
to enter into servicing agreements with Institutions (including Fleet Bank and
its affiliates). Pursuant to these servicing agreements, Institutions will
render certain administrative and support services to Customers who are the
beneficial owners of Retail A Shares. Such services will be provided to
Customers who are the beneficial owners of Retail A Shares and are intended to
supplement the services provided by Investor Services Group as administrator and
transfer agent to the shareholders of record of the Retail A Shares. The Plan
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<PAGE>
provides that Galaxy will pay fees for such services at an annual rate of up to
.50% of the average daily net asset value of the Fund's outstanding Retail A
Shares beneficially owned by customers. Institutions may receive up to one-half
of this fees for providing one or more of the following services to such
Customers: aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with FD Distributors; processing
dividend payments from the Fund; providing sub-accounting with respect to Retail
A Shares or the information necessary for sub-accounting; and providing periodic
mailings to Customers. Institutions may also receive up to one-half of this fee
for providing one or more of these additional services to such Customers:
providing Customers with information as to their positions in Retail A Shares;
responding to Customer inquiries; and providing a service to invest the assets
of Customers in Retail A Shares. These services are described more fully in the
Statement of Additional Information under "Shareholder Services Plan."
Although the Shareholder Services Plan has been approved with respect to
both Retail A Shares and Trust Shares of the Fund, as of the date of this
Prospectus, Galaxy intends to enter into servicing agreements under the
Shareholder Services Plan only with respect to Retail A Shares of the Fund, and
to limit the payment under these servicing agreements for the Fund to no more
than .30% (on an annualized basis) of the average daily net asset value of the
Retail A Shares of the Fund beneficially owned by Customers of Institutions.
Galaxy understands that Institutions may charge fees to their Customers who are
the beneficial owners of Retail A Shares in connection with their accounts with
such Institutions. Any such fees would be in addition to any amounts which may
be received by an Institution under the Shareholder Services Plan. Under the
terms of each servicing agreement entered into with Galaxy, Institutions are
required to provide to their Customers a schedule of any fees that they may
charge in connection with Customer investments in Retail A Shares.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act with respect to Retail B Shares of the Fund. Under the
Distribution and Services Plan, Galaxy may pay (a) FD Distributors or another
person for expenses and activities intended to result in the sale of Retail B
Shares, including the payment of commissions to broker-dealers and other
industry professionals who sell Retail B Shares and the direct or indirect cost
of financing such payments, (b) Institutions for shareholder liaison services,
which means personal services for holders of Retail B Shares and/or the
maintenance of shareholder accounts, such as responding to customer inquiries
and providing information on accounts, and (c) Institutions for administrative
support services, which include but are not limited to (i) transfer agent and
sub-transfer agent services for beneficial owners of Retail B Shares; (ii)
aggregating and processing purchase and redemption orders; (iii) providing
beneficial owners with statements showing their positions in Retail B Shares;
(iv) processing dividend payments; (v) providing sub-accounting services for
Retail B Shares held beneficially; (vi) forwarding shareholder communications,
such as proxies, shareholder reports, dividend and tax notices, and updating
prospectuses to beneficial owners; and (vii) receiving, translating and
transmitting proxies executed by beneficial owners.
Under the Distribution and Services Plan for Retail B Shares, payments by
Galaxy (i) for distribution expenses may not exceed the annualized rate of .65%
of the average daily net assets attributable to the Fund's outstanding Retail B
Shares, and (ii) to an Institution for shareholder liaison services and/or
administrative support services may not exceed the annual rates of .25% and
.25%, respectively, of the average daily net assets attributable to the 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
36
<PAGE>
shareholder of record or with whom it has a servicing relationship. As of the
date of this Prospectus, Galaxy intends to limit the Fund's payments for
shareholder liaison and administrative support services under the Plan to an
aggregate fee of not more than .30% (on an annualized basis) of the average
daily net asset value of Retail B Shares owned of record or beneficially by
Customers of Institutions.
AGREEMENTS FOR SUB-ACCOUNT SERVICES
Investor Services Group may enter into agreements with one or more entities,
including affiliates of Fleet, pursuant to which such entities agree to perform
certain sub-account and administrative functions ("Sub-Account Services") on a
per account basis with respect to Trust Shares of the Fund held by defined
contribution plans, including: maintaining records reflecting separately with
respect to each plan participant's sub-account all purchases and redemptions of
Trust Shares and the dollar value of Trust Shares in each sub-account; crediting
to each participant's sub-account all dividends and distributions with respect
to that sub-account; and transmitting to each participant a periodic statement
regarding the sub-account as well as any proxy materials, reports and other
material Fund communications. Such entities are compensated by Investor Services
Group for the Sub-Account Services and in connection therewith the transfer
agency fees payable by Trust Shares of the Fund to Investor Services Group have
been increased by an amount equal to these fees. In substance, therefore, the
holders of Trust Shares of the Fund indirectly bear these fees.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase Manhattan
Plaza, New York, New York 10081, a wholly-owned subsidiary of The Chase
Manhattan Corporation, serves as custodian of the Fund's assets. Chase Manhattan
may employ sub-custodians for the Fund for the purpose of providing custodial
services for the Fund's foreign assets held outside the United States. First
Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-owned
subsidiary of First Data Corporation, serves as the Fund's transfer and dividend
disbursing agent. Services performed by these entities for the Fund are
described in the Statement of Additional Information. Communications to Investor
Services Group should be directed to Investor Services Group at P.O. Box 5108,
4400 Computer Drive, Westboro, Massachusetts 01581-5108.
EXPENSES
Except as noted below, Fleet and Investor Services Group bear all expenses
in connection with the performance of their services for the Fund. Galaxy bears
the expenses incurred in the Fund's operations. Such expenses include: taxes;
interest; fees (including fees paid to its trustees and officers who are not
affiliated with Investor Services Group); SEC fees; state securities fees; costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to existing shareholders; advisory, administration, shareholder
servicing, Rule 12b-1 distribution, fund accounting and custody fees; charges of
the transfer agent and dividend disbursing agent; certain insurance premiums;
outside auditing and legal expenses; costs of independent pricing services;
costs of shareholder reports and meetings; and any extraordinary expenses. The
Fund also pays for brokerage fees and commissions in connection with the
purchase of portfolio securities.
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PERFORMANCE REPORTING
From time to time, in advertisements or in reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Fund may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds, the S&P 500, an unmanaged index of groups of common
stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange.
Performance data as reported in national financial publications including,
but not limited to, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL
and THE NEW YORK TIMES or publications of a local or regional nature may also be
used in comparing the performance of the Fund. Performance data will be
calculated separately for Trust Shares, Retail A Shares and Retail B Shares of
the Fund.
The standard yield is computed by dividing the Fund's average daily net
investment income per share during a 30-day (or one month) base period
identified in the advertisement by the net asset value per share on the last day
of the period, and analyzing the result on a semi-annual basis. The Fund may
also advertise its "effective yield" which is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested.
The Fund may also advertise its performance using "average annual total
return" figures over various periods of time. Such total return figures reflect
the average percentage change in the value of an investment in the Fund from the
beginning date of the measuring period to the end of the measuring period.
Average total return figures will be given for the most recent one-, five- and
ten-year periods (if applicable), and may be given for other periods as well,
such as from the commencement of the Fund's operations, or on a year-by-year
basis. The Fund may also use "aggregate total return" figures for various
periods, representing the cumulative change in the value of an investment in the
Fund for the specified period. Both methods of calculating total return assume
that dividends and capital gain distributions made by the Fund during the period
are reinvested in Fund shares.
The performance of the Fund will fluctuate and any quotation of performance
should not be considered as representative of the future performance of the
Fund. Since yields fluctuate, yield data cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that
performance data are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any additional fees charged by Institutions with respect to
accounts of Customers that have invested in Trust Shares of the Fund will not be
included in performance calculations.
The portfolio manager of the Fund and other investment professionals may
from time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include but are not limited to the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products; and tax, retirement and investment planning.
38
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MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent certified public accountants.
As used in this Prospectus, a "vote of the holders of a majority of the
outstanding shares" of the Fund means, with respect to the approval of an
investment advisory agreement or change in an investment objective or
fundamental investment policy, the affirmative vote of the holders of the lesser
of (a) more than 50% of the outstanding shares of the Fund or (b) 67% or more of
the shares of the Fund present at a meeting if more than 50% of the outstanding
shares of the Fund are represented at the meeting in person or by proxy.
39
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THE GALAXY FUND
Statement of Additional Information
Money Market Fund
Government Fund
Tax-Exempt Fund
U.S. Treasury Fund
Institutional Government Money Market Fund
February 28, 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 Money Market, Government, Tax-Exempt, U.S. Treasury and Institutional
Government Money Market 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 Prospectus. No investment in shares of the Funds should be
made without reading the Prospectuses. Copies of the Prospectuses may be
obtained by writing Galaxy c/o First Data Distributors, Inc., 4400 Computer
Drive, Westboro, Massachusetts 01581-5180 or by calling Galaxy at
1-800-628-0414.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, FLEET FINANCIAL GROUP, INC. OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS
SO THAT SHARES OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. THERE IS NO
ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
THE GALAXY FUND........................................................................................ 1
INVESTMENT OBJECTIVES AND POLICIES..................................................................... 1
Variable and Floating Rate Obligations........................................................ 1
Bank Obligations.............................................................................. 1
Asset-Backed Securities....................................................................... 2
Municipal Securities.......................................................................... 2
When-Issued and Delayed Settlement Transactions............................................... 5
Stand-By Commitments.......................................................................... 5
Repurchase Agreements; Reverse Repurchase Agreements; Loans of Portfolio Securities........... 6
U.S. Government Securities.................................................................... 6
Portfolio Securities Generally................................................................ 7
Additional Investment Limitations............................................................. 7
NET ASSET VALUE........................................................................................ 9
DIVIDENDS.............................................................................................. 10
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION......................................................... 10
DESCRIPTION OF SHARES.................................................................................. 11
ADDITIONAL INFORMATION CONCERNING TAXES................................................................ 14
In General.................................................................................... 14
Tax-Exempt Fund............................................................................... 16
State Taxation................................................................................ 17
TRUSTEES AND OFFICERS.................................................................................. 17
Shareholder and Trustee Liability............................................................. 22
ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER AGENCY AGREEMENTS..................................... 22
Custodian and Transfer Agent.................................................................. 25
PORTFOLIO TRANSACTIONS................................................................................. 26
SHAREHOLDER SERVICES PLAN.............................................................................. 27
DISTRIBUTION AND SERVICES PLAN......................................................................... 28
DISTRIBUTOR............................................................................................ 30
AUDITORS............................................................................................... 31
COUNSEL................................................................................................ 31
PERFORMANCE AND YIELD INFORMATION...................................................................... 32
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Page
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MISCELLANEOUS.......................................................................................... 33
FINANCIAL STATEMENTS................................................................................... 34
APPENDIX A............................................................................................. A-1
</TABLE>
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THE GALAXY FUND
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-seven investment
portfolios.
This Statement of Additional Information relates to five of those
investment portfolios: the Money Market Fund, Government Fund, Tax-Exempt Fund,
U.S. Treasury Fund and Institutional Government Money Market Fund (the "Funds").
This Statement of Additional Information provides additional investment
information with respect to the Funds and should be read in conjunction with the
current Prospectuses.
INVESTMENT OBJECTIVES AND POLICIES
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may purchase variable and floating rate instruments as
described in their Prospectuses. If such an instrument is not rated, Fleet
Investment Advisors Inc. ("Fleet"), the investment adviser to the Funds, must
determine that such instrument is comparable to rated instruments eligible for
purchase by the Funds and will consider the earning power, cash flows and other
liquidity ratios of the issuers and guarantors of such notes and will
continuously monitor their financial status in order to meet payment on demand.
In determining average weighted portfolio maturity of each of these Funds, a
variable or floating rate instrument issued or guaranteed by the U.S. Government
or an agency or instrumentality thereof will be deemed to have a maturity equal
to the period remaining until the obligation's next interest rate adjustment.
Variable and floating rate obligations held by the Funds may have
maturities of more than 397 days, provided the Funds are entitled to payment of
principal upon not more than 30 days' notice or at specified intervals not
exceeding one year (upon not more than 30 days' notice).
Long-term variable and floating rate obligations with a demand
feature held by the Funds will be deemed to have a maturity equal to the longer
of the period remaining to the next interest rate adjustment or the demand
notice period.
BANK OBLIGATIONS
For purposes of the Money Market Fund's investment policy with respect
to bank obligations, the assets of a bank or savings institution will be deemed
to include the assets of its U.S. and foreign branches.
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ASSET-BACKED SECURITIES
The Money Market Fund may purchase asset-backed securities.
Asset-backed securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in an underlying pool of
assets, or as debt instruments, which are also known as collateralized
obligations, and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in the Fund's experiencing difficulty in valuing
or liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Tax-Exempt Fund include debt
obligations issued by governmental entities to obtain funds for various public
purposes, including the construction of a wide range of public facilities, the
refunding of outstanding
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obligations, the payment of general operating expenses, and the extension of
loans to public institutions and facilities. Private activity bonds that are
issued by or on behalf of public authorities to finance various privately
operated facilities are "Municipal Securities" if the interest paid thereon is
exempt from regular federal income tax and not treated as a specific tax
preference item under the federal alternative minimum tax.
The two principal categories of Municipal Securities include "general
obligation" and "revenue" issues. The Tax-Exempt Fund's portfolio may also
include "moral obligation" issues, which are normally issued by special purpose
authorities. There are, of course, variations in the quality of Municipal
Securities, both within a particular category and between categories, and the
yields on Municipal Securities depend upon a variety of factors, including
general market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. The ratings of a
nationally recognized statistical rating organization ("Rating Agency"), such as
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Group
("S&P") and Fitch IBCA, Inc. ("Fitch IBCA"), described in the
Prospectuses for the Fund and in Appendix A hereto, represent such Rating
Agencies' opinion as to the quality of Municipal Securities. It should be
emphasized that these ratings are general and are not absolute standards of
quality. Municipal Securities with the same maturity, interest rate and rating
may have different yields. Municipal Securities of the same maturity and
interest rate with different ratings may have the same yield.
The payment of principal and interest on most securities purchased by
the Tax-Exempt Fund will depend upon the ability of the issuers to meet their
obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities and each multistate
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information and the Tax-Exempt Fund's
Prospectuses. The non-governmental user of facilities financed by private
activity bonds is also considered to be an "issuer." An issuer's obligations
under its Municipal Securities are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Code and laws, if any, which may be enacted by federal
or state legislatures extending the time for payment of principal or interest,
or both, or imposing other constraints upon enforcement of such obligations or
upon the ability of municipalities to levy taxes. The power or ability of an
issuer to meet its obligations for the payment of interest on and principal of
its Municipal Securities may be materially adversely affected by litigation or
other conditions.
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Among other instruments, the Tax-Exempt Fund may purchase short-term
general obligation notes, tax anticipation notes, bond anticipation notes,
revenue anticipation notes, tax-exempt commercial paper, construction loan notes
and other forms of short-term loans. Such instruments are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements or other revenues. In addition, the Tax-Exempt Fund may invest
in long-term tax-exempt instruments, such as municipal bonds and private
activity bonds to the extent consistent with the limitations set forth in the
Prospectuses for the Fund including applicable maturity restrictions.
Private activity bonds are or have been issued to obtain funds to
provide, among other things, privately operated housing facilities, pollution
control facilities, convention or trade show facilities, mass transit, airport,
port or parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. For example, under the Tax Reform Act of 1986,
interest on certain private activity bonds must be included in an investor's
federal alternative minimum taxable income, and corporate investors must include
all tax-exempt interest in their federal alternative minimum taxable income.
Galaxy cannot, of course, predict what legislation may be proposed in the future
regarding the income tax status of interest on Municipal Securities, or which
proposals, if any, might be enacted. Such proposals, while pending or if
enacted, might materially and adversely affect the availability of Municipal
Securities for investment by the Tax-Exempt Fund and the liquidity and value of
their respective portfolios. In such an event, the Fund would re-evaluate its
investment objective and policies and consider possible changes in its structure
or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the
Tax-Exempt Fund nor Fleet will review the proceedings relating to the issuance
of Municipal Securities or the bases for such opinions.
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WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
When a Fund agrees to purchase securities on a "when-issued" or
"delayed settlement" basis, the Fund's custodian will set aside cash or liquid
portfolio securities equal to the amount of the commitment in a separate
account. In the event of a decline in the value of the securities that the
custodian has set aside, the Fund may be required to place additional assets in
the separate account in order to ensure that the value of the account remains
equal to the amount of the Fund's commitment. A Fund's net assets may fluctuate
to a greater degree if it sets aside portfolio securities to cover such purchase
commitments than if it sets aside cash. Because the Fund sets aside liquid
assets to satisfy its purchase commitments in the manner described, its
liquidity and ability to manage its portfolio might be affected in the event its
commitments to purchase securities on a when-issued or delayed settlement basis
exceeded 25% of the value of its assets.
When a Fund engages in when-issued or delayed settlement transactions,
it relies on the seller to consummate the trade. Failure of the seller to do so
may result in the Fund's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous for a security. For purposes of determining
the average weighted maturity of a Fund's portfolio, the maturity of securities
purchased on a when-issued or delayed settlement basis is calculated from the
date of settlement of the purchase to the maturity date.
STAND-BY COMMITMENTS
The Tax-Exempt Fund may acquire "stand-by commitments" with respect to
Municipal Securities held by it. Under a stand-by commitment, a dealer agrees to
purchase from the Fund, at the Fund's option, specified Municipal Securities at
a specified price. Stand-by commitments are exercisable by the Fund at any time
before the maturity of the underlying Municipal Security, and may be sold,
transferred or assigned by the Fund only with respect to the underlying
instruments.
Although stand-by commitments are often available without the payment
of any direct or indirect consideration, if necessary or advisable, the Fund may
pay for a stand-by commitment either separately in cash or by paying a higher
price for securities acquired subject to the commitment. Where the Fund pays any
consideration directly or indirectly for a stand-by commitment, its cost will be
reflected as unrealized depreciation for the period during which the commitment
is held by the Fund.
The Fund will enter into stand-by commitments only with banks and
broker/dealers that present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by
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commitment, Fleet will review periodically the issuer's assets, liabilities,
contingent claims and other relevant financial information.
The Fund will acquire stand-by commitments solely to facilitate
liquidity and does not intend to exercise its rights thereunder for trading
purposes. Stand-by commitments will be valued at zero in determining the Fund's
net asset value.
REPURCHASE AGREEMENTS; REVERSE REPURCHASE AGREEMENTS; LOANS OF
PORTFOLIO SECURITIES
Each Fund, except the U.S. Treasury Fund, may enter into repurchase
agreements. The repurchase price under a repurchase agreement generally equals
the price paid by a Fund plus interest negotiated on the basis of current
short-term rates (which may be more or less than the rate on the securities
underlying the repurchase agreements). Securities subject to repurchase
agreements will be held by a Fund's custodian or sub-custodian in a segregated
account or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by a Fund under the Investment Company Act
of 1940, as amended, (the "1940 Act").
Each Fund, except the U.S. Treasury Fund and Institutional Government
Money Market Fund, may enter into reverse repurchase agreements. Whenever a Fund
enters into a reverse repurchase agreement, the Fund will place in a segregated
custodial account liquid assets such as cash or liquid securities equal to the
repurchase price (including accrued interest). The Fund will monitor the account
to ensure such equivalent values are maintained. Reverse repurchase agreements
are considered to be borrowings by a Fund under the 1940 Act.
A Fund that loans portfolio securities would continue to accrue
interest on the securities loaned and would also earn income on the loans. Any
cash collateral received by the Government Fund in connection with such loans
would be invested in short-term obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; cash collateral received by the
other Funds would be invested in high quality, short-term "money market"
instruments.
U.S. GOVERNMENT SECURITIES
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration,
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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.
The U.S. Treasury Fund will invest in those securities issued or
guaranteed as to principal and interest by the U.S. Government or by agencies or
instrumentalities thereof, the interest income from which, under current law,
generally will not be subject to state income tax by reason of federal law.
PORTFOLIO SECURITIES GENERALLY
Subsequent to its purchase by a Fund, an issue of securities may cease
to be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or Fleet, pursuant to guidelines
established by the Board, will promptly consider such an event in determining
whether the Fund involved should continue to hold the obligation. The Board of
Trustees or Fleet may determine that it is appropriate for the Fund to continue
to hold the obligation if retention is in accordance with the interests of the
Fund and applicable regulations of the Securities and Exchange Commission.
ADDITIONAL INVESTMENT LIMITATIONS
In addition to the investment limitations disclosed in their
Prospectuses, the Funds are subject to the following investment limitations,
which may be changed with respect to a particular Fund only by a vote of the
holders of a majority of such Fund's outstanding shares (as defined under
"Miscellaneous" in the Prospectuses).
Each Fund may not:
1. Purchase securities on margin (except such short-term credits
as may be necessary for the clearance of purchases), make
short sales of securities, or maintain a short position.
2. Act as an underwriter within the meaning of the
Securities Act of 1933; except insofar as a Fund might
be deemed to be an underwriter upon disposition of
restricted portfolio securities; and except to the
extent that the purchase of securities directly from
the issuer thereof in accordance with the Fund's
investment objective, policies and limitations may be
deemed to be underwriting.
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<PAGE>
3. Purchase or sell real estate; except that each taxable
Fund may purchase securities that are secured by real
estate, and the Money Market Fund may purchase
securities of issuers which deal in real estate or
interests therein; and except that the Tax-Exempt Fund
may invest in Municipal Securities secured by real
estate or interests therein; however the Funds will not
purchase or sell interests in real estate limited
partnerships.
4. Purchase or sell commodities or commodity contracts or
invest in oil, gas or other mineral exploration or
development programs or mineral leases.
5. Invest in or sell put options, call options, straddles,
spreads, or any combination thereof.
6. Invest in companies for the purpose of exercising
management or control.
7. Purchase securities of other investment companies
except in connection with a merger, consolidation,
reorganization or acquisition of assets; provided,
however, that the Tax-Exempt and Institutional
Government Money Market Funds may acquire such
securities in accordance with the 1940 Act; and
provided, further, that the Institutional Government
Money Market Fund may only invest up to 5% of its total
assets in shares of other investment companies which
are registered under the 1940 Act and which invest only
in securities that the Fund could acquire directly.
In addition to the above limitations:
1. The Money Market Fund may not purchase any securities other
than "money-market" instruments, some of which may be subject
to repurchase agreements, but the Fund may make
interest-bearing savings deposits not in excess of 5% of the
value of its total assets at the time of deposit and may make
time deposits.
2. The Government Fund may not purchase securities other
than obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, some of
which may be subject to repurchase agreements.
3. The Tax-Exempt Fund may not invest in industrial revenue bonds
where the payment of principal and interest are the
responsibility of a company (including its predecessors) with
less than three years of continuous operation.
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4. The Funds may not purchase foreign securities, except
that the Money Market Fund may purchase certificates of
deposit, bankers' acceptances, or other similar
obligations issued by U.S. branches of foreign banks or
foreign branches of U.S. banks.
NET ASSET VALUE
Galaxy uses the amortized cost method of valuation to value shares of
the Funds. In order to use the amortized cost method, the Funds comply with the
various quality and maturity restrictions specified in Rule 2a-7 ("Rule 2a-7")
promulgated under the 1940 Act. Pursuant to this method, a security is valued at
its initial acquisition cost, as adjusted for amortization of premium or
accretion of discount, regardless of the impact of fluctuating interest rates on
the market value of the security. Where it is not appropriate to value a
security by the amortized cost method, the security will be valued either by
market quotations or by fair value as determined by or under the direction of
Galaxy's Board of Trustees. This method may result in periods during which
value, as determined by amortized cost, is higher or lower than the price a Fund
would receive if it sold the security. The value of securities in each of these
Funds can be expected to vary inversely with changes in prevailing interest
rates. Thus, if interest rates have increased from the time a security was
purchased, such security, if sold, might be sold at a price less than its cost.
Similarly, if interest rates have declined from the time a security was
purchased, such security, if sold, might be sold at a price greater than its
purchase cost. In either instance, if the security is held to maturity, no gain
or loss will be realized.
The Funds invest only in instruments that meet the applicable quality
requirements of Rule 2a-7 and maintain a dollar-weighted average portfolio
maturity appropriate to their objective of maintaining a stable net asset value
per share, provided that none of the Funds will purchase any security deemed to
have a remaining maturity (as defined in the 1940 Act) of more than 397 days nor
maintain a dollar-weighted average portfolio maturity which exceeds 90 days.
Galaxy's Board of Trustees has established procedures reasonably designed,
taking into account current market conditions and each Fund's investment
objective, to stabilize the net asset value per share of each Fund for purposes
of sales and redemptions at $1.00. These procedures include review by the Board
of Trustees, at such intervals as it deems appropriate, to determine the extent,
if any, to which the net asset value per share of each Fund, calculated by using
available market quotations, deviates from $1.00 per share. In the event such
deviation exceeds one-half of one percent, the
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Board of Trustees will promptly consider what action, if any, should be
initiated. If the Board of Trustees believes that the extent of any deviation
from a Fund's $1.00 amortized cost price per share may result in material
dilution or other unfair results to new or existing investors, it has agreed to
take such steps as it considers appropriate to eliminate or reduce, to the
extent reasonably practicable, any such dilution or unfair results. These steps
may include selling portfolio instruments prior to maturity; shortening the
average portfolio maturity; withholding or reducing dividends; redeeming shares
in kind; reducing the number of a Fund's outstanding shares without monetary
consideration; or utilizing a net asset value per share determined by using
available market quotations.
DIVIDENDS
As stated, Galaxy uses its best efforts to maintain the net asset value
per share of each Fund at $1.00. As a result of a significant expense or
realized or unrealized loss incurred by any of the Funds, it is possible that a
Fund's net asset value per share may fall below $1.00. Should Galaxy incur or
anticipate any unusual or unexpected significant expense or loss which would
affect disproportionately the income of a Fund for a particular period, the
Board of Trustees would at that time consider whether to adhere to the present
dividend policy with respect to the Funds or to revise it in order to ameliorate
to the extent possible the disproportionate effect of such expense or loss on
the income of the Fund experiencing such effect. Such expense or loss may result
in a shareholder's receiving no dividends for the period in which it holds
shares of a Fund and in its receiving upon redemption a price per share lower
than that which it paid.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by First Data
Distributors, Inc. ("FD Distributors"), and FD Distributors has agreed to use
appropriate efforts to solicit all purchase orders. As described in the
applicable Prospectuses, Retail A Shares of the Money Market, Government,
Tax-Exempt and U.S. Treasury Funds, Retail B Shares of the Money Market Fund and
shares of the Institutional Government Money Market Fund, are sold to customers
("Customers") of FIS Securities, Inc., Fleet Brokerage Securities, Inc., Fleet
Securities, Inc., Fleet Enterprises, Inc., Fleet Financial Group, Inc., its
affiliates, their correspondent banks, and other qualified banks, savings and
loan associations and broker/dealers ("Institutions"). As described in the
applicable Prospectus, Retail A Shares of the Money Market, Government,
Tax-Exempt and U.S. Treasury Funds and Retail B Shares of the Money Market Fund
may also be sold to
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individuals, corporations or other entities, who submit a purchase application
to Galaxy, purchasing either for their own accounts or for the accounts of
others ("Direct Investors"). As described in the applicable Prospectuses, Trust
Shares in the Money Market, Government, Tax-Exempt and U.S. Treasury Funds are
offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and with respect to each of these Funds except the Tax-Exempt Fund, to
participants in employer-sponsored defined contribution plans.
Retail B Shares of the Money Market Fund are subject to a maximum
contingent deferred sales charge of 5.00% if such Shares are sold within six
years of the date of purchase.
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy may
make payment wholly or partly in securities or other property. Such redemptions
will only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property.
Galaxy may suspend the right of redemption or postpone the date of
payment for shares for more than seven days during any period when (a) trading
in the markets the Funds normally utilize is restricted, or an emergency, as
defined by the rules and regulations of the Securities and Exchange Commission
(the "SEC") exists making disposal of a Fund's investments or determination of
its net asset value not reasonably practicable; (b) the New York Stock Exchange
is closed (other than customary weekend and holiday closings); or (c) the SEC by
order has permitted such suspension.
Galaxy may require any information reasonably necessary to ensure that
a redemption has been duly authorized.
DESCRIPTION OF SHARES
Galaxy is a Massachusetts business trust. Galaxy's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares and to
classify or reclassify any unissued shares into one or more additional classes
by setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. Pursuant to
such authority, the Board of Trustees has authorized the issuance of
twenty-seven classes of shares, each representing interests in one of
twenty-seven separate investment portfolios: Money Market Fund, Government Fund,
U.S. Treasury Fund, Tax-Exempt Fund, Connecticut
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Municipal Money Market Fund, Massachusetts Municipal Money Market Fund,
Institutional Government Money Market Fund, Equity Value Fund, Equity Growth
Fund, Equity Income Fund, International Equity Fund, Small Company Equity
Fund, MidCap Equity Fund, Asset Allocation Fund, Small Cap Value Fund, Growth
and Income Fund, 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 Money
Market, Government, Tax-Exempt and U.S. Treasury Funds (plus a third series
of shares, i.e. Retail B Shares, of the Money Market Fund) are offered under
separate Prospectuses to different categories of investors. The Institutional
Government Money Market Fund offers only one series of shares.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Except as noted below with respect to the Shareholder Services
Plan (which is currently applicable only to Retail A Shares of a Fund), the
Distribution and Services Plan for Retail B Shares of the Money Market Fund, and
differing transfer agency fees, Trust Shares, Retail A Shares and Retail B
Shares bear pro rata the same expenses and are entitled equally to a Fund's
dividends and distributions. In the event of a liquidation or dissolution of
Galaxy or an individual Fund, shareholders of a particular Fund would be
entitled to receive the assets available for distribution belonging to such
Fund, and a proportionate distribution, based upon the relative asset values of
Galaxy's respective Funds, of any general assets of Galaxy not belonging to any
particular Fund, which are available for distribution. Shareholders of a Fund
are entitled to participate in the net distributable assets of the Fund involved
in liquidation, based on the number of shares of the Fund held by each
shareholder, except that currently a Fund's Retail A Shares would be solely
responsible for the Fund's payments to Service Organizations under the
Shareholder Services Plan and the Money Market Fund's Retail B Shares would be
solely responsible for the Fund's payments to FD Distributors and to Service
Organizations under the Distribution and Services Plan.
Holders of all outstanding shares of a particular Fund will vote
together in the aggregate and not by series on all matters, except that only
Retail A Shares and Trust Shares of a Fund will be entitled to vote on matters
submitted to a vote of shareholders pertaining to Galaxy's Shareholder Services
Plan for Retail A and Trust Shares and only Retail B Shares of the Money Market
Fund will be entitled to vote on matters submitted to a
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vote of shareholders pertaining to Galaxy's Distribution and Services Plan for
Retail B Shares. Further, shareholders of all of the Funds, as well as those of
any other investment portfolio now or hereafter offered by Galaxy, will vote
together in the aggregate and not separately on a Fund-by-Fund basis, except as
otherwise required by law or when permitted by the Board of Trustees. Rule 18f-2
under the 1940 Act provides that any matter required to be submitted to the
holders of the outstanding voting securities of an investment company such as
Galaxy shall not be deemed to have been effectively acted upon unless approved
by the holders of a majority of the outstanding shares of each Fund affected by
the matter. A particular Fund is deemed to be affected by a matter unless it is
clear that the interests of each Fund in the matter are substantially identical
or that the matter does not affect any interest of the Fund. Under the Rule, the
approval of an investment advisory agreement or any change in an investment
objective or fundamental investment policy would be effectively acted upon with
respect to a Fund only if approved by a majority of the outstanding shares of
such Fund (irrespective of series designation). However, the Rule also provides
that the ratification of the appointment of independent public accountants, the
approval of principal underwriting contracts, and the election of trustees may
be effectively acted upon by shareholders of Galaxy voting without regard to
class or series.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and, accordingly, the holders of more than 50% in the aggregate of Galaxy's
outstanding shares may elect all of the trustees, irrespective of the votes of
other shareholders.
Galaxy does not intend to hold annual shareholder meetings except as
may be required by the 1940 Act. Galaxy's Declaration of Trust provides that a
meeting of shareholders shall be called by the Board of Trustees upon a written
request of shareholders owning at least 10% of the outstanding shares of Galaxy
entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging
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to another Fund of Galaxy and, in connection therewith, to cause all outstanding
shares of any Fund to be redeemed at their net asset value or converted into
shares of another class of Galaxy's shares at the net asset value. In the event
that shares are redeemed in cash at their net asset value, a shareholder may
receive in payment for such shares, due to changes in the market prices of the
Fund's portfolio securities, an amount that is more or less than the original
investment. The exercise of such authority by the Board of Trustees will be
subject to the provisions of the 1940 Act, and the Board of Trustees will not
take any action described in this paragraph unless the proposed action has been
disclosed in writing to the Fund's shareholders at least 30 days prior thereto.
ADDITIONAL INFORMATION CONCERNING TAXES
IN GENERAL
The following summarizes certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Funds' Prospectuses. No attempt is made to present a detailed explanation of
the tax treatment of the Funds or their shareholders, and the discussion here
and in the Prospectuses is not intended as a substitute for careful tax
planning. Potential investors should consult their tax advisers with specific
reference to their own tax situation.
Each Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended, (the "Code"), and each Fund intends to qualify
as a "regulated investment company" under the Code. By following this policy,
each Fund expects to eliminate or reduce to a nominal amount the federal income
taxes to which it may be subject. If for any taxable year a Fund does not
qualify for the special federal tax treatment afforded regulated investment
companies, all of the Fund's taxable income would be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In such
event, a Fund's distributions to shareholders (including amounts derived from
interest on Municipal Securities) would be taxable as ordinary income, to the
extent of the current and accumulated earnings and profits of the Fund, and
would be eligible for the dividends received deduction in the case of corporate
shareholders.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income (the "Distribution Requirement"). In addition,
each Fund must satisfy certain requirements with
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<PAGE>
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 (20% or 28% rate gains depending upon
the underlying Fund's holding period for the assets the sale of which
generated the 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 18 months) or 28% (for gains on capital assets
held more than 12 months, but not more than 18 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).
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<PAGE>
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 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 backup withholding when required to do so or that he or
she is an "exempt recipient."
TAX-EXEMPT FUND
As stated in the Prospectuses for the Tax-Exempt Fund, an investment
in the Fund is not intended to constitute a balanced investment program.
Shares of the Fund would not be suitable for tax-exempt institutions and may
not be suitable for retirement plans qualified under Section 401 of the Code,
H.R. 10 plans and individual retirement accounts because such plans and
accounts are generally tax-exempt and, therefore, not only would the
shareholder not gain any additional benefit from the Fund's dividends being
tax-exempt, but such dividends would be ultimately taxable to the
beneficiaries when distributed.
In order for the Tax-Exempt Fund to pay exempt-interest dividends for
any taxable year, at the close of each taxable quarter, at least 50% of the
aggregate value of the Fund's portfolio must consist of exempt-interest
obligations. Within 60 days after the close of its taxable year, the Fund will
notify its shareholders of the portion of the dividends paid by the Fund which
constitutes exempt-interest dividends with respect to such taxable year.
However, the aggregate amount of dividends so designated by the Fund cannot
exceed the excess of the amount of interest exempt from tax under Section 103 of
the Code received by the Fund over any amounts disallowed as deductions under
Sections 265 and 171(a)(2) of the Code. The percentage of total dividends paid
by the Fund with respect to any taxable year that qualifies as federal
exempt-interest dividends will be the same for all shareholders receiving
dividends from the Fund for such year.
Shareholders should note that, upon the sale or exchange of Fund
shares, if the shareholder has not held such shares for more than six months,
any loss on the sale or exchange of those
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<PAGE>
shares will be disallowed to the extent of the exempt dividends received with
respect to the shares.
STATE TAXATION
Depending upon the extent of Galaxy's activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, each Fund may be subject to the tax laws of such states or
localities. In addition, in those states and localities that have income tax
laws, the treatment of a Fund and its shareholders under such laws may differ
from their treatment under federal income tax laws. Under state or local law,
distributions of net investment income may be taxable to shareholders as
dividend income even though a substantial portion of such distributions may be
derived from interest on U.S. Government obligations which, if realized
directly, would be exempt from such income taxes. Shareholders are advised to
consult their tax advisers concerning the application of state and local taxes.
TRUSTEES AND OFFICERS
The trustees and executive officers of Galaxy, their addresses,
principal occupations during the past five years, and other affiliations are as
follows:
<TABLE>
<CAPTION>
Positions Principal Occupations
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ------------ ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & President & Director, Vicks Lithograph & Printing
Vicks Lithograph & Trustee Corporation (book manufacturing and commercial
Printing Corporation printing); Director, Utica Fire Insurance Company;
Commercial Drive Trustee, Savings Bank of Utica; Director, Monitor
P.O. Box 270 Life Insurance Company; Director, Commercial
Yorkville, NY 13495 Travelers Mutual Insurance Company; Trustee, The
Age 64 Galaxy VIP Fund; Trustee, Galaxy Fund II.
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupations
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,
Hasbro, Inc. Treasurer & Inc. (toy and game manufacturer); Trustee,
200 Narragansett Trustee The Galaxy VIP Fund; Trustee, Galaxy Fund II.
Park Drive
Pawtucket, RI 02862
Age 53
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day Travel,
of Minnesota Inc.; Trustee, Religious Communities Trust;
Winona, MN 55987 Trustee, The Galaxy VIP Fund; Trustee,
Age 57 Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast
10725 Quail Covey Road services); Director/Trustee, Lexington
Boynton Beach, FL Funds; Chairman, Executive Committee,
33436 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,
The Astra Ventures, Incorporated (land development); President,
Inc. The Astra Ventures, Incorporated
One Citizens Plaza (previously, Buffinton Box Company-
Providence, RI 02903 manufacturer of cardboard boxes);
Age 56 Commissioner, Rhode Island Investment
Commission; Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
</TABLE>
-18-
<PAGE>
<TABLE>
Positions Principal Occupations
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 President and
2468 Ohio Street Director, Acadia Management Company
Bangor, ME 04401 (investment services); Director, Essex
Age 66 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 Drinker Biddle &
Philadelphia National Reath LLP, Philadelphia, Pennsylvania.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age 54
Jylanne Dunne Vice Vice President, First Data Investor Services
First Data Investor President Group, Inc., 1990 to present.
Services Group, Inc. and
4400 Computer Drive Assistant
Westboro, MA 01581 Treasurer
Age 38
</TABLE>
- -------------------------
(1) An interested person within the definition set forth in
Section 2(a)(19) of the 1940 Act.
Each trustee receives an annual aggregate fee of $29,000 for his
services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy VIP") and Galaxy
Fund II ("Galaxy II") (collectively, the "Trusts"), plus an additional $2,250
for each in-person Galaxy Board meeting attended and $1,500 for each in-person
Galaxy VIP or Galaxy II Board meeting attended not held concurrently with an
in-person Galaxy meeting, and is reimbursed for expenses incurred in attending
all meetings. Each trustee also receives $500 for each telephone Board meeting
in which the trustee participates, $1,000 for each in-person Board committee
meeting attended and $500 for each telephone Board committee
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<PAGE>
meeting in which the trustee participates. The Chairman of the Boards of the
Trusts is entitled to an additional annual aggregate fee in the amount of
$4,000, and the President and Treasurer of the Trusts is entitled to an
additional annual aggregate fee of $2,500 for their services in these
respective capacities. The foregoing trustees' and officers' fees are
allocated among the portfolios of the Trusts based on their relative net
assets.
Effective March 1, 1996, each trustee became entitled to participate
in The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred
Compensation Plans (the "Original Plans"). Effective January 1, 1997, the
Original Plans were merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy
Fund II Deferred Compensation Plan (together with the Original Plans, the
"Plan"). Under the Plan, a trustee may elect to have his deferred fees
treated as if they had been invested by the Trusts in the shares of one or
more portfolios in the Trusts, or other types of 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.
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<PAGE>
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits from Galaxy
Aggregate Accrued as and Fund
Name of Compensation Part of Fund Complex*Paid
Person/Position from Galaxy Expenses to Trustees
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <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 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.
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<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.
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<PAGE>
Fleet has also agreed to pay all expenses incurred by it in connection with its
activities under the advisory agreement other than the cost of securities
(including brokerage commissions) purchased for the Funds. See "Expenses" in the
Prospectuses.
For the services provided and expenses assumed by Fleet, for the
fiscal years ended October 31, 1995, October 31, 1996 and October 31, 1997,
Galaxy paid Fleet advisory fees (net of fee waivers) of $3,429,914,
$6,802,258 and $9,458,596, respectively, with respect to the Money Market
Fund; and $3,572,327, $3,790,727 and $4,214,959, respectively, with respect
to the Government Fund. For the same periods, Fleet waived advisory fees of
$142,311, $543,180 and $922,657, respectively, with respect to the Money
Market Fund; and $63,124, $113,057 and $173,566, respectively, with respect
to the Government Fund.
For the fiscal years ended October 31, 1996 and October 31, 1997,
Fleet reimbursed expenses in the amounts of $85,430 and $17, respectively,
with respect to the Money Market Fund and $13,712 and $542, respectively,
with respect to the Government Fund, respectively.
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Galaxy paid Fleet advisory fees (net of expense
reimbursements) of $1,138,568, $1,270,800 and $1,275,727, respectively, with
respect to the Tax-Exempt Fund; and $2,126,647, $2,715,959 and $3,439,391,
respectively, with respect to the U.S. Treasury Fund.
For the same periods, Fleet reimbursed expenses in the amounts of
$36,228, $16,727 and $15,751, respectively, with respect to the Tax-Exempt
Fund; and $17,558, $829 and $25,108, respectively, with respect to the U.S.
Treasury Fund.
For the fiscal years ended October 31, 1995, October 31, 1996, and
October 31, 1997, Fleet received advisory fees (net of fee waivers) of
$387,361, $487,246 and $350,902, respectively, with respect to the
Institutional Government Money Market Fund (formerly known as the
Institutional Treasury Money Market Fund). For the same periods, Fleet waived
advisory fees of $387,360, $484,786 and $350,901, respectively, with respect
to the Institutional Government Money Market Fund.
For the fiscal years ended October 31, 1996 and October 31, 1997,
Fleet reimbursed expenses in the amount of $31,826 and $18,206, respectively,
with respect to the Institutional Government Money Market Fund.
The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its duties under the advisory agreement,
except a loss resulting
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<PAGE>
from a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of Fleet in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder. Unless sooner
terminated, the advisory agreement will continue in effect with respect to a
particular Fund until August 10, 1998, and thereafter from year to year as long
as such continuance is approved at least annually (i) by the vote of a majority
of trustees who are not parties to such advisory agreement or interested persons
(as defined in the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval; and (ii) by Galaxy's Board of
Trustees, or by a vote of a majority of the outstanding shares of such Fund. The
term "majority of the outstanding shares of such Fund" means, with respect to
approval of an advisory agreement, the vote of the lesser of (i) 67% or more of
the shares of the Fund present at a meeting, if the holders of more than 50% of
the outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the outstanding shares of the Fund. The advisory agreement may
be terminated by Galaxy or by Fleet on sixty days' written notice, and will
terminate immediately in the event of its assignment.
Fleet Bank, an affiliate of Fleet, is paid a fee for sub-account
and administrative services performed with respect to Trust Shares of the
Funds (other than the Tax-Exempt Fund) held by defined contribution plans.
Pursuant to an agreement between Fleet Bank and Investor Services Group,
Fleet Bank is paid $21.00 per year for each defined contribution plan
participant account. As of October 31, 1997, there were approximately 10,649
defined contribution plan participant sub-accounts invested in Trust Shares
of the Funds; thus it is expected that Fleet Bank will receive annually
approximately $223,524 for sub-account services. Investor Services Group
bears this expense directly, and shareholders of Trust Shares of the Funds,
except the Tax-Exempt Fund, bear this expense indirectly through fees paid to
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 Securities and Exchange
Commission, federal and state tax returns, and filings with state securities
commissions, arranges for and bears the cost of processing share purchase and
redemption orders, maintains the Funds' financial accounts and records, and
generally assists in all aspects of Galaxy's operations.
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<PAGE>
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 years ended October 31, 1995, October 31, 1996 and
October 31, 1997, Investor Services Group and/or its predecessors received
administration fees of $763,921, $1,556,983 and $2,118,433, respectively,
with respect to the Money Market Fund; $799,533, $828,248 and $895,995,
respectively, with respect to the Government Fund; $257,052, $273,302 and
$263,643, respectively, with respect to the Tax-Exempt Fund; and $469,163,
$577,419 and $720,691, respectively, with respect to the U.S. Treasury Fund.
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 $125,448, $243,008 and $173,799,
respectively, with respect to the Institutional Government Money Market Fund
(formerly the Institutional Treasury Money Market Fund) and waived
administration fees of $213,577, $174,704 and $142,012, respectively, with
respect to such Fund.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan") serves as custodian to the
Funds pursuant to a Global Custody Agreement. Under its custody agreement, Chase
Manhattan has agreed to: (i) maintain a separate account or accounts in the name
of each Fund; (ii) hold and disburse portfolio securities on account of each
Fund; (iii) collect and make disbursements of money on behalf of each Fund; (iv)
collect and receive all income and other payments and distributions on account
of each Fund's portfolio securities; (v) respond to correspondence from security
brokers and others relating to its duties; and (vi) make periodic reports to the
Board of Trustees concerning the Funds' operations. Chase Manhattan is
authorized to select one or more banks or trust companies to serve as
sub-custodian for the Funds, provided that Chase Manhattan shall remain
responsible for the performance of all of its duties under the custodian
agreement and shall be liable to the Funds for any loss which shall occur as a
result of the failure of a sub-custodian to exercise reasonable care with
respect to the safekeeping of the Funds' assets. The assets of the Funds are
held under bank custodianship in compliance with the 1940 Act.
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
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<PAGE>
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 Funds are generally traded in
the over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
Transactions in the over-the-counter market are generally principal
transactions with dealers and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over-the-counter
transactions, Fleet will normally deal directly with the dealers who make a
market in the securities involved except in those circumstances where better
prices and execution are available elsewhere or as described below.
The Funds do not intend to seek profits from short-term trading. Their
annual portfolio turnover will be relatively high, but since brokerage
commissions are normally not paid on money market instruments, it should not
have a material effect on the net income of any of these Funds.
In purchasing or selling securities for the Funds, Fleet will seek to
obtain the best net price and the most favorable execution of orders. To the
extent that the execution and price offered by more than one broker/dealer are
comparable, Fleet may effect transactions in portfolio securities with
broker/dealers who provide research, advice or other services such as market
investment literature.
Except as permitted by the SEC or applicable law, the Funds will not
acquire portfolio securities from, make savings deposits in, enter into
repurchase or reverse repurchase agreements with, or sell securities to,
Fleet, Investor Services Group, or their affiliates, and will not give
preference to affiliates and correspondent banks of Fleet with respect to
such transactions.
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<PAGE>
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 the fiscal year ended October 31, 1997, the Galaxy money market
Fund held commercial paper of J.P. Morgan & Co. Inc., (1) (5.48%, 11/7/97)
valued at $27,196,047; (2) (5.50%, 11/18/97) valued at $34,909,097 and (3)
(15.50%, 12/8/97) valued at $34,802,153. J.P. Morgan & Co. Inc. is considered
a "regular broker or dealer" 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. When a purchase or sale of
the same security is made at substantially the same time on behalf of a Fund,
another portfolio of Galaxy, and/or another investment company or account, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which Fleet believes to be equitable to the Fund and such
other portfolio, investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or sold by such Fund. To the extent
permitted by law, Fleet may aggregate the securities to be sold or purchased for
a Fund with those to be sold or purchased for Galaxy's other Funds or
portfolios, or other investment companies or accounts in order to obtain best
execution.
SHAREHOLDER SERVICES PLAN
As stated in the Prospectuses for each Fund, except the
Institutional Government Money Market Fund, Galaxy may enter into agreements
("Servicing Agreements") pursuant to its Shareholder Services Plan ("Services
Plan") with Institutions and other organizations (including Fleet Bank and
its affiliates) (collectively, "Service Organizations") pursuant to which
Service Organizations will be compensated by Galaxy for 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 (other than
the Institutional Government Money Market Fund). As of October 31, 1997,
Galaxy had entered into Servicing Agreements only with Fleet Bank and
affiliates.
Each Servicing Agreement between Galaxy and a Service Organization
relating to the Services Plan requires that, with respect to those Funds which
declare dividends on a daily basis, the Service Organization agree to waive a
portion of the servicing fee payable to it under the Services Plan to the extent
necessary to ensure that the fees required to be accrued with respect to the
Retail A Shares of such Funds on any day do not exceed the income to be accrued
to such Retail A Shares on that day.
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, payments to Service Organizations totaled $451,861, $765,457
and $1,430,359, respectively, with
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<PAGE>
respect to Retail A Shares of the Money Market Fund; $269,314, $320,372 and
$346,517, respectively, with respect to Retail A Shares of the Government
Fund; $115,812, $125,962 and $133,048, respectively, with respect to Retail A
Shares of the Tax-Exempt Fund; and $261,774, $348,084 and $507,400,
respectively, with respect to Retail A Shares of the U.S. Treasury Fund.
Galaxy's Servicing Agreements are governed by the Services Plan that
has been adopted by Galaxy's Board of Trustees in connection with the offering
of Retail A Shares of each Fund. Pursuant to the Services Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid under
the Servicing Agreements and the purposes for which the expenditures were made.
In addition, the arrangements with Service Organizations must be approved
annually by a majority of Galaxy's trustees, including a majority of the
trustees who are not "interested persons" of Galaxy as defined in the 1940 Act
and who have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan (the "12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to Retail B Shares of the
Money Market Fund. The 12b-1 Plan is described in the applicable Prospectus.
Under the 12b-1 Plan, payments by Galaxy (i) for distribution expenses
may not exceed .65% (annualized) of the average daily net assets attributable to
the Money Market Fund's outstanding Retail B Shares, (ii) to an Institution for
shareholder liaison services and/or administrative support services may not
exceed .25% (annualized) and .25% (annualized), respectively, of the average
daily net assets attributable to such Fund's outstanding Retail B Shares which
are owned of record
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<PAGE>
or beneficially by that Institution's Customers for whom the Institution is the
dealer of record or shareholder of record or with whom it has a servicing
relationship. As of the date of this Statement of Additional Information, Galaxy
intends to limit the Money Market Fund's payments for shareholder liaison and
administrative support services under the 12b-1 Plan to an aggregate fee of not
more than .10% (on an annualized basis) of the average daily net asset value of
Retail B Shares owned of record or beneficially by Customers of Institutions.
Payments for distribution expenses under the 12b-1 Plan are subject to
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule defines distribution
expenses to include the cost of "any activity which is primarily intended to
result in the sale of Galaxy shares." The Rule provides, among other things,
that an investment company may bear such expenses only pursuant to a plan
adopted in accordance with the Rule. In accordance with the Rule, the 12b-1 Plan
provides that a report of the amounts expended under the 12b-1 Plan, and the
purposes for which such expenditures were incurred, will be made to the Board of
Trustees for its review at least quarterly. The 12b-1 Plan provides that it may
not be amended to increase materially the costs which Retail B Shares of the
Money Market Fund may bear for distribution pursuant to the 12b-1 Plan without
shareholder approval, and that any other type of material amendment must be
approved by a majority of the Board of Trustees, and by a majority of the
trustees who are neither "interested persons" (as defined in the 1940 Act) of
Galaxy nor have any direct or indirect financial interest in the operation of
the 12b-1 Plan or in any related agreements, by vote cast in person at a meeting
called for the purpose of considering such amendments (the "Disinterested
Trustees").
For the period March 6, 1997 (date of initial public offering)
through October 31, 1997, the Money Market Fund bore the following
distribution and shareholder servicing fees under the 12b-1 Plan: $1,869 in
distribution fees and $288 in shareholder servicing fees. During this period,
all amounts paid under the 12b-1 Plan were attributable to payments to
broker-dealers.
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Money Market Fund and holders of
Retail B Shares. The 12b-1 Plan is subject to annual reapproval by a majority of
the Disinterested Trustees and is terminable at any time with respect to the
Fund by a vote of a majority of such Trustees or by vote of the holders of a
majority of the Retail B Shares of the Fund. Any agreement entered into pursuant
to the 12b-1 Plan with a Service Organization is terminable with respect to the
Fund without penalty, at any time, by vote of a majority of the Disinterested
Trustees, by vote of the holders of a majority of the Retail B
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<PAGE>
Shares of the Fund, by FD Distributors or by the Service Organization. An
agreement will also terminate automatically in the event of its assignment.
As long as the 12b-1 Plan is in effect, the nomination of the trustees
who are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of such Disinterested Trustees.
DISTRIBUTOR
First Data Distributors, Inc., a wholly-owned subsidiary of 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, 1998, and thereafter will
continue from year to year upon annual approval by Galaxy's Board of Trustees,
or by the vote of a majority of the outstanding shares of Galaxy and by the vote
of a majority of the Board of Trustees of Galaxy who are not parties to the
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Agreement will terminate
in the event of its assignment, as defined in the 1940 Act.
FD Distributors is entitled to the payment of contingent deferred sales
charges upon the redemption of Retail B Shares of the Money Market Fund. For the
period March 6, 1997 (date of initial public offering) through October 31, 1997,
FD Distributors received contingent deferred sales charges of $655 in
connection with Retail B Share redemptions in the Money Market Fund.
The following table shows all sales charges, commissions and other
compensation received by FD Distributors directly or indirectly from the Funds
during the fiscal year ended October 31, 1997:
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<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> <C>
Money Market $ 655 $ 655 $ 0 $1,337,212
Government N/A N/A $ 0 $ 343,820
Tax-Exempt N/A N/A $ 0 $ 129,685
U.S. Treasury N/A N/A $ 0 $ 489,182
Institutional
Government
Money Market* N/A N/A $ 0 N/A
</TABLE>
- ----------------------
* Formerly known as the Institutional Treasury Money Market Fund.
(1) Represents amounts received from front-end sales charges on Retail A
Shares and commissions received in connection with sales of Retail B
Shares.
(2) Represents amounts received from contingent deferred sales charges on
Retail B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Retail B Shares.
(3) Represents payments made under the Shareholder Services Plan and
Distribution and Services Plan during the fiscal year ended October 31,
1997, which includes fees accrued in the fiscal year ended October 31,
1996, which were paid in 1997 (see "Shareholder Services Plan" and
"Distribution and Services Plan" above).
AUDITORS
Coopers & Lybrand L.L.P., 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 their 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
Coopers & Lybrand L.L.P. for the periods included in their report thereon
which appears therein.
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary
of Galaxy, is a partner), 1345 Chestnut Street, Philadelphia, Pennsylvania
19107, are counsel to Galaxy and will pass upon certain legal matters on its
behalf.
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<PAGE>
PERFORMANCE AND YIELD INFORMATION
The standardized annualized seven-day yields for the Money Market,
Government, Tax-Exempt, U.S. Treasury and Institutional Government Money Market
Funds are computed by: (1) determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account in a Fund having a
balance of one share at the beginning of a seven-day period, for which the yield
is to be quoted, (2) dividing the net change in account value by the value of
the account at the beginning of the base period to obtain the base period
return, and (3) annualizing the results (i.e., multiplying the base period
return by (365/7)). The net change in the value of the account in each Fund
includes the value of additional shares purchased with dividends from the
original share and dividends declared on both the original share and any such
additional shares, and all fees that are charged by a Fund to all shareholder
accounts in proportion to the length of the base period, other than
non-recurring account and sales charges. For any account fees that vary with the
size of the account, the amount of fees charged is computed with respect to the
Fund's mean (or median) account size. The capital changes to be excluded from
the calculation of the net change in account value are realized gains and losses
from the sale of securities and unrealized appreciation and depreciation. The
effective compound yield quotation for each Fund is computed by adding 1 to the
unannualized base period return (calculated as described above), raising the sum
to a power equal to 365 divided by 7, and subtracting 1 from the result.
The current yield for the Money Market, Government, Tax-Exempt, U.S.
Treasury and Institutional Government Money Market Funds may be obtained by
calling FD Distributors at the telephone numbers provided on the cover page of
the Prospectus. For the seven-day period ended October 31, 1997, the annualized
yields for Retail A Shares of the Money Market, Government, Tax-Exempt and U.S.
Treasury Funds were 4.93%, 4.84%, 2.99% and 4.64%, respectively, and the
effective yields for Retail A Shares of such Funds for the same period were
5.05%, 4.95%, 3.03% and 4.75%, respectively. For the seven-day period ended
October 31, 1997, the annualized and effective yields for the Institutional
Government Money Market Fund (formerly known as the Institutional Treasury Money
Market Fund) were 4.91% and 5.03%, respectively.
For the seven-day period ended October 31, 1997, the annualized yields
for Trust Shares of the Money Market, Government, Tax-Exempt and U.S. Treasury
Funds were 5.12%, 5.04%, 3.13% and 4.81%, respectively, and the effective
yields of Trust Shares of such Funds were 5.25%, 5.16%, 3.18% and 4.93%,
respectively.
For the seven-day period ended October 31, 1997, the annualized yield
and effective yield for the Retail B Shares of the Money Market Fund were 4.24%
and 4.33%, respectively.
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<PAGE>
In addition, the Tax-Exempt Fund may calculate a "tax equivalent
yield." The tax equivalent yield for the Fund is computed by dividing that
portion of the Fund's yield which is tax-exempt by one minus a stated income tax
rate and adding the product to that portion, if any, of the Fund's computed
yield that is not tax-exempt. Tax equivalent yields assume the payment of
Federal income taxes at a rate of 31%. Based on the foregoing calculation, the
tax equivalent yield of the Tax-Exempt Fund for the seven day period ended
October 31, 1997 for Retail A Shares was 4.33%. The tax-equivalent yield for
Trust Shares of the Tax-Exempt Fund for the seven-day period ended October 31,
1997 was 4.54%.
In addition, the U.S. Treasury Fund may calculate a "state flow through
yield," which shows the level of taxable yield needed to produce an after-tax
yield equivalent to a particular state's tax-exempt yield achieved by the Fund.
The "state flow through yield" refers to that portion of income that is derived
from interest income on direct obligations of the U.S. Government, its agencies
or instrumentalities and which qualifies for exemption from state taxes. The
yield calculation assumes that 100% of the interest income is exempt from state
personal income tax. A "state flow through yield" is computed by dividing that
portion of the Fund's yield which is tax-exempt by one minus a stated income tax
rate. For illustration purposes, state flow through yields assume the payment of
state income taxes at the rates of 3%, 7% or 11%. Based on the foregoing
calculation and assuming state income tax rates of 3%, 7% and 11%, the state
flow through yields for the seven-day period ended October 31, 1997 for Retail A
Shares of the U.S. Treasury Fund were 4.78%, 4.99% and 5.21%, respectively. The
state flow through yields for the seven-day period ended October 31, 1997 for
Trust Shares of the U.S. Treasury Fund were 4.96%, 5.17% and 5.40%,
respectively.
During the fiscal year ended October 31, 1997, the Institutional
Government Money Market Fund (known during such period as the Institutional
Treasury Money Market Fund) was eligible to calculate a state flow through
yield. The state flow through yields assuming the payment of state income
taxes at the rates of 3%, 7% and 11% for the seven-day period ended October 31,
1997 were 5.06%, 5.28% and 5.52%, respectively, with respect to the Fund.
MISCELLANEOUS
As used in the Prospectuses, "assets belonging to a particular series
of a Fund" means the consideration received by Galaxy upon the issuance of
shares in that particular series of the Fund, together with all income,
earnings, profits, and proceeds derived from the investment thereof, including
any proceeds from the sale of such investments, any funds or payments
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<PAGE>
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 Avenue, Rochester, New York
14638 (29.85%); Asset Allocation Fund -- Norstar Trust
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<PAGE>
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
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<PAGE>
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%).
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 --
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<PAGE>
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 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 fiscal year ended October 31, 1997 have been audited by
Galaxy's independent accountants, Coopers & Lybrand L.L.P., 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.
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<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"), and Thomson BankWatch ("Thomson").
CORPORATE AND TAX-EXEMPT BOND RATINGS
The four highest ratings of D&P for tax-exempt and corporate
fixed-income securities are AAA, AA, A and BBB. Securities rated AAA are of the
highest credit quality. The risk factors are considered to be negligible, being
only slightly more than for risk-free U.S. Treasury debt. Securities rated AA
are of high credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions. Securities
that are rated "A" have protection factors that are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress. Securities that are rated "BBB" have below average protection factors
but are still considered sufficient for prudent investment. Considerable
variability in risk is present during economic cycles. The AA, A and BBB ratings
may be modified by an addition of a plus (+) or minus (-) sign to show relative
standing within these major rating categories.
The four highest ratings of Fitch 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
A-1
<PAGE>
conditions and circumstances, however, are more likely to have an adverse impact
on these bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
The four highest ratings of S&P for tax-exempt and corporate bonds are
AAA, AA, A and BBB. Bonds rated AAA bear the highest rating assigned by S&P to a
debt obligation and the AAA rating indicates in its opinion an extremely strong
capacity to pay interest and repay principal. Bonds rated AA by S&P are judged
by it to have a very strong capacity to pay interest and repay principal, and
they differ from AAA issues only in small degree. Bonds rated A are considered
to have a strong capacity to pay interest and repay principal although they are
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than bonds of a higher rated category. Bonds rated BBB are
regarded as having an adequate capacity to pay interest and repay principal.
Whereas such bonds normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than for higher rated categories. The AA, A and BBB ratings may be modified by
an addition of a plus (+) or minus (-) sign to show relative standing within
these major rating categories.
The four highest ratings of Moody's for tax-exempt and corporate bonds
are Aaa, Aa, A and Baa. Tax-exempt and corporate bonds rated Aaa are judged to
be of the "best quality." The rating of Aa is assigned to bonds which are of
"high quality by all standards." Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large or fluctuations of protective elements
may be of greater amplitude or there may be other elements which make the
long-term risks appear somewhat larger. Bonds that are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present that suggest a susceptibility to impairment
sometime in the future. Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Moody's
may modify a rating of Aa, A or Baa by adding numerical modifiers of 1, 2 or 3
to show relative standing within these categories. The foregoing ratings are
sometimes presented in parentheses preceded with a "con" indicating the bonds
are rated conditionally. Such parenthetical rating denotes the probable credit
stature upon
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<PAGE>
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.
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<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
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the characteristics of Prime-1 rated issues, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained. Issuers rated
Prime-3 (or related supporting institutions) have an acceptable capacity for
repayment of short-term promissory obligations. Issuers rated Not Prime do not
fall within any of the Prime rating categories.
Thomson commercial paper ratings assess the likelihood of an untimely
or incomplete payment of principal or interest of debt having a maturity of one
year or less, which is issued by a bank holding company or an entity within the
holding company structure. The designation TBW-1 represents the highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis. The designation TBW-2 represents the
second highest rating category and indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1. The designation TBW-3
represents the lowest investment grade category and indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, the capacity to service principal and interest
in a timely fashion is considered adequate.
TAX-EXEMPT NOTE RATINGS
A S&P rating reflects the liquidity concerns and market access risks
unique to notes due in three years or less. Notes rated SP-1 are issued by
issuers that exhibit very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are given a plus (+) designation. Notes rated SP-2 are issued by issuers that
exhibit satisfactory capacity to pay principal and interest. Notes rated SP-3
are issued by issuers that exhibit speculative capacity to pay principal and
interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated MIG and variable rate demand obligations are designated
VMIG. Such ratings recognize the
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differences between short-term credit risk and long-term risk. Loans bearing the
designation MIG-1 or VMIG-1 are of the best quality, enjoying strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing. Loans bearing the designation
MIG-2 or VMIG-2 are of high quality, with margins of protection ample although
not so large as with loans rated MIG-1 or VMIG-1. Loans bearing the designation
MIG-3 or VMIG-3 are of favorable quality with all security elements accounted
for but lacking the undeniable strength of the preceding grades. Liquidity and
cash flow protection may be narrow and market access for refinancing is likely
to be less well established. Loans bearing the designation MIG-4 or VMIG-4 are
of adequate quality, carrying specific risk but having protection commonly
regarded as required of an investment security and not distinctly or
predominantly speculative.
Fitch IBCA uses its short-term ratings described above under "Corporate
and Tax-Exempt Commercial Paper Ratings" for tax-exempt notes.
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<PAGE>
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
Connecticut Municipal Money Market Fund
Massachusetts Municipal Money Market Fund
Growth and Income Fund
Small Cap Value Fund
February 28, 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
Connecticut Municipal Money Market, Massachusetts Municipal Money Market, Growth
and Income, and Small Cap Value Funds of The Galaxy Fund ("Galaxy"), each dated
February 28, 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.
<PAGE>
TABLE OF CONTENTS
Page
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THE GALAXY FUND............................................................. 1
INVESTMENT OBJECTIVES AND POLICIES.......................................... 1
Acceptable Investments - Money Market Funds........................ 1
Types of Acceptable Investments - Money Market Funds............... 2
Types of Investments - Equity Funds................................ 2
U.S. Government Obligations........................................ 3
When-Issued and Delayed Settlement Transactions.................... 4
Stand-By Commitments............................................... 4
Munipreferred Securities........................................... 5
Variable Rate Demand Notes......................................... 5
Temporary Investments.............................................. 5
Restricted and Illiquid Securities................................. 5
Repurchase Agreements, Reverse Repurchase Agreements
and Lending of Portfolio Securities....................... 7
Derivative Securities.............................................. 8
Restrictions on the Use of Futures Contracts And
Options................................................... 9
Indexed Securities................................................. 10
Swap Agreements.................................................... 10
Foreign Currency Exchange Transactions............................. 11
Portfolio Securities Generally..................................... 12
Portfolio Turnover................................................. 12
Special Considerations Relating to Connecticut
Municipal Securities...................................... 12
Additional Investment Limitations.................................. 16
NET ASSET VALUE - CONNECTICUT MUNICIPAL MONEY MARKET AND
MASSACHUSETTS MUNICIPAL MONEY MARKET FUNDS.................................. 22
DIVIDENDS - MONEY MARKET FUNDS ............................................. 23
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.............................. 23
DESCRIPTION OF SHARES....................................................... 25
ADDITIONAL INFORMATION CONCERNING TAXES..................................... 28
In General......................................................... 28
Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds............................... 30
Growth and Income and Small Cap Value Funds......................... 31
Taxation of Certain Financial Instruments........................... 31
State Taxation...................................................... 33
Massachusetts State Income Tax...................................... 33
TRUSTEES AND OFFICERS........................................................ 34
Shareholder and Trustee Liability................................... 38
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Page
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ADVISORY, ADMINISTRATION, CUSTODIAN AND
TRANSFER AGENCY AGREEMENTS.................................................. 39
Custodian and Transfer Agent....................................... 42
PORTFOLIO TRANSACTIONS...................................................... 42
SHAREHOLDER SERVICES PLAN................................................... 44
DISTRIBUTION AND SERVICES PLAN.............................................. 45
DISTRIBUTOR................................................................. 47
AUDITORS ................................................................... 49
COUNSEL ................................................................... 49
PERFORMANCE AND YIELD INFORMATION........................................... 50
Yield Quotations -- Connecticut Municipal Money Market
and Massachusetts Municipal Money Market Funds............ 50
Tax-Equivalency Tables -- Connecticut Municipal Money Market and
Massachusetts Municipal Money Market Funds.
Yield and Performance of the Growth and Income and
Small Cap Value Funds..................................... 51
MISCELLANEOUS............................................................... 54
FINANCIAL STATEMENTS........................................................ 55
APPENDIX A.................................................................. A-1
APPENDIX B.................................................................. B-1
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<PAGE>
THE GALAXY FUND
The Galaxy Fund ("Galaxy") is an open-end management company currently
offering shares of beneficial interest in twenty-seven investment portfolios.
This Statement of Additional Information provides additional investment
information with respect to the Connecticut Municipal Money Market Fund and
Massachusetts Municipal Money Market Fund (collectively, the "Money Market
Funds"), and with respect to the Growth and Income Fund and Small Cap Value Fund
(collectively, the "Equity Funds") (the Money Market Funds and Equity Funds are
referred to herein collectively as the "Funds"), and should be read in
conjunction with the current Prospectuses for the Funds.
The Connecticut Municipal Money Market, Massachusetts Municipal Money
Market, Growth and Income, and Small Cap Value Funds commenced operations on
October 4, 1993, October 5, 1993, December 14, 1992 and December 14, 1992,
respectively, as separate investment portfolios (the "Predecessor Connecticut
Municipal Money Market Fund", "Predecessor Massachusetts Municipal Money Market
Fund", "Predecessor Growth and Income Fund" and "Predecessor Small Cap Value
Fund", respectively, and collectively, the "Predecessor Funds") of The Shawmut
Funds, which was organized as a Massachusetts business trust. On December 4,
1995, the Predecessor Funds were reorganized as new portfolios of Galaxy. Prior
to the reorganization, the Predecessor Funds offered and sold shares of
beneficial interest that were similar to Galaxy's Trust Shares and Retail A
Shares.
INVESTMENT OBJECTIVES AND POLICIES
ACCEPTABLE INVESTMENTS - MONEY MARKET FUNDS
The Connecticut Municipal Money Market Fund invests primarily in debt
obligations issued by or on behalf of Connecticut and of other states,
territories, and possessions of the United States, including the District of
Columbia, and any political subdivision or financing authority of any of these,
the income from which is, in the opinion of qualified legal counsel, exempt from
both federal regular income tax and Connecticut state income tax imposed upon
non-corporate taxpayers ("Connecticut Municipal Securities").
The Massachusetts Municipal Money Market Fund invests primarily in debt
obligations issued by or on behalf of the Commonwealth of Massachusetts and of
other states, territories, and possessions of the United States, including the
District of Columbia, and any political subdivision or financing authority of
any of these, the income from which is, in the opinion of qualified legal
counsel, exempt from both federal regular income tax and income taxes imposed by
the Commonwealth of Massachusetts
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<PAGE>
imposed upon non-corporate taxpayers ("Massachusetts Municipal Securities").
From time to time, such as when suitable Municipal Securities are not
available, the Money Market Funds may invest a portion of their respective
assets in cash. Any portion of a Money Market Fund's assets maintained in cash
will reduce the amount of assets in Municipal Securities and thereby reduce the
Money Market Fund's yield.
TYPES OF ACCEPTABLE INVESTMENTS - MONEY MARKET FUNDS
Examples of Municipal Securities are:
- municipal notes and commercial paper;
- general obligation serial bonds sold with differing maturity
dates;
- refunded municipal bonds; and
- all revenue bonds, including industrial development bonds.
TYPES OF INVESTMENTS - EQUITY FUNDS
The Growth and Income Fund invests principally in a
professionally-managed and diversified portfolio of common stocks of companies
with prospects for above average growth and dividends or of companies where
significant fundamental changes are taking place. The Growth and Income Fund
will seek to invest in equity securities of companies that are projected to show
earnings growth superior to the Standard & Poor's 500 Composite Stock Index.
Although the Growth and Income Fund may invest in other securities and in money
market instruments, it is the Growth and Income Fund's policy, under normal
market conditions, to invest at least 65% of its total assets in equity
securities. The securities in which the Growth and Income Fund may invest
include foreign securities, as described in the Prospectuses.
The Small Cap Value Fund invests primarily in a diversified portfolio
of equity securities of companies that have a market value capitalization of up
to $1 billion to achieve long-term capital appreciation and current income.
Under normal circumstances, the Small Cap Value Fund will invest at least 65% of
its total assets in equity securities of companies that have a market value
capitalization of up to $1 billion. In addition, the Small Cap Value Fund may
invest as described below, and as described in the Prospectuses.
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<PAGE>
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.)
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.
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<PAGE>
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS
When a Fund agrees to purchase securities on a "when-issued" or
"delayed settlement" basis, the Fund's custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a
separate account. In the event of a decline in the value of the securities
that the custodian has set aside, the Fund may be required to place
additional assets in the separate account in order to ensure that the value
of the account remains equal to the amount of the Fund's commitment. A Fund's
net assets may fluctuate to a greater degree if it sets aside portfolio
securities to cover such purchase commitments than if it sets aside cash.
When a Fund engages in when-issued or delayed settlement
transactions, it relies on the seller to consummate the trade. Failure of the
seller to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous for a security.
For purposes of determining the average weighted maturity of a Fund's
portfolio, the maturity of when-issued securities is calculated from the date
of settlement of the purchase to the maturity date.
STAND-BY COMMITMENTS
Under a "stand-by commitment," a dealer agrees to purchase from a
Fund, at the Fund's option, specified Municipal Securities at a specified
price. Stand-by commitments are exercisable by the Fund at any time before
the maturity of the underlying Municipal Security, and may be sold,
transferred or assigned by the Fund only with respect to the underlying
instruments.
Although stand-by commitments are often available without the
payment of any direct or indirect consideration, if necessary or advisable, a
Fund may pay for a stand-by commitment either separately in cash or by paying
a higher price for Municipal Securities that are acquired subject to the
commitment. Where the Fund pays any consideration directly or indirectly for
a stand-by commitment, its cost will be reflected as unrealized depreciation
for the period during which the commitment is held by the Fund.
The Money Market Funds will enter into stand-by commitments only
with banks and broker/dealers that present minimal credit risks. In
evaluating the creditworthiness of the issuer of a stand-by commitment, Fleet
Investment Advisors Inc. ("Fleet"), the Fund's investment adviser, will
review periodically the issuer's assets, liabilities, contingent claims and
other relevant financial information.
The Money Market Funds will acquire stand-by commitments solely to
facilitate liquidity and do not intend to exercise
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<PAGE>
their rights thereunder for trading purposes. Stand-by commitments will be
valued at zero in determining a Fund's net asset value.
MUNIPREFERRED SECURITIES
The Money Market Funds may purchase interests in Municipal
Securities that are offered in the form of a security representing a
diversified portfolio of investment grade bonds. These securities provide
investors, such as the Money Market Funds, with liquidity and income exempt
from federal regular income tax and some state income taxes.
VARIABLE RATE DEMAND NOTES
Variable interest rates generally reduce changes in the market value
of Municipal Securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital appreciation
or depreciation is less for variable rate Municipal Securities than for fixed
income obligations.
The terms of these variable rate demand instruments require payment
of principal and accrued interest from the issuer of the Municipal
Securities, the issuer of the participation interest or a guarantor of either
issuer.
TEMPORARY INVESTMENTS
The Money Market Funds may also invest in high quality temporary
investments during times of unusual market conditions for defensive purposes.
From time to time, such as when suitable Municipal Securities are
not available, the Money Market Funds may invest a portion of their
respective assets in cash. Any portion of a Money Market Fund's assets
maintained in cash will reduce the amount of assets in Municipal Securities
and thereby reduce the Fund's yield.
RESTRICTED AND ILLIQUID SECURITIES
The Equity Funds may invest in commercial paper issued in reliance
on the exemption from registration afforded by Section 4(2) of the Securities
Act of 1933. Section 4(2) commercial paper is restricted as to disposition
under federal securities law and is generally sold to institutional
investors, such as the Equity Funds, who agree that they are purchasing the
paper for investment purposes and not with a view to public distribution. Any
resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like the
Equity Funds through or with the
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<PAGE>
assistance of the issuer or investment dealers who make a market in Section
4(2) commercial paper, thus providing liquidity. The Equity Funds believe
that Section 4(2) commercial paper and possibly certain other restricted
securities that meet the criteria for liquidity established by Galaxy's Board
of Trustees are quite liquid. The Equity Funds intend, therefore, to treat
the restricted securities that meet the criteria for liquidity established by
the Board of Trustees, including Section 4(2) commercial paper (as determined
by Fleet), as liquid and not subject to the investment limitation applicable
to illiquid securities. In addition, because Section 4(2) commercial paper is
liquid, the Equity Funds do not intend to subject such paper to the
limitation applicable to restricted securities.
The ability of the Board of Trustees to determine the liquidity of
certain restricted securities is permitted under a Securities and Exchange
Commission (the "SEC") staff position set forth in the adopting release for
Rule 144A (the "Rule") under the Securities Act of 1933, as amended. The Rule
is a non-exclusive, safe-harbor for certain secondary market transactions
involving securities subject to restrictions on resale under federal
securities laws. The Rule provides an exemption from registration for resales
of otherwise restricted securities to qualified institutional buyers. The
Rule was expected to further enhance the liquidity of the secondary market
for securities eligible for resale under the Rule. Galaxy, on behalf of the
Equity Funds, believes that the staff of the SEC has left the question of
determining the liquidity of all restricted securities (eligible for resale
under Rule 144A) for determination to the Board of Trustees. The Board of
Trustees considers the following criteria in determining the liquidity of
certain restricted securities:
- the frequency of trades and quotes for the security;
- the number of dealers willing to purchase or sell the security
and the number of other potential buyers;
- dealer undertakings to make a market in the security; and
- the nature of the security and the nature of the marketplace
trades.
Investing in Rule 144A securities could have the effect of increasing the level
of a Fund's illiquidity to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these securities. The Funds
expect that less than 5% of their respective net assets will be invested in Rule
144A securities during the current fiscal year.
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<PAGE>
REPURCHASE AGREEMENTS, REVERSE REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO
SECURITIES
Each Fund may enter into repurchase agreements, which are
arrangements in which banks, broker/dealers and other recognized financial
institutions sell U.S. Government securities or other securities to the Funds
and agree at the time of sale to repurchase them at a mutually agreed upon
time and price within one year from the date of acquisition. A Fund requires
its custodian to take possession of the securities subject to a repurchase
agreement and these securities are marked to market daily. To the extent that
the original seller does not repurchase the securities from a Fund, the Fund
could receive less than the repurchase price on any sale of such securities.
In the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by a Fund might be delayed pending
court action. The Funds believe that, under the regular procedures normally
in effect for custody of a Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the Fund
and allow retention or disposition of such securities. The Funds will only
enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by Fleet to be
creditworthy pursuant to guidelines established by the Board of Trustees.
The Equity Funds may also enter into reverse repurchase agreements.
These transactions are similar to borrowing cash. In a reverse repurchase
agreement, a Fund transfers possession of a portfolio instrument to another
person, such as a financial institution, broker or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable a Fund to
avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a
Fund in a dollar amount sufficient to make payment for the obligations to be
purchased are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
The collateral received when the Equity Funds lend portfolio
securities must be valued daily and, should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Funds. During the time portfolio securities are on loan, the borrower pays a
Fund any dividends or
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<PAGE>
interest paid on such securities. Loans are subject to termination at the
option of the Funds or the borrower. The Funds may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker.
DERIVATIVE SECURITIES
PUT AND CALL OPTIONS
An Equity Fund may purchase and sell put options on its portfolio
securities as described in the Prospectuses.
STOCK INDEX FUTURES AND OPTIONS
The Equity Funds may utilize stock index futures contracts and options
on stocks, stock indices and stock index futures contracts for the purposes of
managing cash flows into and out of a Fund's portfolio and potentially reducing
transactional costs. The Funds may not use stock index futures contracts and
options for speculative purposes.
As a means of reducing fluctuations in the net asset value of shares
of the Equity Funds, the Funds may attempt to hedge all or a portion of their
respective portfolios through the purchase of listed put options on stocks,
stock indices and stock index futures contracts. These options will be used
as a form of forward pricing to protect portfolio securities against
decreases in value resulting from market factors, such as an anticipated
increase in interest rates. A purchased put option gives the Funds, in return
for a premium, the right to sell the underlying security to the writer
(seller) at a specified price during the term of the option. Put options on
stock indices are similar to put options on stocks except for the delivery
requirements. Instead of giving the Funds the right to make delivery of stock
at a specified price, a put option on a stock index gives the Funds, as
holders, the right to receive an amount of cash upon exercise of the option.
The Equity Funds may also write covered call options. As the writer
of a call option, the Funds have the obligation upon exercise of the option
during the option period to deliver the underlying security upon payment of
the exercise price.
An Equity Fund may only: (1) buy listed put options on stock indices
and stock index futures contracts; (2) buy listed put options on securities
held in its portfolio; and (3) sell listed call options either on securities
held in its portfolio or on securities which it has the right to obtain
without payment of further consideration (or has segregated cash in the
amount of any such additional consideration). A Fund will maintain its
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<PAGE>
positions in securities, option rights, and segregated cash subject to puts
and calls until the options are exercised, closed or expired. A Fund may also
enter into stock index futures contracts. A stock index futures contract is a
bilateral agreement which obligates the seller to deliver (and the purchaser
to take delivery of) an amount of cash equal to a specific dollar amount
times the difference between the value of a specific stock index at the close
of trading of the contract and the price at which the agreement is originally
made. There is no physical delivery of the stocks constituting the index, and
no price is paid upon entering into a futures contract.
In general, option contracts are closed out prior to their expiration.
An Equity Fund, when purchasing or selling a futures contract, will initially
be required to deposit in a segregated account in the broker's name with the
Fund's custodian an amount of cash or liquid portfolio securities
approximately equal to 5% - 10% of the contract value. This amount is known
as "initial margin", and it is subject to change by the exchange or board of
trade on which the contract is traded. Subsequent payments to and from the
broker are made on a daily basis as the price of the index or the securities
underlying the futures contract fluctuates. These payments are known as
"variation margins", and the fluctuation in value of the long and short
positions in the futures contract is a process referred to as "marking to
market". A Fund may decide to close its position on a contract at any time
prior to the contract's expiration. This is accomplished by the Fund taking
an opposite position at the then prevailing price, thereby terminating its
existing position in the contract. Because the initial margin resembles a
performance bond or good-faith deposit on the contract, it is returned to the
Fund upon the termination of the contract, assuming that all contractual
obligations have been satisfied. Therefore, the margin utilized in futures
contracts is readily distinguishable from the margin employed in security
transactions, since the margin employed in futures contracts does not involve
the borrowing of funds to finance the transaction.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS
An Equity Fund will not enter into futures contracts to the extent
that, immediately thereafter, the sum of its initial margin deposits on open
contracts exceeds 5% of the market value of its total assets. Further, an
Equity Fund will enter into stock index futures contracts only for bona fide
hedging purposes or such other purposes permitted under Part 4 of the
regulations promulgated by the Commodity Futures Trading Commission. Also, an
Equity Fund may not enter into stock index futures contracts and options to
the extent that the value of such contracts would exceed 20% of the Fund's
total net assets and may not purchase put options to the extent that more
than 5% of the value of the
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Fund's total assets would be invested in premiums on open put option
positions.
INDEXED SECURITIES
The Equity Funds may invest in indexed securities whose value is
linked to foreign currencies, interest rates, commodities, indices or other
financial indicators. Most indexed securities are short- to intermediate-term
fixed income securities whose values at maturity or interest rates rise or
fall according to the change in one or more specified underlying instruments.
Indexed securities may be positively or negatively indexed (i.e., their value
may increase or decrease if the underlying instrument appreciates), and may
have return characteristics similar to direct investments in the underlying
instrument or to one or more options on the underlying instrument. Indexed
securities may be more volatile than the underlying instrument itself.
SWAP AGREEMENTS
As one way of managing their exposure to different types of
investments, the Equity Funds may enter into interest rate swaps, currency
swaps, and other types of swap agreements such as caps, collars, and floors.
In a typical interest rate swap, one party agrees to make regular payments
equal to a floating interest rate times a "notional principal amount," in
return for payments equal to a fixed rate times the same amount, for a
specified period of time. If a swap agreement provides for payments in
different currencies, the parties might agree to exchange notional principal
amount as well. Swaps may also depend on other prices or rates, such as the
value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make
payments only under specified circumstances, usually in return for payment of
a fee by the other party. For example, the buyer of an interest rate cap
obtains the right to receive payments to the extent that a specified interest
rate exceeds an agreed upon level, while the seller of an interest rate floor
is obligated to make payments to the extent that a specified interest rate
falls below an agreed upon level. An interest rate collar combines elements
of buying a cap and selling a floor.
Swap agreements will tend to shift the Equity Funds' investment
exposure from one type of investment to another. For example, if an Equity
Fund agreed to exchange payments in dollars for payments in foreign currency,
the swap agreement would tend to decrease the Fund's exposure to U.S.
interest rates and increase its exposure to foreign currency and interest
rates. Caps and floors have an effect similar to buying or writing options.
Depending on how they are used, swap agreements may
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increase or decrease the overall volatility of an Equity Fund's investments
and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on the Equity Funds' performance. Swap agreements are
subject to risks related to the counterparty's ability to perform, and may
decline in value if the counterparty's creditworthiness deteriorates. The
Equity Funds may also suffer losses if they are unable to terminate
outstanding swap agreements or reduce their exposure through offsetting
transactions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Equity Funds may buy and sell securities denominated in
currencies other than the U.S. dollar, and receive interest, dividends and
sale proceeds in currencies other than the U.S. dollar, the Funds may enter
into foreign currency exchange transactions to convert United States currency
to foreign currency and foreign currency to United States currency as well as
convert foreign currency to other foreign currencies. An Equity Fund either
enters into these transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts
to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by an
Equity Fund to purchase or sell a specific currency at a specified price and
future date, which may be any fixed number of days from the date of the
contract. Forward foreign currency exchange contracts establish an exchange
rate at a future date. These contracts are transferable in the interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without
commission. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of a Fund's portfolio
securities or in foreign exchange rates, or prevent loss if the prices of
these securities should decline.
The Equity Funds may enter into foreign currency hedging
transactions in an attempt to protect against changes in foreign currency
exchange rates between the trade and settlement dates of specific securities
transactions or changes in foreign currency exchange rates that would
adversely affect a portfolio position or an anticipated portfolio position.
Since consideration of the prospect for currency parities will be
incorporated into a Fund's long-term investment decisions, neither Equity
Fund will routinely enter into foreign currency hedging transactions with
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respect to portfolio security transactions; however, it is important to have
the flexibility to enter into foreign currency hedging transactions when it
is determined that the transactions would be in the Fund's best interest.
Although these transactions tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they tend to
limit any potential gain that might be realized should the value of the
hedged currency increase. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies
will change as a consequence of market movements in the value of those
securities between the date the forward contract is entered into and the date
it matures. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.
PORTFOLIO SECURITIES GENERALLY
Subsequent to its purchase by a Fund an issue of securities may
cease to be rated or its rating may be reduced below the minimum rating
required for purchase by the Fund. The Board of Trustees or Fleet, pursuant
to guidelines established by the Board, will promptly consider such an event
in determining whether the Fund involved should continue to hold the
obligation. The Board of Trustees or Fleet may determine that it is
appropriate for the Fund to continue to hold the obligation if retention is
in accordance with the interests of the particular Fund and applicable
regulations of the Securities and Exchange Commission.
PORTFOLIO TURNOVER
A Fund may sell a portfolio investment soon after its acquisition if
Fleet believes that such a disposition is consistent with the Fund's
investment objective. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other
circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover involves correspondingly
greater brokerage commission expenses and other transaction costs, which must
be ultimately borne by the Fund's shareholders.
SPECIAL CONSIDERATIONS RELATING TO CONNECTICUT MUNICIPAL SECURITIES
The following information is a brief summary of factors affecting
the economies and financial strengths of the State of Connecticut, its
municipalities and its political subdivisions and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based primarily upon one or more publicly available offering
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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 machinery,
fabricated metal products and electrical machinery. As a result of a rise in
employment in service-related industries and a decline in manufacturing
employment, manufacturing accounted for only 17.39% of total non-agricultural
employment in Connecticut in 1996. Defense-related business represents a
relatively high proportion of the manufacturing sector. On a per capita
basis, defense awards to Connecticut have traditionally been among the
highest in the nation, and reductions in defense spending have had a
substantial adverse impact on Connecticut's economy.
From 1986 through 1996, Connecticut's unemployment rate was generally
lower than the unemployment rate for the U.S. as a whole, and average per
capita personal income of Connecticut residents was higher than that of
residents of other states. The average unemployment rate in Connecticut
increased from a low of 3.0% in 1988 to a high of 7.5% in 1992 and, after a
number of important changes in the method of calculation, was reported to be
5.7% in 1996. Average per capita personal income of Connecticut residents
increased in every year from 1987 to 1996, rising from $21,235 to $33,189.
However, pockets of significant unemployment and poverty exist in some
Connecticut cities and towns.
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At the end of the 1990-1991 fiscal year, the General Fund had an
accumulated unappropriated deficit of $965,712,000. For the six fiscal years
ended June 30, 1997, the General Fund ran operating surpluses, based on the
State's budgetary method of accounting, of approximately $110,200,000,
$113,500,000, $19,700,000, $80,500,000, $250,000,000, and $262,600,000,
respectively. General Fund budgets for the biennium ending June 30, 1999,
were adopted in 1997. General Fund expenditures and revenues are budgeted to
be approximately $9,550,000,000 and $9,700,000,000 for the 1997-1998 and
1998-1999 fiscal years, respectively, an increase of more than 35% from the
budgeted expenditures of approximately $7,008,000,000 for the fiscal year
1991-1992.
During 1991 the State issued a total of $965,710,000 Economic Recovery
Notes, of which $157,055,000 were outstanding as of August 1, 1997. The notes
were to be payable no later than June 30, 1996, but as part of the budget
adopted for the biennium ending June 30, 1997, payment of the notes scheduled
to be paid during the 1995-96 fiscal year was rescheduled to be made over the
four fiscal years ending June 30, 1999.
The State's primary method for financing capital projects is through
the sale of general obligation bonds. These bonds are backed by the full
faith and credit of the State. As of August 1, 1997, the State had authorized
direct general obligation bond indebtedness totaling $11,469,639,000, of
which $9,990,468,000 had been approved for issuance by the State Bond
Commission and $8,897,072,000 had been issued. As of August 1, 1997, State
direct general obligation indebtedness outstanding was $6,733,149,000.
In 1995, the State established the University of Connecticut as a
separate corporate entity to issue bonds and construct certain infrastructure
improvements. The University is authorized to issue $962,000,000 bonds to
finance the improvements. The University's bonds will be secured by a State
debt service commitment, the aggregate amount of which is limited to
$382,000,000 for the four fiscal years ending June 30, 1999, and $580,000,000
for the six fiscal years ending June 30, 2005.
In addition, the State has limited or contingent liability on a
significant amount of other bonds. Such bonds have been issued by the
following quasi-public agencies: the Connecticut Housing Finance Authority,
the Connecticut Development Authority, the Connecticut Higher Education
Supplemental Loan Authority, the Connecticut Resources Recovery Authority and
the Connecticut Health and Educational Facilities Authority. Such bonds have
also been issued by the cities of Bridgeport and West Haven and the
Southeastern Connecticut Water Authority. As of October 15, 1996, the amount
of bonds outstanding on which the State has limited or contingent liability
totaled $3,985,400,000.
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In 1984, the State established a program to plan, construct and improve
the State's transportation system (other than Bradley International Airport).
The total cost of the program through June 30, 2000, is currently estimated
to be $11.2 billion, to be met from federal, state, and local funds. The
State expects to finance most of its $4.7 billion share of such cost by
issuing $4.2 billion of special tax obligation ("STO") bonds. The STO bonds
are payable solely from specified motor fuel taxes, motor vehicle receipts,
and license, permit and fee revenues pledged therefor and credited to the
Special Transportation Fund, which was established to budget and account for
such revenues.
As of October 15, 1996, the General Assembly had authorized
$4,157,900,000 of such STO bonds, of which $3,594,700,000 new money
borrowings had been issued. It is anticipated that additional STO bonds will
be authorized annually in amounts necessary to finance and to complete the
infrastructure program. Such additional bonds may have equal rank with the
outstanding bonds provided certain pledged revenue coverage requirements are
met. The State expects to continue to offer bonds for this program.
The State's general obligation bonds are rated AA- by Standard & Poors
and Aa3 by Moody's. On March 17, 1995, Fitch reduced its ratings of the
State's general obligation bonds from AA+ to AA.
The State, its officers and its employees are defendants in numerous
lawsuits. Although it is not possible to determine the outcome of these
lawsuits, the Attorney General has opined that an adverse decision in any of
the following cases might have a significant impact on the State's financial
position: (i) a class action by the Connecticut Criminal Defense Lawyers
Association claiming a campaign of illegal surveillance activity and seeking
damages and injunctive relief; (ii) an action on behalf of all persons with
traumatic brain injury who have been placed in certain State hospitals,
claiming that their constitutional rights are violated by placement in State
hospitals alleged not to provide adequate treatment and training, and seeking
placement in community residential settings with appropriate support
services; and (iii) litigation involving claims by Indian tribes to a portion
of the State's land area.
As a result of litigation on behalf of black and Hispanic school
children in the City of Hartford seeking "integrated education" within the
Greater Hartford metropolitan area, on July 9, 1996, the State Supreme Court
directed the legislature to develop appropriate measures to remedy the racial
and ethnic segregation in the Hartford public schools. The fiscal impact of
this decision might be significant but is not determinable at this time.
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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, reductions and increases in expenses
could lead to further fiscal problems for the State and its political
subdivisions, authorities and agencies. Difficulties in payment of debt
service on borrowings could result in declines, possibly severe, in the value
of their outstanding obligations, increases in their future borrowing costs,
and impairment of their ability to pay debt service on their obligations.
ADDITIONAL INVESTMENT LIMITATIONS
In addition to the investment limitations disclosed in their
Prospectuses, the Funds are subject to the following investment limitations,
which may be changed with respect to a particular Fund only by a vote of the
holders of a majority of such Fund's outstanding shares (as defined under
"Miscellaneous" in the Prospectuses):
1. No Fund may sell any securities short or purchase any
securities on margin, but each Fund may obtain such
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short-term credits as may be necessary for clearance of
transactions, in the case of a Money Market Fund, or the
clearance of purchases and sales of portfolio securities,
in the cash of an Equity Fund. A deposit or payment by an
Equity Fund of initial or variation margin in connection
with futures contracts or related options transactions is
not considered the purchase of a security on margin.
2. No Fund may issue senior securities except that each Fund may
borrow money or engage in reverse repurchase agreements in
amounts up to one-third of the value of its total assets,
including the amounts borrowed; and except to the extent that
the Equity Funds may enter into futures contracts. No Fund
will borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary,
extraordinary, or emergency measure to facilitate management
of the portfolio by enabling a Fund to meet redemption
requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous. No Fund will
purchase any securities while borrowings in excess of 5% of
its total assets are outstanding.
3. No Fund may mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, a Fund may
only mortgage, pledge, or hypothecate assets having a market
value not exceeding 10% of the value of its total assets at
the time of purchase. For purposes of this limitation, the
following will not be deemed to be pledges of an Equity Fund's
assets: (a) the deposit of assets in escrow in connection with
the writing of covered put or call options and the purchase of
securities on a when-issued basis; and (b) collateral
arrangements with respect to: (i) the purchase and sale of
stock options (and options on stock indices) and (ii) initial
or variation margin for futures contracts. Margin deposits
from the purchase and sale of futures contracts and related
options are not deemed to be a pledge.
4. No Fund may purchase or sell real estate or real estate
limited partnerships, although each Fund may invest in
securities of issuers whose business involves the purchase or
sale of real estate or in securities which are secured by real
estate or interests in real estate.
5. No Fund may purchase or sell commodities, commodity contracts,
or commodity futures contracts except to the extent that an
Equity Fund may engage in transactions involving financial
futures contracts or options on financial futures contracts.
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6. No Fund may underwrite any issue of securities, except as a
Fund may be deemed to be an underwriter under the Securities
Act of 1933 in connection with the sale of securities in
accordance with its investment objective, policies and
limitations.
7. No Fund may lend any of its assets except that a Money Market
Fund may acquire publicly or non-publicly issued Connecticut
or Massachusetts Municipal Securities (as defined in their
Prospectuses) or temporary investments or enter into
repurchase agreements, in accordance with their respective
investment objectives, policies, limitations and Galaxy's
Declaration of Trust; and except that an Equity Fund may lend
portfolio securities up to one-third the value of its total
assets. This limitation shall not prevent an Equity Fund from
purchasing or holding money market instruments, repurchase
agreements, obligations of the U.S. Government, its agencies
or instrumentalities, variable rate demand notes, bonds,
debentures, notes, certificates of indebtedness, or certain
debt instruments as permitted by its investment objective,
policies and limitations or Galaxy's Declaration of Trust.
8. With respect to at least 50% of its total assets, a Money
Market Fund will invest no more than 5% of its total assets in
the securities of a single issuer and no more than 25% of its
total assets in the securities of a single issuer at the close
of each quarter of each fiscal year. Under this limitation,
each governmental subdivision, including states, territories
and possessions of the United States, or their political
subdivisions, agencies, authorities, instrumentalities, or
similar entities will be considered a separate issuer if its
assets and revenues are separate from those of the
governmental body creating it and the security is backed only
by its own assets and revenues. Industrial development bonds
backed only by the assets and revenue of a non-governmental
user are considered to be issued solely by that user. If, in
the case of an industrial development bond or
government-issued security, a governmental or other entity
guarantees the security, such guarantee would be considered a
separate security issued by the guarantor, as well as the
other issuer, subject to limited exclusions allowed by the
1940 Act.
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
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government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized by
such securities) if, as a result, more than 5% of the value
of its total assets would be invested in the securities of
that issuer. An Equity Fund will not acquire more than 10% of
the outstanding voting securities of any one issuer.
10. No Money Market Fund may purchase securities, if, as a result
of such purchase, 25% or more of the value of the Fund's total
assets would be invested in any one industry or in industrial
development bonds or other securities, the interest upon which
is paid from revenues of similar types of projects. However, a
Money Market Fund may invest as temporary investments more
than 25% of the value of its assets in cash or cash items,
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, or instruments secured by these
money market instruments and repurchase agreements.
11. No Equity Fund will invest 25% of more of the value of its
total assets in any one industry (other than securities issued
by the U.S. Government, its agencies or instrumentalities).
However, an Equity Fund may invest as temporary investments
more than 25% of the value of its assets in cash or cash
items, securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, or instruments secured by
these money market instruments, such as repurchase agreements.
12. No Money Market Fund will invest more than 10% of its net
assets in securities subject to restrictions on resale under
the Securities Act of 1933.
The following limitations may be changed by Galaxy's Board of
Trustees without shareholder approval. Shareholders will be notified before
any material change in these limitations becomes effective.
13. Each Fund will limit its investments in other investment
companies to not more than 3% of the total outstanding voting
stock of any investment company; will invest no more than 5%
of its total assets in any one investment company; and will
invest no more than 10% of its total assets in investment
companies in general. However, these limitations are not
applicable if the securities are acquired in a merger,
consolidation, reorganization or acquisition of assets.
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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.
18. No Equity Fund may write call options on securities, unless
the securities are held in the Fund's portfolio
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or unless the Fund is entitled to them in deliverable form
without further payment or after segregating cash in the
amount of any further payment. No Equity Fund may write call
options in excess of 5% of the value of its total assets.
19. No Equity Fund may invest more than 5% of the value of its
total assets in securities of issuers which have records of
less than three years of continuous operations, including the
operation of any predecessor.
20. No Money Market Fund may invest more than 5% of the value of
its total assets in industrial development bonds where the
payment of principal and interest are the responsibility of
companies (or guarantors, where applicable) with less than
three years of continuous operations, including the operation
of any predecessor.
21. No Money Market Fund may invest more than 10%, and no Equity
Fund will invest more than 15%, of the value of its respective
net assets in illiquid securities, including repurchase
agreements providing for settlement in more than seven days
after notice, non-negotiable fixed time deposits with
maturities over seven days, and certain securities not
determined by the Board of Trustees to be liquid.
22. No Equity Fund may invest more than 10% of its total assets in
securities subject to restrictions on resale under the
Securities Act of 1933, except for commercial paper issued
under Section 4(2) of the Securities Act of 1933 and certain
other restricted securities which meet the criteria for
liquidity as established by the Board of Trustees.
23. No Equity Fund may invest in companies for the purpose of
exercising management or control.
24. No Equity Fund may invest more than 5% of its net assets in
warrants. No more than 2% of this 5% may be warrants which are
not listed on the New York Stock Exchange.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from any change in 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
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and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
The Funds do not intend to borrow money in excess of 5% of the value of
their respective net assets or, with respect to the Money Market Funds only, to
invest more than 5% of their respective total assets in securities of foreign
issuers during the next twelve months.
NET ASSET VALUE - CONNECTICUT MUNICIPAL MONEY MARKET AND
MASSACHUSETTS MUNICIPAL MONEY MARKET FUNDS
Galaxy uses the amortized cost method of valuation to value shares of
the Money Market Funds. In order to use the amortized cost method, the Funds
comply with the various quality and maturity restrictions specified in Rule 2a-7
promulgated under the 1940 Act. Pursuant to this method, a security is valued at
its initial acquisition cost, as adjusted for amortization of premium or
accretion of discount, regardless of the impact of fluctuating interest rates on
the market value of the security. Where it is not appropriate to value a
security by the amortized cost method, the security will be valued either by
market quotations or by fair value as determined by or under the direction of
Galaxy's Board of Trustees. This method may result in periods during which
value, as determined by amortized cost, is higher or lower than the price a Fund
would receive if it sold the security. The value of securities in each of these
Funds can be expected to vary inversely with changes in prevailing interest
rates. Thus, if interest rates have increased from the time a security was
purchased, such security, if sold, might be sold at a price less than its cost.
Similarly, if interest rates have declined from the time a security was
purchased, such security, if sold, might be sold at a price greater than its
purchase cost. In either instance, if the security is held to maturity, no gain
or loss will be realized.
The Money Market Funds invest only in instruments that meet the
applicable quality requirements of Rule 2a-7 and maintain a dollar-weighted
average portfolio maturity appropriate to their objective of maintaining a
stable net asset value per share, provided that neither of these Funds will
purchase any security deemed to have a remaining maturity (as defined in the
1940 Act) of more than 397 days nor maintain a dollar-weighted average
portfolio maturity which exceeds 90 days. Galaxy's Board of Trustees has
established procedures reasonably designed, taking 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
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<PAGE>
Fund, calculated by using available market quotations, deviates from $1.00
per share. In the event such deviation exceeds one-half of one percent, the
Board of Trustees will promptly consider what action, if any, should be
initiated. If the Board of Trustees believes that the extent of any deviation
from a Money Market Fund's $1.00 amortized cost price per share may result in
material dilution or other unfair results to new or existing investors, it
has agreed to take such steps as it considers appropriate to eliminate or
reduce, to the extent reasonably practicable, any such dilution or unfair
results. These steps may include selling portfolio instruments prior to
maturity; shortening the average portfolio maturity; withholding or reducing
dividends; redeeming shares in kind; reducing the number of a Money Market
Fund's outstanding shares without monetary consideration; or utilizing a net
asset value per share determined by using available market quotations.
DIVIDENDS - MONEY MARKET FUNDS
As stated, Galaxy uses its best efforts to maintain the net asset value
per share of each Money Market Fund at $1.00. As a result of a significant
expense or realized or unrealized loss incurred by any of the Funds, it is
possible that a Fund's net asset value per share may fall below $1.00. Should
Galaxy incur or anticipate any unusual or unexpected significant expense or loss
which would affect disproportionately the income of a Fund for a particular
period, the Board of Trustees would at that time consider whether to adhere to
the present dividend policy with respect to these Funds or to revise it in order
to ameliorate to the extent possible the disproportionate effect of such expense
or loss on the income of the Fund experiencing such effect. Such expense or loss
may result in a shareholder's receiving no dividends for the period in which it
holds shares of a Fund and in its receiving upon redemption a price per share
lower than that which it paid.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by First Data
Distributors, Inc. ("FD Distributors"), and FD Distributors has agreed to use
appropriate efforts to solicit all purchase orders. As described in the
applicable Prospectuses, shares of the Money Market Funds, Retail A Shares of
the Equity Funds and Retail B Shares of the Growth and Income Fund are sold to
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,
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<PAGE>
Retail A Shares of the Equity Funds and Retail B Shares of the Growth and
Income Fund may also be sold to individuals, corporations or other entities,
who submit a purchase application to Galaxy, purchasing either for their own
accounts or for the accounts of others ("Direct Investors"). As described in
the applicable Prospectuses, Trust Shares in the Equity Funds are offered to
investors maintaining qualified accounts at bank and trust institutions,
including institutions affiliated with Fleet Financial Group, Inc., and to
participants in employer-sponsored defined contribution plans.
Retail A Shares of the Equity Funds are sold to Direct Investors and
Customers at the public offering price based on a Fund's net asset value plus a
front-end sales charge as described in the applicable Prospectus. Retail B
Shares of the Growth and Income Fund are sold to Direct Investors and Customers
at the net asset value next determined after a purchase order is received but
are subject to a contingent deferred sales charge which is payable on redemption
of such shares as described in the applicable Prospectus.
Retail A Shares of the Equity Funds are offered for sale with a maximum
front-end sales charge of 3.75%, with certain exceptions as described in the
applicable Prospectus. An illustration of the computation of the offering price
per share of the Equity Funds, using the value of each Fund's net assets and
number of outstanding Retail A Shares at the close of business on October 31,
1997, is as follows:
<TABLE>
<CAPTION>
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>
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<PAGE>
If the Board of Trustees determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, Galaxy may
make payment wholly or partly in securities or other property. Such redemptions
will only be made in "readily marketable" securities. In such an event, a
shareholder would incur transaction costs in selling the securities or other
property.
Galaxy may suspend the right of redemption or postpone the date of
payment for shares for more than seven days during any period when (a) trading
in the markets the Funds normally utilize is restricted, or an emergency, as
defined by the rules and regulations of the Securities and Exchange Commission
(the "SEC") exists making disposal of a Fund's investments or determination of
its net asset value not reasonably practicable; (b) the New York Stock Exchange
is closed (other than customary weekend and holiday closings); or (c) the SEC by
order has permitted such suspension.
Galaxy may require any information reasonably necessary to ensure that
a redemption has been duly authorized.
DESCRIPTION OF SHARES
Galaxy is a Massachusetts business trust. Galaxy's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares and to
classify or reclassify any unissued shares into one or more additional classes
by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized the
issuance of twenty-seven classes of shares, each representing interests in one
of twenty-seven separate investment portfolios: Money Market Fund, Government
Fund, Tax-Exempt Fund, U.S. Treasury Fund, Institutional Government Money Market
Fund, Connecticut Municipal Money Market Fund, Massachusetts Municipal Money
Market Fund, Equity Value Fund, Equity Growth Fund, Equity Income Fund,
International Equity Fund, Small Company Equity Fund, MidCap Equity Fund, Asset
Allocation Fund, Small Cap Value Fund, Growth and Income Fund, 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
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<PAGE>
the Growth and Income Fund) are offered under separate Prospectuses to
different categories of investors. Each Money Market Fund offers only one
series of shares.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Except as noted below with respect to the Shareholder Services
Plan (which is currently applicable only to Retail A Shares of the Equity Funds
and to shares of the Connecticut Municipal Money Market and Massachusetts
Municipal Money Market Funds), the Distribution and Services Plan for Retail B
Shares of the Growth and Income Fund, and differing transfer agency fees, Trust
Shares, Retail A Shares and Retail B Shares bear pro rata the same expenses and
are entitled equally to a Fund's dividends and distributions. In the event of a
liquidation or dissolution of Galaxy or an individual Fund, shareholders of a
particular Fund would be entitled to receive the assets available for
distribution belonging to such Fund, and a proportionate distribution, based
upon the relative asset values of Galaxy's respective Funds, of any general
assets of Galaxy not belonging to any particular Fund, which are available for
distribution. Shareholders of a Fund are entitled to participate in the net
distributable assets of the particular Fund involved in liquidation, based on
the number of shares of the Fund that are held by each shareholder, except that
currently each Equity Fund's Retail A Shares and shares of each Money Market
Fund would be solely responsible for the Fund's payments to Service
Organizations under the Shareholder Services Plan and the Growth
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
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<PAGE>
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.
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
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<PAGE>
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
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<PAGE>
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 (20% or 28% rate
gain, as applicable), 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 18 months)
or 28% (for gains on capital assets held more than 12 months, but not more
than 18 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 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.
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<PAGE>
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."
CONNECTICUT MUNICIPAL MONEY MARKET AND MASSACHUSETTS MUNICIPAL MONEY MARKET
FUNDS
Shareholders are not required to pay the federal income tax on any
dividends received from the funds that represent net interest on tax-exempt
Municipal Securities.
In the case of a corporate shareholder, dividends of the Funds that
represent interest on Municipal Securities may be subject to the 20% corporate
alternative minimum tax. The corporate alternative minimum tax treats 75% of the
excess of a taxpayer's pre-tax "adjusted current earning" over the taxpayer's
alternative minimum taxable income as a tax preference item. Since "earnings and
profits" generally includes the full amount of any Fund's dividend, and
alternative minimum taxable income does not include the portion of a Fund's
dividend attributable to Municipal Securities that are not private activity
bonds, 75% of the difference will be included in the calculation of the
corporation's alternative minimum tax.
Dividends of any of the Funds representing net interested income on
some temporary investments, and any realized net short-term gains are taxed as
ordinary income. Long-term capital gains distributions are taxed as long-term
capital gains, regardless of the length of time the Fund shares have been held
by the shareholder. These tax consequences apply whether dividends are received
in cash or as additional shares. Information on the tax status of dividends and
distributions is provided annually.
GROWTH AND INCOME AND SMALL CAP VALUE FUNDS
Shareholders are subject to federal income tax on dividends received as
cash or additional shares.
Capital gains experienced by the Funds could result in an increase in
dividends. Capital losses could result in a decrease in dividends.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
Special rules govern the federal income tax treatment of financial
instruments that may be held by the Funds. These rules
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<PAGE>
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 treated as long-term capital gain or loss without
regard to the period a Fund has held the Instruments ("the 40-60 rule"). The
amount of any capital gain or loss actually realized by a Fund in a subsequent
sale or other disposition of those Instruments is adjusted to reflect any
capital gain or loss taken into account by the Fund in a prior year as a result
of the constructive sale of the Instruments. Losses with respect to futures
contracts to sell, related options and certain foreign currency contracts, which
are regarded as parts of a "mixed straddle" because their values fluctuate
inversely to the values of specific securities held by the Funds, are subject to
certain loss deferral rules, which limit the amount of loss currently deductible
on either part of the straddle to the amount thereof that exceeds the
unrecognized gain, if any, with respect to the other part of the straddle, and
to certain wash sales regulations. With respect to certain Instruments,
deductions for interest and carrying charges may not be allowed. Notwithstanding
the rules described above, with respect to futures contracts that are part of a
"mixed straddle" to sell related options, and certain foreign currency contracts
that are properly identified as such, a Fund may make an election which will
exempt (in whole or in part) those identified futures contracts, options and
foreign currency contracts from the Rules of Section 1256 of the Code including
"the 40-60 rule" and "mark-to-market," but gains and losses will be subject to
such short sales, wash sales and loss deferral rules and the requirement to
capitalize interest and carrying charges. Under Temporary Regulations, a Fund
would be allowed (in lieu of the foregoing) to elect either (1) to offset gains
or losses from portions which are part of a mixed straddle by separately
identifying each mixed straddle to which such treatment applies, or (2) to
establish a mixed straddle account for which gains and losses would be
recognized and offset on a periodic basis during the taxable year. Under either
election, "the 40-60 rule" will apply to the net gain or loss attributable to
the Instruments, but in the case of a mixed straddle account election, not more
than 50% of any net gain may be treated as long-term, and no more than 40% of
any net loss may be treated as short-term.
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<PAGE>
Certain foreign currency contracts entered into by a Fund may be
subject to the "mark-to-market" process, but gain or loss will be treated as
100% ordinary income or loss. A foreign currency contract must meet the
following conditions in order to be subject to the mark-to-market rules
described above: (1) the contract must require delivery of, or settlement by
reference to the value of, a foreign currency of a type in which regulated
futures contracts are traded; (2) the contract must be entered into at arm's
length at a price determined by reference to the price in the interbank market;
and (3) the contract must be traded in the interbank market. The Treasury
Department has broad authority to issue regulations under the provisions
respecting foreign currency contracts. As of the date of this Statement of
Additional Information, the Treasury Department has not issued any such
regulations. Other foreign currency contracts entered into by an Equity Fund may
result in the creation of one or more straddles for federal income tax purposes,
in which case certain loss deferral, short sales, and wash sales rules and the
requirement to capitalize interest and carrying charges may apply.
Some of the non-U.S. dollar denominated investments that an Equity Fund
may make, such as foreign securities, European Depository Receipts, Global
Depository Receipts and foreign currency contracts, may be subject to the
provisions of Subpart J of the Code, which govern the federal income tax
treatment of certain transactions denominated in terms of a currency other than
the U.S. dollar or determined by reference to the value of one or more
currencies other than the U.S dollar. The types of transactions covered by these
provisions include the following: (1) the acquisition of, or becoming the
obligor under, a bond or other debt instrument (including, to the extent
provided in Treasury regulations, preferred stock); (2) the accruing of certain
trade receivables and payables; and (3) the entering into or acquisition of any
forward contract, futures contract, option and similar financial instrument. The
disposition of a currency other than the U.S. dollar by a U.S. taxpayer also is
treated as a transaction subject to the special currency rules. However, foreign
currency-related regulated futures contracts and non-equity options are
generally not subject to the special currency rules if they are or would be
treated as sold for their fair market value at year-end under the mark-to-market
rules, unless an election is made to have such currency rules apply. With
respect to transactions covered by the special rules, foreign currency gain or
loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. A taxpayer may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts, futures contracts and options that
are capital assets in the hands of the taxpayer and which are not part of a
straddle. In accordance with Treasury regulations, certain transactions that are
part of a "Section 988 hedging
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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 each 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.
MASSACHUSETTS STATE INCOME TAX
Shareholders of the Massachusetts Municipal Money Market Fund subject
to Massachusetts personal income taxation will not be required to pay
Massachusetts personal income tax on that portion of their dividends which is
attributable to (and is properly designated as attributable to) interest earned
on Massachusetts tax-free municipal obligations, gain from the sale of certain
of such obligations, interest earned on obligations of the United States and
interest earned on obligations of United States territories or possessions to
the extent interest on such obligations is exempt from taxation by the state
pursuant to Federal law. Shareholders subject to Massachusetts income taxation
will be subject to Massachusetts personal income tax and corporate shareholders
subject to the Massachusetts corporate excise tax will be subject to that tax on
all dividends from the Massachusetts Municipal Money Market Fund.
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<PAGE>
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 Occupations
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & President & Director, Vicks Lithograph & Printing Corporation (book
Vicks Lithograph & Trustee manufacturing and commercial printing); Director, Utica Fire Insurance Company;
Printing Corporation Trustee, Savings Bank of Utica; Director, Monitor Life Insurance Company;
Commercial Drive Director, Commercial Travelers Mutual Insurance Company; Trustee, The Galaxy VIP
P.O. Box 270 Fund; Trustee, Galaxy Fund II.
Yorkville, NY 13495
Age 64
John T. O'Neill(1) President, Executive Vice President and CFO, Hasbro, Inc. (toy and game manufacturer);
Hasbro, Inc. Treasurer & Trustee, The Galaxy VIP Fund; Trustee, Galaxy Fund II.
200 Narragansett Trustee
Park Drive
Pawtucket, RI 02862
Age 53
Louis DeThomasis Trustee President, Saint Mary's College of Minnesota; Director, Bright Day Travel, Inc.;
Saint Mary's College Trustee, Religious Communities Trust; Trustee, The Galaxy VIP Fund; Trustee,
of Minnesota Galaxy Fund II.
Winona, MN 55987
Age 57
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Positions Principal Occupations
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast services); Director/Trustee, Lexington
10725 Quail Covey Road Funds; Chairman, Executive Committee, Compton International, Inc. (advertising
Boynton Beach, FL 33436 agency); Trustee, Keuka College; Trustee, The Galaxy VIP Fund; Trustee,
Age 72 Galaxy Fund II.
James M. Seed Trustee Chairman and President, The Astra Projects, Incorporated (land development);
The Astra Ventures, President, The Astra Ventures, Incorporated (previously, Buffinton Box Company -
Inc. manufacturer of cardboard boxes); Trustee, The Galaxy VIP Fund; Commissioner,
One Citizens Plaza Rhode Island Investment Commission; Trustee, Galaxy Fund II.
Providence, RI 02903
Age 56
Bradford S. Wellman(1) Trustee Private Investor; Vice President and Director, Acadia Management Company
2468 Ohio Street (investment services); Director, Essex County Gas Company, until January 1994;
Bangor, ME 04401 Director, Maine Mutual Fire Insurance Co.; Member, Maine Finance Authority;
Age 66 Trustee, The
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Positions Principal Occupations
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
Galaxy VIP Fund; Trustee, Galaxy Fund II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle & Reath LLP, Philadelphia, Pennsylvania.
Philadelphia National
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age 54
Jylanne Dunne Vice Vice President, First Data Investor Services Group, Inc., 1990 to present.
First Data Services President
Group, Inc. and
4400 Computer Drive Assistant
Westboro, MA 01581-5108 Treasurer
Age 38
</TABLE>
_____________________________
(1) An interested person within the definition set forth in Section
2(a)(19) of the 1940 Act.
Each trustee receives an annual aggregate fee of $29,000 for his
services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy VIP") and Galaxy
Fund II ("Galaxy II") (collectively, the "Trusts"), plus an additional $2,250
for each in-person Galaxy Board meeting attended and $1,500 for each in-person
Galaxy VIP or Galaxy II Board meeting attended not held concurrently with an
in-person Galaxy meeting, and is reimbursed for expenses incurred in attending
all meetings. Each trustee also receives $500 for each telephone Board meeting
in which the trustee participates, $1,000 for each in-person Board committee
meeting attended and $500 for each telephone Board committee meeting in which
the trustee participates. The Chairman of the Boards of the Trusts is entitled
to an additional annual aggregate fee in the amount of $4,000, and the President
and Treasurer of the Trusts is entitled to an additional annual aggregate fee of
$2,500 for their services in these respective capacities. The foregoing
trustees' and officers' fees are allocated among the portfolios of the Trusts
based on their relative net assets.
Effective March 1, 1996, each trustee became entitled to participate in
The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation
Plans (the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares
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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 for the fiscal year ended October 31, 1997:
Pension or
Retirement Total
Benefits Compensation
Accrued as from Galaxy
Aggregate Part of and Fund
Name of Compensation Fund Complex*Paid
Person/Position from Galaxy Expenses to Trustees
--------------- ----------- -------- -----------
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
______________________
* 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
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year ended October 31, 1997 for Messrs. Miller and Seed,
respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
Galaxy, and that every note, bond, contract, order or other undertaking made by
Galaxy shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder and not
because of his or her acts or omissions outside such capacity or some other
reason. The Declaration of Trust also provides that Galaxy shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of Galaxy, and shall satisfy any judgment thereon. Thus, the risk of
shareholder liability is limited to circumstances in which Galaxy itself would
be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer or
agent of Galaxy shall be personally liable for or on account of any contract,
debt, claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
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<PAGE>
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 $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.
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<PAGE>
The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its duties under the advisory agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Fleet in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. Unless sooner terminated, the advisory agreement will
continue in effect with respect to a particular Fund until August 10, 1998, and
thereafter from year to year as long as such continuance is approved at least
annually (i) by the vote of a majority of trustees who are not parties to such
advisory agreement or interested persons (as defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of voting on such
approval; and (ii) by Galaxy's Board of Trustees, or by a vote of a majority of
the outstanding shares of such Fund. The term "majority of the outstanding
shares of such Fund" means, with respect to approval of an advisory agreement,
the vote of the lesser of (i) 67% or more of the shares of the Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund. The advisory agreement may be terminated by Galaxy or by
Fleet on sixty days' written notice, and will terminate immediately in the event
of its assignment.
Fleet Bank, an affiliate of Fleet, is paid a fee for sub-account and
administrative services performed with respect to Trust Shares of the Equity
Funds held by defined contribution plans. Pursuant to an agreement between
Fleet Bank and 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,
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<PAGE>
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, $129,101 and
$203,187 with respect to the Connecticut Municipal Money Market Fund,
Massachusetts Municipal Money Market Fund, Small Cap Value Fund and Growth
and Income Fund, respectively.
For the period from November 1, 1995 to December 3, 1995, Federated
Administrative Services ("Federated"), a subsidiary of Federated Investors,
served as administrator of the Predecessor Funds and earned the following
administrative fees: Predecessor Connecticut Municipal Money Market Fund,
$12,973, none of which was voluntarily waived; Predecessor Massachusetts
Municipal Money Market Fund, $5,101, none of which was voluntarily waived;
Predecessor Small Cap Value Fund, $19,223, none of which was voluntarily waived;
and Predecessor Growth and Income Fund, $31,175, none of which was voluntarily
waived.
For the fiscal year ended October 31, 1995, Federated earned the
following administrative fees: Predecessor Connecticut Municipal Money Market
Fund, $109,347, none of which was voluntarily waived; Predecessor Massachusetts
Municipal Money Market Fund, $50,000, none of which was voluntarily waived;
Predecessor Small Cap Value Fund, $131,149, none of which was voluntarily
waived; and Predecessor Growth and Income Fund, $207,280, none of which was
voluntarily waived.
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan") serves as custodian to the
Funds pursuant to a Global Custody Agreement. Under its custody agreement, Chase
Manhattan has agreed to: (i) maintain a separate account or accounts in the name
of each Fund; (ii) hold and disburse portfolio securities on account of each
Fund; (iii) collect and make disbursements of money on
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<PAGE>
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 the costs of
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<PAGE>
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, (i) 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.
Investment decisions for each Fund are made independently from those
for the other Funds and portfolios of Galaxy and for any other investment
companies and accounts advised or managed by Fleet. When a purchase or sale of
the same security is made at substantially the same time on behalf of a Fund,
another
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<PAGE>
portfolio of Galaxy, and/or another investment company or account, the
transaction will be averaged as to price, and available investments allocated as
to amount, in a manner which Fleet believes to be equitable to the Fund and such
other portfolio, investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or sold by such Fund. To the extent
permitted by law, Fleet may aggregate the securities to be sold or purchased for
a Fund with those to be sold or purchased for Galaxy's other Funds and
portfolios, or other investment companies or accounts in order to obtain best
execution.
SHAREHOLDER SERVICES PLAN
As stated in the Prospectuses for the Funds, Galaxy may enter into
agreements ("Servicing Agreements") pursuant to its Shareholder Services Plan
("Services Plan") with Institutions and other organizations (including Fleet
Bank and its affiliates) (collectively, "Service Organizations") pursuant to
which Service Organizations will be compensated by Galaxy for 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.
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, $58,905 with respect to shares of the
Massachusetts Municipal Money Market Fund, $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 $104,877 with respect to shares of the Connecticut
Municipal Money Market Fund, $38,441 with respect to shares of the Massachusetts
Municipal Money Market Fund, $154,838 with respect to Retail A Shares of the
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Growth and Income Fund, and $79,503 with respect to Retail A Shares of the Small
Cap Value Fund.
Galaxy's Servicing Agreements are governed by the Services Plan that
has been adopted by Galaxy's Board of Trustees in connection with the offering
of Retail A Shares of the Equity Funds and shares of the Money Market Funds.
Pursuant to the Plan, the Board of Trustees reviews, at least quarterly, a
written report of the amounts paid under the Servicing Agreements and the
purposes for which the expenditures were made. In addition, the arrangements
with Service Organizations must be approved annually by a majority of Galaxy's
trustees, including a majority of the trustees who are not "interested persons"
of Galaxy as defined in the 1940 Act and who have no direct or indirect
financial interest in such arrangements (the "Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Equity Funds and shares of the Money Market Funds. Any material
amendment to Galaxy's arrangements with Service Organizations must be approved
by a majority of Galaxy's Board of Trustees (including a majority of the
Disinterested Trustees). So long as Galaxy's arrangements with Service
Organizations are in effect, the selection and nomination of the members of
Galaxy's Board of Trustees who are not "interested persons" (as defined in the
1940 Act) of Galaxy will be committed to the discretion of such Disinterested
Trustees.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan (the "12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to Retail B Shares of the
Growth and Income Fund. The 12b-1 Plan is described in the applicable
Prospectus.
Under the 12b-1 Plan, payments by Galaxy (i) for distribution expenses
may not exceed .65% (annualized) of the average daily net assets attributable to
such Fund's outstanding Retail B Shares, (ii) to an Institution for shareholder
liaison services and/or administrative support services may not exceed .25%
(annualized) and .25% (annualized), respectively, of the average daily net
assets attributable to such Fund's outstanding Retail B Shares which are owned
of record or beneficially by that
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Institution's Customers for whom the Institution is the dealer of record or
shareholder of record or with whom it has a servicing relationship. As of the
date of this Statement of Additional Information, Galaxy intends to limit the
Growth and Income Fund's payments for shareholder liaison and administrative
support services under the 12b-1 Plan to an aggregate fee of not more than .30%
(on an annualized basis) of the average daily net asset value of Retail B Shares
owned of record or beneficially by Customers of Institutions.
Payments for distribution expenses under the 12b-1 Plan are subject to
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule defines distribution
expenses to include the cost of "any activity which is primarily intended to
result in the sale of Galaxy shares." The Rule provides, among other things,
that an investment company may bear such expenses only pursuant to a plan
adopted in accordance with the Rule. In accordance with the Rule, the 12b-1 Plan
provides that a report of the amounts expended under the 12b-1 Plan, and the
purposes for which such expenditures were incurred, will be made to the Board of
Trustees for its review at least quarterly. The 12b-1 Plan provides that it may
not be amended to increase materially the costs which Retail B Shares of the
Growth and Income Fund may bear for distribution pursuant to the 12b-1 Plan
without shareholder approval, and that any other type of material amendment must
be approved by a majority of the Board of Trustees, and by a majority of the
trustees who are neither "interested persons" (as defined in the 1940 Act) of
Galaxy nor have any direct or indirect financial interest in the operation of
the 12b-1 Plan or in any related agreements, by vote cast in person at a meeting
called for the purpose of considering such amendments (the "Disinterested
Trustees").
For the fiscal year ended October 31, 1997, Retail B Shares of the
Growth and Income Fund bore $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
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Disinterested Trustees and is terminable at any time with respect to the Growth
and Income Fund by a vote of a majority of such Trustees or by vote of the
holders of a majority of the Retail B Shares of the Fund. Any agreement entered
into pursuant to the 12b-1 Plan with a Service Organization is terminable with
respect to the Fund without penalty, at any time, by vote of a majority of the
Disinterested Trustees, by vote of the holders of a majority of the Retail B
Shares of the Fund, by FD Distributors or by the Service Organization. An
agreement will also terminate automatically in the event of its assignment.
As long as the 12b-1 Plan is in effect, the nomination of the trustees
who are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of such Disinterested Trustees.
Investment Shares of the Predecessor Funds were subject to a Plan
adopted pursuant to Rule 12b-1 under the 1940 Act (the "Shawmut Plan"). The
Shawmut Plan permitted the payment of fees to administrators (including
broker/dealers and depository institutions such as commercial banks and savings
and loan associations) for distribution and administrative services. The Shawmut
Plan was designed to stimulate administrators to provide distribution and
administrative support services to the Predecessor Funds and their shareholders.
For the fiscal year ended October 31, 1995, the Predecessor Connecticut
Municipal Money Market Fund paid $377,953 in 12b-1 fees, of which $188,976 was
voluntarily waived. During the same period, the Predecessor Massachusetts
Municipal Money Market Fund did not accrue 12b-1 fees. For the fiscal year ended
October 31, 1995, the Predecessor Growth and Income and Predecessor Small Cap
Value Funds paid $166,932 and $111,535, respectively, in 12b-1 fees, of which
$83,466 and $55,768, respectively, was voluntarily waived.
DISTRIBUTOR
First Data Distributors, Inc., a wholly-owned subsidiary of 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, 1998, and will continue
from year to year upon annual approval by Galaxy's Board of Trustees, or by the
vote of a majority of the outstanding shares of Galaxy and by the vote of a
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majority of the Board of Trustees of Galaxy who are not parties to the Agreement
or interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval. The Agreement will terminate in the
event of its assignment, as defined in the 1940 Act.
FD Distributors is entitled to the payment of a front-end sales charge
on the sale of Retail A Shares of the Equity Funds as described in the
applicable Prospectus. For the fiscal year ended October 31, 1997, FD
Distributors received front-end sales charges in connection with Retail A Share
purchases as follows: Growth and Income Fund -- $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 Distrbutors 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:
<TABLE>
<CAPTION>
Brokerage
Net Compensation Commissions
Underwriting on Redemption in Connection
Discounts and and with Fund Other
Fund Commissions(1) Repurchase(2) Transactions Compensation(3)
---- -------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Connecticut N/A N/A $ 0 $121,294
Municipal Money
Market
Massachusetts N/A N/A $ 0 $ 59,621
Municipal Money
Market
Growth and Income $1,037,494 $49,278 $ 0 $122,722
Small Cap Value $ 300,152 N/A $458,524
- ----------------------
</TABLE>
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(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
Coopers & Lybrand L.L.P., independent certified public accountants,
with offices at One Post Office Square, Boston, Massachussetts 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 Coopers & Lybrand
L.L.P. for the period included in their report which appears therein.
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III,
Secretary of Galaxy, is a partner), 1345 Chestnut Street, Suite 1100,
Philadelphia, Pennsylvania 19107, are counsel to Galaxy and will pass upon
certain legal matters on its behalf. The law firm of Day, Berry & Howard,
Cityplace, Hartford, Connecticut 06103-3499, serves as special Connecticut
counsel to Galaxy and has reviewed the portion of this Statement of
Additional Information and the Prospectuses with respect to the Connecticut
Municipal Money Market Fund concerning Connecticut taxes and the description
of special considerations relating to Connecticut Municipal Securities. The
law firm of Ropes & Gray, One International Place, Boston, Massachusetts
02110-2624, serves as special Massachusetts counsel to Galaxy and has
reviewed the portion of the Prospectuses with respect to the Massachusetts
Municipal Money Market Fund concerning Massachusetts taxes and the
description of special considerations relating to Massachusetts Municipal
Securities.
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<PAGE>
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
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
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<PAGE>
and state tax rate and indicate what each Fund would have had to earn to
equal its actual yield, assuming that income earned by the Fund is 100%
tax-exempt. The tax-equivalent yields for the Connecticut Municipal Money
Market Fund and Massachusetts Municipal Money Market Fund, for the seven-day
period ended October 31, 1997 were 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 times 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, 1997. 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.
Connecticut Note: The charts below do not address taxable equivalent
yields applicable to married taxpayers filing separate returns or heads of
households. 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 or the possible partial disallowance of deductions.
Investors are urged to consult their own tax advisors as to these matters.
- ---------------------
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.
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF CONNECTICUT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
<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>
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF MASSACHUSETTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal Tax Bracket:
15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State:
27.00% 40.00% 43.00% 48.00% 51.60%
Joint
Return: $1-38,000 $38,001-91,850 $91,851-140,000 $140,001-250,000 Over $250,000
Single
Return: $1-22,750 $22,751-55,100 $55,101-115,000 $115,001-250,000 Over $250,000
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.
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
-51-
<PAGE>
obligation for each day of the subsequent month that the obligation is held
by the Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be
called or, if none, the maturity date. With respect to debt obligations
purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market value of such debt
obligations. Expenses accrued for the period (variable "b" in the formula)
include all recurring fees charged by a Fund to all shareholder accounts and
to the particular series of shares in proportion to the length of the base
period and the Fund's mean (or median) account size. Undeclared earned income
will be subtracted from the offering price per share (variable "d" in the
formula). The Funds' maximum offering price per Retail A Share for purposes
of the formula will include the maximum sales load imposed by the Funds --
currently 3.75% of the per share offering price.
Interest earned on tax-exempt obligations that are issued without
original issue discount and have a current market discount is calculated by
using the coupon rate of interest instead of the yield to maturity. In the
case of tax-exempt obligations that are issued with original issue discount
but which have discounts based on current market value that exceed the
then-remaining portion of the original issue discount (market discount), the
yield to maturity is the imputed rate based on the original issue discount
calculation. On the other hand, in the case of tax-exempt obligations that
are issued with original issue discount but which have discounts based on
current market value that are less than the then-remaining portion of the
original issue discount (market premium), the yield to maturity is based on
the market value.
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, (ii) the
yield for Retail B Shares of the
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<PAGE>
Growth and Income Fund was 0.24%, and (iii) the 30-day yields for Trust Shares
of the Growth and Income Fund and Small Cap Value Fund were 1.24% and
0.21%, respectively.
Each Fund that advertises its "average annual total return" computes
such return separately for each series of shares by determining the average
annual compounded rate of return during specified periods that equates the
initial amount invested to the ending redeemable value of such investment
according to the following formula:
ERV 1/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
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 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 = [(-----) - 1]
P
The calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date (reflecting any sales load charged
upon such reinvestment), (2) all recurring fees charged to all shareholder
accounts are included, and (3) for any account fees that vary with the size
of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. In addition, the Equity Funds' Retail A Shares average
annual total
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<PAGE>
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 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.
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 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.
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 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
-54-
<PAGE>
of Galaxy not belonging to a particular series or Fund. In determining the
net asset value of a particular Fund or series of a Fund, assets belonging to
the particular Fund or series of the Fund are charged with the direct
liabilities in respect of that Fund or series and with a share of the general
liabilities of Galaxy, which are allocated in proportion to the relative
asset values of the respective series and Funds at the time of allocation.
Subject to the provisions of Galaxy's Declaration of Trust, determinations by
the Board of Trustees as to the direct and allocable liabilities, and the
allocable portion of any general assets with respect to a particular series
or Fund, are conclusive.
As of 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 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 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 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 herein 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, Coopers & Lybrand L.L.P.,
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.
The Shawmut Funds' Annual Report to Shareholders with respect to the
Predecessor Funds for the fiscal year ended October 31, 1995 has been filed
with the Securities and Exchange
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Commission. The financial statements in such Annual Report (the "Shawmut
Financial Statements") are incorporated into this Statement of Additional
Information. The Shawmut Financial Statements included in the Annual Report
for the Predecessor Funds for the fiscal year ended October 31, 1995 were
audited by other auditors. The Shawmut Financial Statements in such Annual
Report have been incorporated herein by reference in reliance upon the report
of other auditors as independent accountants given upon their authority as
experts in accounting and auditing.
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APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
The following is a description of the securities ratings of Duff &
Phelps Credit Rating Co. ("D&P"), Fitch 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
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considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings. BB bonds are considered to be speculative investments and
represent the likelihood of timely payment of principal and interest in
accordance with the terms of obligation for issues not in default.
The five highest ratings of S&P for tax-exempt and corporate bonds
are AAA, AA, A, BBB and BB. Bonds rated AAA bear the highest rating assigned
by S&P to a debt obligation and the AAA rating indicates in its opinion an
extremely strong capacity to pay interest and repay principal. Bonds rated AA
by S&P are judged by it to have a very strong capacity to pay interest and
repay principal, and they differ from AAA issues only in small degree. Bonds
rated A are considered to have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds of a higher
rated category. Bonds rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Whereas such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest
and repay principal for debt in this category than for higher rated
categories. Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, such bonds face major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions which could lend to inadequate capacity to meet timely interest
and principal payments. The AA, A, BBB and BB ratings may be modified by an
addition of a plus (+) or minus (-) sign to show relative standing within
these major rating categories.
The five highest ratings of Moody's for tax-exempt and corporate
bonds are Aaa, Aa, A, Baa and Ba. Tax-exempt and corporate bonds rated Aaa
are judged to be of the "best quality." The rating of Aa is assigned to bonds
which are of "high quality by all standards." Aa bonds are rated lower than
Aaa bonds because margins of protection may not be as large or fluctuations
of protective elements may be of greater amplitude or there may be other
elements which make the long-term risks appear somewhat larger. Bonds that
are rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
that suggest a susceptibility to impairment sometime in the future. Bonds
that are rated Baa are considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the
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present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds rated Ba provide questionable protection of
interest and principal and indicate some speculative elements. Moody's may
modify a rating of Aa, A, Baa or Ba by adding numerical modifiers of 1, 2 or
3 to show relative standing within these categories. The foregoing ratings
are sometimes presented in parentheses preceded with a "con" indicating the
bonds are rated conditionally. Such parenthetical rating denotes the probable
credit stature upon completion of construction or elimination of the basis of
the condition.
CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS
The highest rating of D&P for commercial paper is Duff 1. D&P
employs three designations, Duff 1 plus, Duff 1 and Duff 1 minus, within the
highest rating category. Duff 1 plus indicates highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors
are considered to be minor. Duff 1 minus indicates high certainty of timely
payment.
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Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small. Duff 2 indicates good certainty of
timely payment. Liquidity factors and company fundamentals are sound.
Although ongoing funding needs may enlarge total financing requirements,
access to capital markets is good. Risk factors are small. Duff 3 indicates
satisfactory liquidity and other protection factors qualify such issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected. Duff 4 indicates speculative
investment characteristics.
Fitch 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
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Moody's "have a superior capacity for repayment of short-term promissory
obligations." Principal repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample asset
protection; broad margins in earning coverage of fixed financial charges and
high internal cash generation; and well established access to a range of
financial markets and assured sources of alternate liquidity. Issuers rated
Prime-2 (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This capacity will normally
be evidenced by many of the characteristics of Prime-1 rated issues, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained. Issuers rated Prime-3 (or related supporting
institutions) have an acceptable capacity for repayment of short-term
promissory obligations. Issuers rated Not Prime do not fall within any of the
Prime rating categories.
Thomson commercial paper ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of debt having a
maturity of one year or less, which is issued by a bank holding company or an
entity within the holding company structure. The designation TBW-1 represents
the highest rating category and indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis. The designation
TBW-2 represents the second highest rating category and indicates that while
the degree of safety regarding timely payment of principal and interest is
strong, the relative degree of safety is not as high as for issues rated
TBW-1. The designation TBW-3 represents the lowest investment grade category
and indicates that while more susceptible to adverse developments (both
internal and external) than obligations with higher ratings, the capacity to
service principal and interest in a timely fashion is considered adequate.
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TAX-EXEMPT NOTE RATINGS
A S&P rating reflects the liquidity concerns and market access risks
unique to notes due in three years or less. Notes rated SP-1 are issued by
issuers that exhibit very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics are given a plus (+) designation. Notes rated SP-2 are issued
by issuers that exhibit satisfactory capacity to pay principal and interest.
Notes rated SP-3 are issued by issuers that exhibit speculative capacity to
pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated MIG and variable rate demand obligations are designated
VMIG. Such ratings recognize the differences between short-term credit risk
and long-term risk. Loans bearing the designation MIG-1 or VMIG-1 are of the
best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing. Loans bearing the designation MIG-2 or VMIG-2 are of high
quality, with margins of protection ample although not so large as with loans
rated MIG-1 or VMIG-1. Loans bearing the designation MIG-3 or VMIG-3 are of
favorable quality with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be
less well established. Loans bearing the designation MIG-4 or VMIG-4 are of
adequate quality, carrying specific risk but having protection commonly
regarded as required of an investment security and not distinctly or
predominantly speculative.
Fitch IBCA uses its short-term ratings described above under
"Corporate and Tax-Exempt Commercial Paper Ratings" for tax-exempt notes.
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APPENDIX B
As stated in the applicable Prospectuses, the Growth and Income and
Small Cap Value Funds may enter into futures transactions for hedging
purposes. The following is a description of such transactions.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established
in both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate
futures contracts as a defense, or hedge, against anticipated interest rate
changes and not for speculation. As described below, this would include the
use of futures contract sales to protect against expected increases in
interest rates and futures contract purchases to offset the impact of
interest rate declines.
The Funds presently could accomplish a similar result to that which
they hope to achieve through the use of futures contracts by selling bonds
with long maturities and investing in bonds with short maturities when
interest rates are expected to increase, or conversely, selling short-term
bonds and investing in long-term bonds when interest rates are expected to
decline. However, because of the liquidity that is often available in the
futures market, the protection is more likely to be achieved, perhaps at a
lower cost and without changing the rate of interest being earned by the
Funds, through using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract
at a specific future time for a specified price. A futures contract purchase
would create an obligation by the Fund, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at
settlement date, would not be determined until at or near that date. The
determination would be in accordance with the rules of the exchange on which
the futures contract sale or purchase was made.
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Although interest rate futures contracts by their terms call for
actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without the making or taking of
delivery of securities. Closing out a futures contract sale is effected by a
Fund's entering into a futures contract purchase for the same aggregate
amount of the specific type of financial instrument and the same delivery
date. If the price of the sale exceeds the price of the offsetting purchase,
the Fund immediately is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the
difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by a Fund entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain, and if the purchase price exceeds the offsetting sale price,
the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment
on the floors of several exchanges -- principally, the Chicago Board of
Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The
Funds would deal only in standardized contracts on recognized exchanges. Each
exchange guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any interest rate futures
contracts for which there exists a public market, including, without
limitation, the foregoing instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an
interest rate futures contract sale to maintain the income advantage from
continued holding of a long-term bond while endeavoring to avoid part or all
of the loss in market value that would otherwise accompany a decline in
long-term securities prices. Assume that the market value of a certain
security held by a particular Fund tends to move in concert with the futures
market prices of long-term United States Treasury bonds ("Treasury bonds").
Fleet wishes to fix the current market value of this portfolio security until
some point in the future. Assume the portfolio security has a market value of
100, and Fleet believes that, because of an anticipated rise in interest
rates, the value will decline to 95. The Fund might enter into futures
contract sales of Treasury bonds for an equivalent of 98. If the market value
of the portfolio security does indeed decline from 100 to 95, the equivalent
futures market price for the Treasury bonds might also decline from 98 to 93.
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In that case, the five point loss in the market value of the
portfolio security would be offset by the five point gain realized by closing
out the futures contract sale. Of course, the futures market price of
Treasury bonds might well decline to more than 93 or to less than 93 because
of the imperfect correlation between cash and futures prices mentioned below.
Fleet could be wrong in its forecast of interest rates, and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by
the loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above
example might incur a loss of 2 points (which might be reduced by an
offsetting transaction prior to the settlement date). In each transaction,
transaction expenses would also be incurred.
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an
interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term
bonds in light of the availability of advantageous interim investments, e.g.,
shorter term securities whose yields are greater than those available on
long-term bonds. A Fund's basic motivation would be to maintain for a time
the income advantage from investing in the short-term securities; the Fund
would be endeavoring at the same time to eliminate the effect of all or part
of an expected increase in market price of the long-term bonds that the Fund
may purchase.
For example, assume that the market price of a long-term bond that
the Fund may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury bonds. Fleet wishes to fix the current
market price (and thus 10% yield) of the long-term bond until the time (four
months away in this example) when it may purchase the bond. Assume the
long-term bond has a market price of 100, and Fleet believes that, because of
an anticipated fall in interest rates, the price will have risen to 105 (and
the yield will have dropped to about 9 1/2%) in four months. The Fund might
enter into futures contracts purchases of Treasury bonds for an equivalent
price of 98. At the same time, the Fund would assign a pool of investments in
short-term securities that are either maturing in four months or earmarked
for sale in four months, for purchase of the long-term bond at an assumed
market price of 100. Assume these short-term securities are yielding 15%. If
the market price of the long-term bond does indeed rise from 100 to 105, the
equivalent futures market price for Treasury bonds might also rise from 98 to
103. In that case, the 5 point increase in the price that the Fund pays for
the long-term bond would be offset
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by the 5 point gain realized by closing out the futures contract purchase.
Fleet could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market
price could fall below 98. If short-term rates at the same time fall to 10%
or below, it is possible that the Fund would continue with its purchase
program for long-term bonds. The market price of available long-term bonds
would have decreased. The benefit of this price decrease, and thus yield
increase, will be reduced by the loss realized on closing out the futures
contract purchase.
If, however, short-term rates remained above available long-term
rates, it is possible that the Fund would discontinue its purchase program
for long-term bonds. The yield on short-term securities in the portfolio,
including those originally in the pool assigned to the particular long-term
bond, would remain higher than yields on long-term bonds. The benefit of this
continued incremental income will be reduced by the loss realized on closing
out the futures contract purchase. In each transaction, expenses would also
be incurred.
II. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid
or received by a Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker or in a
segregated account with Galaxy's custodian an amount of cash or liquid
portfolio securities, known as initial margin, based on the value of the
contract. The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance
bond or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. Subsequent payments, called variation margin, to and from the
broker, will be made on a daily basis as the price of the underlying
instruments fluctuates making the long and short positions in the futures
contract more or less valuable, a process known as marking-to-the-market. For
example, when a particular Fund has purchased a futures contract and the
price of the contract has risen in response to a rise in the underlying
instruments, that position will have increased in value and the Fund will be
entitled to receive from the broker a variation margin payment equal to that
increase in value. Conversely, where the Fund has purchased a futures
contract and the price of the future contract has declined in response to a
decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to
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the broker. At any time prior to expiration of the futures contract, Fleet
may elect to close the position by taking an opposite position, subject to
the availability of a secondary market, which will operate to terminate the
Fund's position in the futures contract. A final determination of variation
margin is then made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or gain.
III. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the
Equity Funds as hedging devices. One risk arises because of the imperfect
correlation between movements in the price of the futures and movements in
the price of the instruments that are the subject of the hedge. The price of
the futures may move more than or less than the price of the instruments
being hedged. If the price of the futures moves less than the price of the
instruments which are the subject of the hedge, the hedge will not be fully
effective but, if the price of the instruments being hedged has moved in an
unfavorable direction, a Fund would be in a better position than if it had
not hedged at all. If the price of the instruments being hedged has moved in
a favorable direction, this advantage will be partially offset by the loss on
the futures. If the price of the futures moves more than the price of the
hedged instruments, the Funds involved will experience either a loss or gain
on the futures, which will not be completely offset by movements in the price
of the instruments which are the subject of the hedge. To compensate for the
imperfect correlation of movements in the price of instruments being hedged
and movements in the price of futures contracts, a Fund may buy or sell
futures contracts in a greater dollar amount than the dollar amount of
instruments being hedged if the volatility over a particular time period of
the prices of such instruments has been greater than the volatility over such
time period of the futures, or if otherwise deemed to be appropriate by the
investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of
the instruments being hedged is less than the volatility over such time
period of the futures contract being used, or if otherwise deemed to be
appropriate by Fleet. It is also possible that, where a Fund had sold futures
to hedge its portfolio against a decline in the market, the market may
advance and the value of instruments held in the Fund may decline. If this
occurred, the Fund would lose money on the futures and also experience a
decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in
the price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may
decline instead; if the Fund then concludes not to invest its cash at that
time because of concern
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as to possible further market decline or for other reasons, the Fund will
realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund,
an amount of cash and liquid portfolio securities, equal to the market value
of the futures contracts, will be deposited in a segregated account with
Galaxy's custodian and/or in a margin account with a broker to collateralize
the position and thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and
the instruments being hedged, the price of futures may not correlate
perfectly with movement in the cash market due to certain market distortions.
Rather than meeting additional margin deposit requirements, investors may
close futures contracts through off-setting transactions that could distort
the normal relationship between the cash and futures markets. Second, with
respect to financial futures contracts, the liquidity of the futures market
depends on participants entering into off-setting transactions rather than
making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced thus producing
distortions. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements
in the securities market. Therefore, increased participation by speculators
in the futures market may also cause temporary price distortions. Due to the
possibility of price distortion in the futures market, and because of the
imperfect correlation between the movements in the cash market and movements
in the price of futures, a correct forecast of general market trends or
interest rate movements by the adviser may still not result in a successful
hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board
of trade which provides a secondary market for such futures. Although the
Equity Funds intend to purchase or sell futures only on exchanges or boards
of trade where there appear to be active secondary markets, there is no
assurance that a liquid secondary market on any exchange or board of trade
will exist for any particular contract or at any particular time. In such
event, it may not be possible to close a futures investment position, and in
the event of adverse price movements, a Fund would continue to be required to
make daily cash payments of variation margin. However, in the event futures
contracts have been used to hedge portfolio securities, such securities will
not be sold until the futures contract can be terminated. In such
circumstances, an increase in the price of the securities, if any, may
partially or completely offset losses on the futures
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contract. However, as described above, there is no guarantee that the price
of the securities will in fact correlate with the price movements in the
futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market
in a futures contract may be adversely affected by "daily price fluctuation
limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into
at a price beyond the limit, thus preventing the liquidation of open futures
positions. The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
Successful use of futures by the Equity Funds is also subject to
Fleet's ability to predict correctly movements in the direction of the
market. For example, if a particular Fund has hedged against the possibility
of a decline in the market adversely affecting securities held by it and
securities prices increase instead, the Fund will lose part or all of the
benefit to the increased value of its securities which it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. Such sales of securities may be,
but will not necessarily be, at increased prices which reflect the rising
market. The Funds may have to sell securities at a time when it may be
disadvantageous to do so.
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THE GALAXY FUND
Statement of Additional Information
Short-Term Bond Fund
Intermediate Government Income Fund
High Quality Bond Fund
Corporate Bond Fund
Tax-Exempt Bond Fund
New Jersey Municipal Bond Fund
New York Municipal Bond Fund
Connecticut Municipal Bond Fund
Massachusetts Municipal Bond Fund
Rhode Island Municipal Bond Fund
February 28, 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
Short-Term Bond, Intermediate Government Income, High Quality Bond, Corporate
Bond, Tax-Exempt Bond, New Jersey Municipal Bond, New York Municipal Bond,
Connecticut Municipal Bond, Massachusetts Municipal Bond and Rhode Island
Municipal Bond Funds, each dated February 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 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
PAGE
THE GALAXY FUND ......................................................... 1
INVESTMENT OBJECTIVES AND POLICIES ...................................... 1
Variable and Floating Rate Obligations ............................. 1
Bank Obligations ................................................... 1
Asset-Backed Securities ............................................ 1
Municipal Securities ............................................... 2
When-Issued Securities and Forward Commitment and
Delayed Settlement Transactions .................................... 5
Stand-By Commitments ............................................... 5
Repurchase Agreements; Reverse Repurchase Agreements;
Loans of Portfolio Securities ...................................... 6
U.S. Government Securities ......................................... 7
Derivative Securities .............................................. 7
Foreign Currency Exchange Transactions ............................. 7
Special Considerations Relating to New York Municipal
Securities ......................................................... 11
Special Considerations Relating to Connecticut
Municipal Securities ............................................... 27
Additional Investment Limitations .................................. 31
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION .......................... 33
DESCRIPTION OF SHARES ................................................... 36
ADDITIONAL INFORMATION CONCERNING TAXES ................................. 38
In General ......................................................... 38
Tax-Exempt Bond Funds .............................................. 40
Taxable Bond Funds ................................................. 41
Taxation of Certain Financial Instruments .......................... 42
State Taxation ..................................................... 45
TRUSTEES AND OFFICERS ................................................... 45
Shareholder and Trustee Liability .................................. 49
ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER AGENCY
AGREEMENTS .............................................................. 50
Custodian and Transfer Agent ....................................... 54
PORTFOLIO TRANSACTIONS .................................................. 55
SHAREHOLDER SERVICES PLAN ............................................... 56
DISTRIBUTION AND SERVICES PLAN .......................................... 57
DISTRIBUTOR ............................................................. 59
AUDITORS ................................................................ 61
COUNSEL ................................................................. 62
PERFORMANCE AND YIELD INFORMATION ....................................... 62
Yield and Performance of the Funds ................................. 62
Tax-Equivalency Tables - New Jersey Municipal Bond and New York
Municipal Bond Funds
MISCELLANEOUS ........................................................... 68
FINANCIAL STATEMENTS..................................................... 69
APPENDIX A............................................................... A-1
APPENDIX B............................................................... B-1
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THE GALAXY FUND
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-seven investment
portfolios.
This Statement of Additional Information relates to ten of those
investment portfolios: the Short-Term Bond Fund, Intermediate Government Income
Fund, High Quality Bond Fund and Corporate Bond Fund (the "Taxable Bond Funds"),
and the Tax-Exempt Bond Fund, New Jersey Municipal Bond Fund, New York
Municipal Bond Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal
Bond Fund and Rhode Island Municipal Bond Fund (the "Tax-Exempt Bond Funds", and
collectively with the Taxable Bond Funds, the "Funds"). This Statement of
Additional Information provides additional investment information with respect
to all Funds and should be read in conjunction with the current Prospectuses.
INVESTMENT OBJECTIVES AND POLICIES
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may purchase variable and floating rate instruments as
described in their Prospectuses. If such an instrument is not rated, Fleet
Investment Advisors Inc. ("Fleet"), the investment adviser to the Funds, must
determine that such instrument is comparable to rated instruments eligible for
purchase by a Fund and will consider the earning power, cash flows and other
liquidity ratios of the issuers and guarantors of such instruments and will
continuously monitor their financial status in order to meet payment on demand.
In determining average weighted portfolio maturity of each of these Funds, a
variable or floating rate instrument issued or guaranteed by the U.S. Government
or an agency or instrumentality thereof will be deemed to have a maturity equal
to the period remaining until the obligation's next interest rate adjustment.
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
<PAGE>
interests in an underlying pool of assets, or as debt instruments, which are
also known as collateralized obligations, and are generally issued as the debt
of a special purpose entity organized solely for the purpose of owning such
assets and issuing such debt. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Tax-Exempt Bond Funds include debt
obligations issued by governmental entities to obtain funds for various public
purposes, including the construction of a wide range of public facilities, the
refunding of outstanding obligations, the payment of general operating expenses,
and the extension of loans to public institutions and facilities. Private
activity bonds that are issued by or on behalf of public authorities to finance
various privately operated facilities are "Municipal Securities" if the interest
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paid thereon is exempt from regular federal income tax and not treated as a
specific tax preference item under the federal alternative minimum tax.
The two principal categories of Municipal Securities include
"general obligation" and "revenue" issues. The Tax-Exempt Bond Funds'
portfolios may also include "moral obligation" issues, which are normally
issued by special purpose authorities. There are, of course, variations in
the quality of Municipal Securities, both within a particular category and
between categories, and the yields on Municipal Securities depend upon a
variety of factors, including general market conditions, the financial
condition of the issuer, general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation, and the rating
of the issue. The ratings of a nationally recognized statistical rating
organization ("NRSRO"), such as Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's Ratings Group ("S&P"), described in the Prospectus for
each Tax-Exempt Bond Fund and in Appendix A hereto, represent such rating
services' opinion as to the quality of Municipal Securities. It should be
emphasized that these ratings are general and are not absolute standards of
quality. Municipal Securities with the same maturity, interest rate and
rating may have different yields. Municipal Securities of the same maturity
and interest rate with different ratings may have the same yield. Subsequent
to its purchase by a Tax-Exempt Bond Fund, an issue of Municipal Securities
may cease to be rated or its rating may be reduced below the minimum rating
required for purchase by the Fund.
The payment of principal and interest on most Municipal Securities
purchased by the Tax-Exempt Bond Funds will depend upon the ability of the
issuers to meet their obligations. Each state, the District of Columbia, each of
their political subdivisions, agencies, instrumentalities and authorities and
each multistate agency of which a state is a member is a separate "issuer" as
that term is used in this Statement of Additional Information and the Tax-Exempt
Bond Funds' Prospectuses. The non-governmental user of facilities financed by
private activity bonds is also considered to be an "issuer." An issuer's
obligations under its Municipal Securities are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code and laws, if any, which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or upon the ability of municipalities to levy taxes. The
power or ability of an issuer to meet its obligations for the payment of
interest on and principal of its Municipal Securities may be materially
adversely affected by litigation or other conditions.
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<PAGE>
Among other instruments, the Tax-Exempt Bond Funds may purchase
short-term general obligation notes, tax anticipation notes, bond anticipation
notes, revenue anticipation notes, tax-exempt commercial paper, construction
loan notes and other forms of short-term loans. Such instruments are issued with
a short-term maturity in anticipation of the receipt of tax funds, the proceeds
of bond placements or other revenues. In addition, the Tax-Exempt Bond Funds may
invest in long-term tax-exempt instruments, such as municipal bonds and private
activity bonds to the extent consistent with the limitations set forth in the
Prospectus for each Fund.
Private activity bonds are or have been issued to obtain funds to
provide, among other things, privately operated housing facilities, pollution
control facilities, convention or trade show facilities, mass transit, airport,
port or parking facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity bonds are also
issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. State and local governments are authorized
in most states to issue private activity bonds for such purposes in order to
encourage corporations to locate within their communities. The principal and
interest on these obligations may be payable from the general revenues of the
users of such facilities.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. For example, under the Tax Reform Act of 1986,
interest on certain private activity bonds must be included in an investor's
federal alternative minimum taxable income, and corporate investors must include
all tax-exempt interest in their federal alternative minimum taxable income.
Galaxy cannot, of course, predict what legislation may be proposed in the future
regarding the income tax status of interest on Municipal Securities, or which
proposals, if any, might be enacted. Such proposals, while pending or if
enacted, might materially and adversely affect the availability of Municipal
Securities for investment by the Tax-Exempt Bond Funds and the liquidity and
value of their respective portfolios. In such an event, each Tax-Exempt Bond
Fund would re-evaluate its investment objective and policies and consider
possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the
Tax-Exempt Bond Funds nor Fleet will review the proceedings relating to the
issuance of Municipal Securities or the bases for such opinions.
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<PAGE>
The Taxable Bond Funds may also invest in Municipal Securities when
such investments are deemed appropriate by Fleet in light of the Funds'
investment objectives. As a result of the favorable tax treatment afforded such
obligations under the Internal Revenue Code of 1986, as amended, yields on
municipal obligations can generally be expected under normal market conditions
to be lower than yields on corporate and U.S. Government obligations, although
from time to time Municipal Securities have outperformed, on a total return
basis, comparable corporate and federal debt obligations as a result of
prevailing economic, regulatory or other circumstances.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENT AND DELAYED SETTLEMENT
TRANSACTIONS
When a Fund agrees to purchase securities on a "when-issued,"
"forward commitment" or "delayed settlement" basis, the Fund's custodian will
set aside cash or liquid portfolio securities equal to the amount of the
commitment in a separate account. In the event of a decline in the value of
the securities that the custodian has set aside, the Fund may be required to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment. A
Fund's net assets may fluctuate to a greater degree if it sets aside
portfolio securities to cover such purchase commitments than if it sets aside
cash. Because a Fund sets aside liquid assets to satisfy its purchase
commitments in the manner described, its liquidity and ability to manage its
portfolio might be adversely affected in the event its commitments to
purchase "forward commitments," commitments to purchase "when-issued"
securities or commitments to purchase securities on a "delayed settlement"
basis exceeded 25% of the value of its assets.
When a Fund engages in "when-issued," "forward commitment" or "delayed
settlement" transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous for a
security. For purposes of determining the average weighted maturity of a Fund's
portfolio, the maturity of "when-issued" securities is calculated from the date
of settlement of the purchase to the maturity date.
STAND-BY COMMITMENTS
Under a "stand-by commitment," a dealer agrees to purchase from a Fund,
at the Fund's option, specified Municipal Securities at a specified price.
Stand-by commitments are exercisable by a Fund at any time before the maturity
of the underlying Municipal Security, and may be sold, transferred or assigned
by the Fund only with respect to the underlying instruments.
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<PAGE>
Although stand-by commitments are often available without the payment
of any direct or indirect consideration, if necessary or advisable, a Fund may
pay for a stand-by commitment either separately in cash or by paying a higher
price for securities that are acquired subject to the commitment. Where a Fund
pays any consideration directly or indirectly for a stand-by commitment, its
cost will be reflected as unrealized depreciation for the period during which
the commitment is held by the Fund.
A Fund will enter into stand-by commitments only with banks and
broker/dealers that present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, Fleet will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.
The Funds will acquire stand-by commitments solely to facilitate
liquidity and do not intend to exercise their rights thereunder for trading
purposes. Stand-by commitments will be valued at zero in determining a Fund's
net asset value.
REPURCHASE AGREEMENTS; REVERSE REPURCHASE AGREEMENTS; LOANS OF PORTFOLIO
SECURITIES
Each Fund may enter into repurchase agreements. The repurchase price
under a repurchase agreement generally equals the price paid by a Fund plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the securities underlying the repurchase agreement).
Securities subject to repurchase agreements will be held by a Fund's custodian
or sub-custodian in a segregated account or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by a Fund
under the Investment Company Act of 1940, as amended, (the "1940 Act").
Each Fund may enter into reverse repurchase agreements. Whenever a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account liquid assets such as cash or liquid portfolio securities
equal to the repurchase price (including accrued interest). The Fund will
monitor the account to ensure such equivalent value is maintained. Reverse
repurchase agreements are considered to be borrowings by a Fund under the 1940
Act.
A Fund that loans portfolio securities would continue to accrue
interest on the securities loaned and would also earn income on the loans. Any
cash collateral received by a Fund would be invested in high quality, short-term
"money market" instruments.
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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
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
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<PAGE>
affect a portfolio position or an anticipated portfolio position. Since
consideration of the prospect for currency parities will be incorporated into
a Fund's long-term investment decisions, neither Fund will routinely enter
into foreign currency hedging transactions with respect to portfolio security
transactions; however, it is important to have the flexibility to enter into
foreign currency hedging transactions when it is determined that the
transactions would be in a Fund's best interest. Although these transactions
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time they tend to limit any potential gain that might
be realized should the value of the hedged currency increase. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of these
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The projection of currency
market movements is extremely difficult, and the successful execution of a
hedging strategy is highly uncertain.
SPECIAL CONSIDERATIONS RELATING TO NEW JERSEY MUNICIPAL SECURITIES
The State of New Jersey and its political subdivisions, agencies and
public authorities are authorized to issue two general classes of
indebtedness: general obligation bonds and revenue bonds. Both classes of
bonds may be included in the New Jersey Municipal Bond Fund's portfolio. The
repayment of principal and interest on general obligation bonds is secured by
the full faith and credit of the issuer, backed by the issuer's taxing
authority, without recourse to any special project or source of revenue.
Special obligation or revenue bonds may be repaid only from revenues received
in connection with the project for which the bonds are issued, special excise
taxes, or other special revenue sources and generally are issued by entities
without taxing power. Neither the State of New Jersey nor any of its
subdivisions is liable for the repayment of principal or interest on revenue
bonds except to the extent stated in the preceding sentences.
General obligation bonds of the State are repaid from revenues
obtained through the State's general taxing authority. An inability to
increase taxes may adversely affect the State's ability to authorize or repay
debt.
Public authorities, private non-profit corporations, agencies and
similar entities of New Jersey ("Authorities") are established for a variety
of beneficial purposes, including economic development, housing and mortgage
financing, health care facilities and public transportation. The Authorities
are not operating entities of the State of New Jersey, but are separate
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legal entities that are managed independently. The State oversees the
Authorities by appointing the governing boards, designating management, and
by significantly influencing operations. The Authorities are not subject to
New Jersey constitutional restrictions on the incurrence of debt, applicable
to the State of New Jersey itself, and may issue special obligation or
private activity bonds in legislatively authorized amounts.
An absence or reduction of revenue will affect a bond-issuing
Authority's ability to repay debt on special obligation bonds and no
assurance can be given that sufficient revenues will be obtained to make such
payments, although in some instances repayment may be guaranteed or otherwise
secured.
Various Authorities have issued bonds for the construction of health
care facilities, transportation facilities, office buildings and related
facilities, housing facilities, pollution control facilities, water and
sewage facilities and power and electric facilities. Each of these facilities
may incur different difficulties in meeting its debt repayment obligations.
Hospital facilities, for example, are subject to changes in Medicare and
Medicaid reimbursement regulations, attempts by Federal and state
legislatures to limit the costs of health care and management's ability to
complete construction projects on a timely basis as well as to maintain
projected rates of occupancy and utilization. At any given time, there are
several proposals pending on a federal and state level concerning health care
which may further affect a hospital's debt service obligation.
Housing facilities may be subject to increases in operating costs,
management's ability to maintain occupancy levels, rent restrictions and
availability of federal or state subsidies, while power and electric
facilities may be subject to increased costs resulting from environmental
restrictions, fluctuations in fuel costs, delays in licensing procedures and
the general regulatory framework in which these facilities operate. All of
these entities are constructed and operated under rigid regulatory guidelines.
Some entities which financed facilities with proceeds of private
activity bonds issued by the New Jersey Economic Development Authority, a
major issuer of special obligation bonds, have defaulted on their debt
service obligations. Because these special obligation bonds were repayable
only from revenue received from the specific projects which they funded, the
New Jersey Economic Development Authority was unable to repay the debt
service to bondholders for such facilities. Each issue of special obligation
bonds, however, depends on its own revenue for repayment, and thus these
defaults should not affect the ability of the New Jersey Economic Development
Authority to repay obligations on other bonds that it issues in the future.
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<PAGE>
The State has experienced a gradual economic recovery in the past
five years. While unemployment in manufacturing has declined, employment
gains have been recorded in business services, construction and retail
sectors. Business investment expenditures and consumer spending have also
increased substantially in the State as well as in the Nation. To the extent
that any adverse conditions exist in the future which affect the obligor's
ability to repay debt, the value of the New Jersey Municipal Bond Fund may be
immediately and substantially affected.
The following are cases presently pending or threatened in which the
State has a potential for either a significant loss of revenue or a
significant unanticipated expenditure: (1) several labor unions have
challenged 1994 legislation mandating a revaluation of several public
employee pension funds which resulted in a refund of millions of dollars in
public employer contributions to the State and significant ongoing annual
savings to the State; (ii) several cases filed in the State courts challenged
the basis on which recoveries of certain costs for residents in State
psychiatric hospitals and other facilities are shared between the State
Department of Human Services and the State's county governments, and certain
counties are seeking the recovery from the Department of costs they have
incurred for the maintenance of such residents; (iii) the County of Passaic
and other parties have filed suit alleging the State violated a 1984 consent
order concerning the construction of a resource recovery facility in that
county; (iv) several Medicaid eligible children and the Association for
Children of New Jersey have filed suit claiming the Medicaid reimbursement
rates for services rendered to such children are inadequate under federal
law; (v) a coalition of churches and church leaders in Hudson County have
filed suit asserting the State-owned Liberty State Park in Jersey City
violates environmental standards; (vi) representatives of the trucking
industry have filed a constitutional challenge to annual hazardous and solid
waste licensure renewal fees: (vii) the New Jersey Hospital Association has
filed a constitutional challenge to the State's failure to provide funding
for charity care costs, while requiring hospitals to treat all patients
without ability to pay; (viii) the Education Law Center filed a motion
compelling the State to close the spending gap between poor urban school
districts and wealthy rural school districts; (ix) a group of insurance
companies have filed a constitutional challenge to the State's assessment of
monies pursuant to the Fair Automobile Insurance Reform Act of 1990; (x) a
class action consisting of prisoners with serious mental disorders has been
filed against officers of the Department of Corrections, alleging sex
discrimination, violation of the Americans with Disabilities Act of 1990, and
constitutional violations; (xi) a class action has been brought in federal
court challenging the State's method of determining the monthly needs of a
spouse of an institutionalized person under the Medicare Catastrophic Act;
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(xii) several suits have been filed against the State in federal court
alleging that the State committed securities fraud and environmental
violations in the financing of a new Atlantic City highway and tunnel; (xiii)
a class action has been filed against the State alleging the State's breach
of contract for not paying certain Medicare co-insurance and deductibles; and
(xiv) an action has been filed challenging the State's issuance of bonds to
fund the accrued liability in its pension funds under the Pension Bond
Financing Act of 1997.
Although the New Jersey Municipal Bond Fund generally intends to
invest its assets primarily in New Jersey Municipal Securities rated within
the four highest rating categories assigned by S&P or Moody's, there can be
no assurance that such ratings will remain in effect until such obligations
mature or are redeemed or will not be revised downward or withdrawn. Such
revisions or withdrawals may have an adverse affect on the market price of
such securities.
Although there can be no assurance that such conditions will
continue, the State's general obligation bonds are currently rated "AA+" by
S&P and "AA1" by Moody's.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL SECURITIES
Some of the significant financial considerations relating to
the Fund's investments in New York Municipal Securities are summarized below.
This summary information is not intended to be a complete description and is
principally derived from official statements relating to issues of New York
Municipal Securities that were available prior to the date of this Statement
of Additional Information. The accuracy and completeness of the information
contained in those official statements have not been independently verified.
STATE ECONOMY. New York is the third most populous state in the
nation and has a relatively high level of personal wealth. The State's
economy is diverse with a comparatively large share of the nation's finance,
insurance, transportation, communications and services employment, and a very
small share of the nation's farming and mining activity. The State has a
declining proportion of its workforce engaged in manufacturing, and an
increasing proportion engaged in service industries. New York City (the
"City"), which is the most populous city in the State and nation and is the
center of the nation's largest metropolitan area, accounts for a large
portion of the State's population and personal income.
The State has historically been one of the wealthiest states in
the nation. For decades, however, the State has grown more slowly than the
nation as a whole, gradually eroding its relative economic position. State
per capita personal income has historically been significantly higher than
the national average, although the ratio has varied substantially.
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Moderate growth is projected to continue in 1998 and 1999 for
employment, wages, and personal income, although the growth rates will lessen
gradually during the course of the two years. Overall employment growth is
expected to continue at a modest rate, reflecting the slowing growth in the
national economy, continued spending restraint in government, and restructuring
in the health care, social service, and banking sectors.
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 monies and revenues estimated to be available
therefor, accompanied by bills containing all proposed appropriations or
reappropriations and any new or modified revenue measures to be enacted in
connection with the executive budget. The entire plan constitutes the
proposed State financial plan for that fiscal year. The Governor is required
to submit to the Legislature quarterly budget updates which include a revised
cash-basis state financial plan, and an explanation of any changes from the
previous state financial plan.
The State's budget for the 1997-98 fiscal year was adopted by
the Legislature on August 4, 1997, more than four months after the start of
the fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State
operations and other purposes, including necessary appropriations for
State-supported debt service. The State Financial Plan for the 1997-98 fiscal
year was formulated on August 11, 1997 and was based on the State's budget as
enacted by the Legislature, as well as actual results for the first quarter
of the current fiscal year (the "1997-98 State Financial Plan"). In recent
years, the State has failed to adopt a budget prior to the beginning of its
fiscal year. There can be no assurance that State budgets in future fiscal
years will be adopted by the April 1 statutory deadline.
The Governor is required by law to propose a balanced budget each
year. In order to address any potential remaining budget gap, the Governor is
expected to make additional proposals to bring receipts in line with
disbursements. The State has closed projected budget gaps of $5.0 billion, $3.9
billion and $2.3 billion in its 1995-96, 1996-97 and 1997-98 fiscal years,
respectively.
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The 1997-98 State Financial Plan is projected to be balanced on
a cash basis, with a projected cash surplus of $1.83 billion. As compared to
the Governor's Executive Budget as amended in February 1997, the State's
adopted budget for 1997-98 increased General Fund spending by $1.7 billion,
primarily from increases for local assistance ($1.3 billion). Resources used
to fund these additional expenditures include increased revenues projected
for the 1997-98 fiscal year, increased resources produced in the 1996-97
fiscal year that will be utilized in 1997-98, re-estimates of social service,
fringe benefit and other spending, and certain non-recurring resources.
The 1997-98 adopted budget includes multi-year reductions,
including a State-funded property and local income tax reduction program,
estate tax relief, utility gross receipts tax reductions, permanent
reductions in the State sales tax on clothing, and elimination of assessments
on medical providers. These reductions are intended to reduce the overall
level of State and local taxes in New York and to improve the State's
competitive position vis-a-vis other states. The various elements of the
State and local tax and assessments reductions have little or no impact on
the 1997-98 State Financial Plan, and do not begin to materially affect the
outyear projections until the State's 1999-2000 fiscal year.
Other actions taken in the 1997-98 adopted budget add further
pressure to future budget balance in New York State. For example, the fiscal
effects of tax reductions adopted in the 1997-98 budget are projected to grow
more substantially beyond the 1998-99 fiscal year, with incremental costs
averaging in excess of $1.3 billion annually over the last three years of the
tax reduction program. These incremental costs reflect the phase-in of
State-funded school property tax and local income tax relief, the phase-out
of the assessments on medical providers, and reductions in estate and gift
levies, utility gross receipts taxes, and the State sales tax on clothing.
The full annual cost of the enacted tax reduction package is estimated at
approximately $4.8 billion when fully effective in State fiscal year 2001-02.
In addition, the 1997-98 budget included multi-year commitments for school
aid and pre-kindergarten early learning programs which could add as much as
$1.4 billion in costs when fully annualized in fiscal year 2001-02. These
spending commitments are subject to annual appropriation.
On September 11, 1997, the New York State Comptroller issued a
report which noted that the ability to deal with future budget gaps could
become a significant issue in the State's 2000-2001 fiscal year, when the
cost of tax cuts increases by $1.9 billion. The report contained projections
that, based on current economic conditions and current law for taxes and
spending, 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 Governor presented his 1998-99 Executive Budget to the Legislature
on January 20, 1998. The Executive Budget contains financial projections for
the State's 1997-98 through 2000-01 fiscal years, detailed estimates of receipts
and a proposed Capital Program and Financing Plan for the 1997-98 through
2002-03 fiscal years. It is expected that the Governor will prepare amendments
to his Executive Budget as permitted under law and that these amendments will be
reflected in a revised Financial Plan. There can be no assurance that the
Legislature will enact into law the Executive Budget as proposed by the
Governor, or that the State's adopted budget projections will not differ
materially and adversely from the projections set forth therein.
The 1998-99 Financial Plan is projected to be balanced on a cash basis
in the General Fund. Total General Fund receipts, including transfers from
other funds, are projected to be $36.22 billion, an increase of $1.02 billion
over projected receipts in the current fiscal year. Total General Fund
disbursements, including transfers to other funds, are projected to be $36.18
billion, an increase of $1.02 billion over the projected expenditures (including
pre-payments), for the current fiscal year. As compared to the 1997-98 State
Financial Plan, the Executive Budget proposes year-to-year growth in General
Fund spending of 2.89 percent. State Funds spending (i.e., General Fund plus
other dedicated funds, with the exception of federal aid) is projected to grow
by 8.5 percent. Spending from All Governmental Funds (excluding transfers) is
proposed to increase by 7.6 percent from the prior 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 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.
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
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projections set forth in the 1997-98 State Financial Plan, and those
projections may be changed materially and adversely from time to time.
In the past, the State has taken management actions and made
use of internal sources to address potential State financial plan shortfalls,
and the Division of Budget believes it could take similar actions should
variances occur in its projections for the current fiscal year.
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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 the first six months of its 1997-98 fiscal year with
an unaudited General Fund cash balance of $3.2 billion, or $254 million above
the August Financial Plan estimate. Total unaudited receipts, including
transfers from other funds, totaled $18.8 billion, or $340 million higher than
expected. The additional receipts reflected higher-than-anticipated tax
revenues of $244 million and miscellaneous receipts of $93 million. Unaudited
General Fund spending for the same period equaled $16.0 billion, or $86 million
above the cashflow projections published in the August Financial Plan. For
fiscal year 1997-98, total General Fund receipts were projected at $35.09
billion, an increase of $2.05 billion from 1996-97 results. Total
disbursements, including transfers to capital projects, debt service and other
funds, were projected at $34.60 billion, or 5.2 percent higher than
disbursements in 1996-97.
The mid-year update projected a closing balance in the General Fund of
$927 million, which was composed of a $530 million reserve for future needs, a
$332 million balance in the Tax Stabilization Reserve Fund ("TSRF"), and a $65
million balance in the Contingency Reserve Fund ("CRF").
As part of the 1997-98 Adopted Budget Report, the State also issued
its update to the GAAP-basis Financial Plan for the State's 1997-98 fiscal year,
based on the cash-basis 1997-98 State Financial Plan completed in August. The
GAAP-basis update projected a General Fund operating deficit of $959 million,
primarily reflecting the use of a portion of the 1996-97 cash surplus to fund
1997-98 liabilities, offset by the $530 million reserve for future needs.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods
by which the State of New York may incur debt. Under the State Constitution,
the State may not, with limited exceptions for emergencies, undertake
long-term general obligation borrowing (i.e., borrowing for more than one
year) unless the borrowing is authorized in a specific amount for a single
work or purpose by the Legislature and approved by the voters. There is no
limitation on the amount of long-term general obligation debt that may be so
authorized and subsequently incurred by the State.
The State may undertake short-term borrowings without voter
approval (i) in anticipation of the receipt of taxes and revenues, by issuing
tax and revenue anticipation notes, and (ii) in anticipation of the receipt
of proceeds from the sale of duly authorized but unissued general obligation
bonds, by issuing bond anticipation notes. The State may also, pursuant to
specific constitutional authorization, directly guarantee certain obligations
of its authorities and public benefit corporations ("Authorities"). Payments
of debt service on State general obligation and State-guaranteed bonds and
notes are legally enforceable obligations of the State of New York.
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The State employs additional long-term financing mechanisms,
lease-purchase and contractual-obligation financings, which involve obligations
of public authorities or municipalities that are State-supported but are not
general obligations of the State. Under these financing arrangements, certain
public authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the Local Government
Assistance Corporation ("LGAC") to restructure the way the State makes certain
local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates that
it will transact additional refinancings in 1999, 2000 and 2003 to complete its
long-term plan of finance and further alleviate cash flow imbalances which are
likely to occur in future years. The State does not anticipate that it will be
called upon to make any payments pursuant to the State guarantee in the 1997-98
fiscal year. JDA recently resumed its lending activities under a revised set of
lending programs and underwriting guidelines.
In 1990, as part of a State fiscal reform program, legislation was
enacted creating LGAC, a public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments traditionally funded
through the State's annual seasonal borrowing. The legislation empowered LGAC to
issue its bonds and notes in an amount to yield net proceeds not in excess of
$4.7 billion (exclusive of certain refunding bonds). Over a period of years, the
issuance of these long-term obligations, which were to be amortized over no more
than 30 years, was expected to eliminate the need for continued short-term
seasonal borrowing. The legislation also dedicated revenues equal to one-quarter
of the four cent State sales and use tax to pay debt service on these bonds. The
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legislation also imposed a cap on the annual seasonal borrowing of the State at
$4.7 billion, less net proceeds of bonds issued by LGAC and bonds issued to
provide for capitalized interest, except in cases where the Governor and the
legislative leaders have certified the need for additional borrowing and
provided a schedule for reducing it to the cap. If borrowing above the cap was
thus permitted in any fiscal year, it was required by law to be reduced to the
cap by the fourth fiscal year after the limit was first exceeded. As of June
1995, LGAC had issued bonds to provide net proceeds of $4.7 billion, completing
the program.
On January 13, 1992, S&P reduced its ratings on the State's
general obligation bonds from A to A- and, in addition, reduced its ratings on
the State's moral obligation, lease purchase, guaranteed and contractual
obligation debt. See Appendix "A" for an explanation of bond ratings. On August
28, 1997, S&P revised its ratings on the State's general obligation bonds from
A- to A and revised its ratings on the State's moral obligation, lease purchase,
guaranteed and contractual obligation debt. On January 6, 1992, Moody's reduced
its ratings on outstanding limited-liability State lease purchase and
contractual obligations from A to Baa1. On February 28, 1994, Moody's
reconfirmed its A rating on the State's general obligation long-term
indebtedness.
The State anticipates that its capital programs will be financed,
in part, by State and public authorities borrowings in the 1997-98 fiscal year.
The State expects to issue $605 million in general obligation bonds (including
$140 million for purposes of redeeming outstanding bond anticipation notes) and
$140 million in general obligation commercial paper. The Legislature has also
authorized the issuance of $311 million in certificates of participation
(including costs of issuance, reserve funds and other costs) during the State's
1997-98 fiscal year for equipment purchases. The projection of State borrowings
for the 1997-98 fiscal year is subject to change as market conditions, interest
rates and other factors vary throughout the fiscal year.
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.
As a result of these changes, the State's 1997-98 borrowing plan now
reflects: $501 million in general obligation bonds (including $140 million for
purposes of redeeming outstanding BANs) and $140 million in general obligation
commercial paper; the issuance of $83 million in COPs for equipment purchases;
and approximately $1.8 billion in borrowings by public authorities pursuant to
lease-purchase and contractual-obligation financings for capital programs of the
State, including costs of issuance, reserve funds, and other costs, net of
anticipated refundings and other adjustments for 1997-98 capital projects. The
projection of State borrowings for the 1997-98 fiscal year is subject to change
as market conditions, interest rates and other factors vary through the end of
the fiscal year.
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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) an action against New York
State and New York City officials alleging inadequate shelter allowances to
maintain proper housing; (4) challenges to the practice of reimbursing certain
Office of Mental Health patient care expenses from the client's Social Security
benefits; (5) alleged responsibility of New York State officials to assist in
remedying racial segregation in the City of Yonkers; (6) challenges to
regulations promulgated by the Superintendent of Insurance establishing certain
excess medical malpractice premium rates; (7) challenges to certain aspects of
petroleum business taxes; (8) an action alleging damages resulting from the
failure by the State's Department of Environmental Conservation to timely
provide certain data; (9) challenges to the constitutionality of Public Health
Law 2807-d, which imposes a gross receipts tax from certain patient care
services; (10) an action seeking reimbursement from the State for certain costs
arising out of the provision of pre-school services and programs for disabled
children; (11) an action seeking enforcement of certain sales and excise taxes
and tobacco products and motor fuel sold to non-Indian consumers on Indian
reservations; and (12) a challenge to the constitutionality of Clean Water/Clean
Air Bond Act.
Several actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which
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changed actuarial funding methods for determining state and local contributions
to state employee retirement systems have been decided against the State. As a
result, the Comptroller developed a plan to restore the State's retirement
systems to prior funding levels. Such funding is expected to exceed prior levels
by $116 million in fiscal year 1996-97, $193 million in fiscal year 1997-98,
peaking at $241 million in fiscal year 1998-99. Beginning in fiscal 2001-02,
State contributions required under the Comptroller's plan are projected to be
less than that required under the prior funding method. As a result of the
United States Supreme Court decision in the case of STATE OF DELAWARE V. STATE
OF NEW YORK, on January 21, 1994, the State entered into a settlement agreement
with various parties. Pursuant to all agreements executed in connection with the
action, the State was required to make aggregate payments of $351.4 million.
Annual payments to the various parties will continue through the State's 2002-03
fiscal year in amounts which will not exceed $48.4 million in any fiscal year
subsequent to the State's 1994-95 fiscal year. Litigation challenging the
constitutionality of the treatment of certain monies held in a reserve fund was
settled in June 1996 and certain amounts in a Supplemental Reserve Fund
previously credited by the State against prior State and local pension
contributions will be paid in 1998.
The legal proceedings noted above involve State finances, State
programs and miscellaneous cure rights, tort, real property and contract claims
in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could affect
adversely the financial condition of the State in the 1997-98 fiscal year or
thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced financial plan. An adverse decision in any of these proceedings could
exceed the amount of the reserve established in the State's financial plan for
the payment of judgments and, therefore, could affect the ability of the State
to maintain a balanced financial plan. In its audited financial statements for
the 1996-97 fiscal year, the State reported its estimated liability for awarded
and anticipated unfavorable judgments to be $364 million, of which $134 million
is expected to be paid during the 1997-98 fiscal year.
Although other litigation is pending against New York State,
except as described herein, no current litigation involves New York State's
authority, as a matter of law, to contract indebtedness, issue its obligations,
or pay such indebtedness when it matures, or affects New York State's power or
ability, as a matter of law, to impose or collect significant amounts of taxes
and revenues.
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AUTHORITIES. The fiscal stability of New York State is related, in
part, to the fiscal stability of its Authorities, which generally have
responsibility for financing, constructing and operating revenue-producing
public benefit facilities. Authorities are not subject to the constitutional
restrictions on the incurrence of debt which apply to the State itself, and may
issue bonds and notes within the amounts of, and as otherwise restricted by,
their legislative authorization. The State's access to the public credit markets
could be impaired, and the market price of its outstanding debt may be
materially and adversely affected, if any of the Authorities were to default on
their respective obligations, particularly with respect to debt that is
State-supported or State-related.
Authorities are generally supported by revenues generated by the
projects they finance or operate, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, New
York State has provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the Authorities for operating and
other expenses and, in fulfillment of its commitments on moral obligation
indebtedness or otherwise, for debt service. This operating assistance is
expected to continue to be required in future years. In addition, certain
statutory arrangements provide for State local assistance payments otherwise
payable to localities to be made under certain circumstances to certain
Authorities. The State has no obligation to provide additional assistance to
localities whose local assistance payments have been paid to Authorities under
these arrangements. However, in the event that such local assistance payments
are so diverted, the affected localities could seek additional State funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State
of New York may also be impacted by the fiscal health of its localities,
particularly the City of New York, which has required and continues to require
significant financial assistance from New York State. The City depends on State
aid both to enable the City to balance its budget and to meet its cash
requirements. There can be no assurance that there will not be reductions in
State aid to the City from amounts currently projected or that State budgets
will be adopted by the April 1 statutory deadline or that any such reductions or
delays will not have adverse effects on the City's cash flow or expenditures. In
addition, the Federal budget negotiation process could result in a reduction in
or a delay in the receipt of Federal grants which
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could have additional adverse effects on the City's cash flow or revenues.
In 1975, New York City suffered a fiscal crisis that impaired
the borrowing ability of both the City and New York State. In that year the
City lost access to the public credit markets. The City was not able to sell
short-term notes to the public again until 1979. In 1975, S&P suspended its
A rating of City bonds. This suspension remained in effect until March 1981,
at which time the City received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to
BBB+ and on November 19, 1987, to A-. Moody's ratings of City bonds were
revised in November 1981 from B (in effect since 1977) to Ba1, in November
1983 to Baa, in December 1985 to Baa1, in May 1988 to A and again in February
1991 to Baa1. On February 3, 1998, S&P placed a BBB+ rating on the City's
general obligation debit on CreditWatch with positive implications.
New York City is heavily dependent on New York State and federal
assistance to cover insufficiencies in its revenues. There can be no assurance
that in the future federal and State assistance will enable the City to make up
its budget deficits. To help alleviate the City's financial difficulties, the
Legislature created the Municipal Assistance Corporation ("MAC") in 1975. Since
its creation, MAC has provided, among other things, financing assistance to the
City by refunding maturing City short-term debt and transferring to the City
funds received from sales of MAC bonds and notes. MAC is authorized to issue
bonds and notes payable from certain stock transfer tax revenues, from the
City's portion of the State sales tax derived in the City and, subject to
certain prior claims, from State per capita aid
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otherwise payable by the State to the City. Failure by the State to continue the
imposition of such taxes, the reduction of the rate of such taxes to rates less
than those in effect on July 2, 1975, failure by the State to pay such aid
revenues and the reduction of such aid revenues below a specified level are
included among the events of default in the resolutions authorizing MAC's
long-term debt. The occurrence of an event of default may result in the
acceleration of the maturity of all or a portion of MAC's debt. MAC bonds and
notes constitute general obligations of MAC and do not constitute an enforceable
obligation or debt of either the State or the City. As of June 30, 1997, MAC had
outstanding an aggregate of approximately $4.267 billion of its bonds. MAC is
authorized to issue bonds and notes to refund its outstanding bonds and notes
and to fund certain reserves, without limitation as to principal amount, and to
finance certain capital commitments to the Transit Authority and the New York
City School Construction Authority through the 1997 fiscal year in the event the
City fails to provide such financing.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the
Financial Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal
years, relating to the City, the
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Board of Education ("BOE") and the 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 1997-98 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.
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Since the preparation of the 1998-2001 Financial Plan, the State
has adopted its budget for the 1997-1998 fiscal year. The State budget (1)
enacted a smaller sales tax reduction than the tax reduction program assumed by
the City in the Financial Plan, which will increase projected City sales tax
revenues; (2) provided for State aid to the City which was less than assumed in
the Financial Plan; and enacted a State-funded tax relief program which begins a
year later than reflected in the financial plan. In addition, the net effect of
tax law changes made in the Federal Balanced Budget Act of 1997 are expected to
increase tax revenues in the 1998 fiscal year.
Although the City has maintained balanced budgets in each of its
last sixteen fiscal years and is projected to achieve balanced operating results
for the 1997 fiscal year, there can be no assurance that the gap-closing actions
proposed in the 1998-2001 Financial Plan can be successfully implemented or
that the City will maintain a balanced budget in future years without additional
State aid, revenue increases or expenditure reductions. Additional tax increases
and reductions in essential City services could adversely affect the City's
economic base.
The projections set forth in the 1998-2001 Financial Plan were
based on various assumptions and contingencies which are uncertain and which may
not materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City employees
consistent with those assumed in the 1998-2001 Financial Plan, employment
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<PAGE>
growth, the ability to implement proposed reductions in City personnel and other
cost reduction initiatives, the ability of the Health and Hospitals Corporation
and the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent
upon the City's ability to market its securities successfully. The City's
financing program for fiscal years 1998 through 2001 contemplates the issuance
of $5.7 billion of general obligation bonds and $5.7 billion of bonds to be
issued by the proposed New York City Transitional Finance Authority (the
"Finance Authority") to finance City capital projects. The Finance Authority was
created as part of the City's effort to assist in keeping the City's
indebtedness within the forecast level of the constitutional restrictions on the
amount of debt the City is authorized to incur. Despite this additional
financing mechanism, the City currently projects that, if no further action is
taken, it will reach its debt limit in City fiscal year 1999-2000. Indebtedness
subject to the constitutional debt limit includes liability on capital contracts
that are expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.
The City Comptroller and other agencies and public officials have
issued reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing
needs in the public credit markets, repaying all short-term obligations within
their fiscal year of issuance. Although the City's current financial plan
projects $2.4 billion of seasonal financing for the 1998 fiscal year, the City
expects to undertake only approximately $1.4 billion of seasonal
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<PAGE>
financing. The City issued $2.4 billion of short-term obligations in fiscal year
1997. Seasonal financing requirements for the 1996 fiscal year increased to $2.4
billion from $2.2 billion and $1.75 billion in the 1995 and 1994 fiscal years,
respectively. Seasonal financing requirements were $1.4 billion in the 1993
fiscal year. The delay in the adoption of the State's budget in certain past
fiscal years has required the City to issue short-term notes in amounts
exceeding those expected early in such fiscal years.
Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several State fiscal years. The potential impact on
the State of any future requests by localities for additional assistance is not
included in the State's projections of its receipts and disbursements for the
1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the re-establishment of the Financial Control Board for the City of
Yonkers (the "Yonkers Board") by New York State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken by
the State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of
budgetary deficits that resulted in the establishment of a Supervisory Board for
the City of Troy in 1994. The Supervisory Board's powers were increased in 1995,
when Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance during
the 1996 legislative session through $50 million in special appropriations
targeted for distressed cities, and that was largely continued in 1997.
Twenty-eight municipalities are scheduled to share in more than $32 million in
targeted unrestricted aid allocated in the 1997-98 State budget. An additional
$21 million will be dispersed among all cities, towns and villages, a 3.97%
increase in General Purpose State Aid.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1995, the total indebtedness of all
localities in New York State other than New York City was approximately $19
billion. A small portion (approximately $102.3 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant
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to enabling New York State legislation. State law requires the comptroller to
review and make recommendations concerning the budgets of those local government
units, other than New York City, authorized by State law to issue debt to
finance deficits during the period that such deficit financing is outstanding.
Eighteen localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1995.
From time to time, federal expenditure reductions could reduce, or
in some cases eliminate, federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If New York State, New York City or any of the Authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within New York State could be adversely affected. Localities also
face anticipated and potential problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. Long-range
potential problems of declining urban population, increasing expenditures and
other economic trends could adversely affect localities and require increasing
New York State assistance in the future.
SPECIAL CONSIDERATIONS RELATING TO CONNECTICUT MUNICIPAL
SECURITIES
The following information is a brief summary of factors affecting the
economies and financial strengths of the State of Connecticut, its
municipalities and its political subdivisions and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based primarily upon one or more publicly available offering
statements relating to debt offerings of this State of Connecticut that were
available prior to the date of this Statement of Additional Information. The
accuracy and completeness of the information contained in such offering
statements have not been independently verified.
The ability of the issuers of Connecticut Municipal Securities to pay
the principal and interest on their obligations may be impacted by a variety of
factors relating to the economy of Connecticut and to the fiscal stability of
issuers of Connecticut Municipal Securities. The latter may include such matters
as the ability of issuers to raise sufficient tax and other revenues to meet
their needs, the availability of aid from other governmental bodies, and the
burdens that may be imposed on issuers by law or necessity. To the extent that
the Fund invests in obligations that are not general obligations of their
issuers, payments of principal and interest will depend on all factors affecting
the revenue sources from which payments thereon are to be derived. The value of
the obligations held by the Fund would
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<PAGE>
be adversely affected not only by any actual inability of their issuers to pay
the principal and interest thereon, but also by a public perception that such
ability is in doubt.
Manufacturing has historically been of prime economic importance to
Connecticut. The State's manufacturing industry is diversified, with
transportation equipment (primarily aircraft engines, helicopters and
submarines) the dominant industry, followed by non-electrical machinery,
fabricated metal products and electrical machinery. As a result of a rise in
employment in service-related industries and a decline in manufacturing
employment, manufacturing accounted for only 17.39% of total non-agricultural
employment in Connecticut in 1996. Defense-related business represents a
relatively high proportion of the manufacturing sector. On a per capita basis,
defense awards to Connecticut have traditionally been among the highest in the
nation, and reductions in defense spending have had a substantial adverse impact
on Connecticut's economy.
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 some Connecticut
cities and towns.
At the end of the 1990-1991 fiscal year, the General Fund had an
accumulated unappropriated deficit of $965,712,000. For the six fiscal years
ended June 30, 1997, the General Fund ran operating surpluses, based on the
State's budgetary method of accounting, of approximately $110,200,000,
$113,500,000, $19,700,000, $80,500,000, $250,000,000, and $262,600,000,
respectively. General Fund budgets for the biennium ending June 30, 1999,
were adopted in 1997. General Fund expenditures and revenues are budgeted to
be approximately $9,550,000,000 and $9,700,000,000 for the 1997-1998 and
1998-1999 fiscal years, respectively, an increase of more than 35% from the
budgeted expenditures of approximately $7,008,000,000 for the 1991-1992
fiscal year.
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
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<PAGE>
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 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 February 4, 1998, 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, 2002, 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 December 1, 1997, the General Assembly had authorized
$4,302,700,000 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
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<PAGE>
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; and (iii)
litigation involving claims by Indian tribes to a portion of the State's land
area.
As a result of litigation on behalf of black and Hispanic school
children in the City of Hartford seeking "integrated education" within the
Greater Hartford metropolitan area, on July 9, 1996, the State Supreme Court
directed the legislature to develop appropriate measures to remedy the racial
and ethnic segregation in the Hartford public schools. The fiscal impact of this
decision might be significant but is not determinable at this time.
General obligation bonds issued by municipalities are payable
primarily from ad valorem taxes on property located in the municipality. A
municipality's property tax base is subject to many factors outside the
control of the municipality, including the decline in Connecticut's
manufacturing industry. 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.
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<PAGE>
In addition to general obligation bonds backed by the full faith and
credit of the municipality, certain municipal authorities finance projects by
issuing bonds that are not considered to be debts of the municipality. Such
bonds may be repaid only from revenues of the financed project, the revenues
from which may be insufficient to service the related debt obligations.
The U.S. Census Bureau reports that, at the time of the 1990 census,
Connecticut's capital city of Hartford was the eighth poorest city in the
nation based on the percentage of its residents living in poverty; the same
report indicates that four of Connecticut's largest cities ranked among the
130 poorest cities in the nation by the same measure.
Regional economic difficulties, reduction in revenues and increases
in expenses could lead to further fiscal problems for the State and its
political subdivisions, authorities and agencies. Difficulties in payment of
debt service on borrowings could result in declines, possibly severe, in the
value of their outstanding obligations, increases in their future borrowing
costs, and impairment of their ability to pay debt service on their
obligations.
ADDITIONAL INVESTMENT LIMITATIONS
In addition to the investment limitations disclosed in their
Prospectuses, the Funds are subject to the following investment limitations,
which may be changed with respect to a particular Fund only by a vote of the
holders of a majority of such Fund's outstanding shares (as defined under
"Miscellaneous" in the Prospectuses).
Each Fund may not:
1. Purchase securities on margin (except such short-term
credits as may be necessary for the clearance of
purchases), make short sales of securities, or maintain a
short position.
2. Act as an underwriter within the meaning of the Securities
Act of 1933; except insofar as a Fund might be deemed to be
an underwriter upon disposition of restricted portfolio
securities; and except to the extent that the purchase of
securities directly from the issuer thereof in accordance
with the Fund's investment objective, policies and
limitations may be deemed to be underwriting.
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
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<PAGE>
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.
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<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 Funds and Retail B Shares of
the Short-Term Bond, High Quality Bond and Tax-Exempt Bond Funds ("CDSC
Funds") are sold to customers ("Customers") of FIS Securities, Inc., Fleet
Brokerage Securities, Inc., Fleet Securities, Inc., Fleet Enterprises, Inc.,
Fleet Financial Group, Inc., its affiliates, their correspondent banks, and
other qualified banks, savings and loan associations and broker/dealers
("Institutions"). As described in the applicable Prospectuses, Retail A
Shares of the Funds and Retail B Shares of the CDSC Funds may also be sold to
individuals, corporations or other entities, who submit a purchase
application to Galaxy, purchasing either for their own accounts or for the
accounts of others ("Direct Investors"). As described in the applicable
Prospectuses, Trust Shares in the Funds are offered to investors maintaining
qualified accounts at bank and trust institutions, including institutions
affiliated with Fleet Financial Group, Inc., and with respect to the Taxable
Bond Funds, to participants in employer-sponsored defined contribution plans.
Trust Shares of the Corporate Bond Fund are also offered to Direct Investors
and Customers of Institutions.
Retail A Shares of the Funds are sold to Direct Investors and
Customers at the public offering price based on a Fund's net asset value plus
a front-end sales charge as described in the applicable Prospectuses. A
deferred sales charge of up to 1.00% is assessed on certain redemptions of
Retail A Shares that are purchased with no initial sales charge as part of an
investment of $500,000 or more. Retail B Shares of the CDSC Funds are sold to
Direct Investors and Customers at the net asset value next determined after a
purchase order is received, but are subject to a contingent deferred sales
charge which is payable on redemption of such shares as described in the
applicable prospectuses.
Retail A Shares of the Funds are offered for sale with a maximum
front-end sales charge of 3.75%, with certain exemptions as described in the
applicable Prospectuses. An illustration of the computation of the offering
price per share of Retail A Shares of the Funds, using the value of each
Fund's net assets attributable to such Shares and the number of outstanding
Retail A Shares of each Fund at the close of business on October 31, 1997
(with respect to the Corporate Bond Fund and New Jersey 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
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<PAGE>
sale to public investors) and the maximum front-end sales charge of 3.75%, is
as follows:
Intermediate
Short-Term Government Income
Bond Fund Fund
------------ -----------------
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
------------
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
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<PAGE>
<TABLE>
<CAPTION>
Tax-Exempt New Jersey Municipal
Bond Fund Bond Fund
----------- --------------------
<S> <C> <C>
Net Assets .............. $25,465,173 $11,651,460
Outstanding Shares....... 2,302,321 1,165,146
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>
<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
Share ................... $ 11.09 $ 10.47
Sales Charge (3.75% of
the offering price) ..... $ 0.43 $ 0.41
Offering Price to
Public .................. $ 11.52 $ 10.88
</TABLE>
<TABLE>
<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>
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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 suspend the right of redemption or postpone the date of
payment for shares for more than seven days during any period when (a)
trading in the markets the Funds normally utilize is restricted, or an
emergency, as defined by the rules and regulations of the Securities and
Exchange Commission (the "SEC") exists making disposal of a Fund's
investments or determination of its net asset value not reasonably
practicable; (b) the New York Stock Exchange is closed (other than customary
weekend and holiday closings); or (c) the SEC by order has permitted such
suspension.
Galaxy may require any information reasonably necessary to ensure
that a redemption has been duly authorized.
DESCRIPTION OF SHARES
Galaxy is a Massachusetts business trust. Galaxy's Declaration of
Trust authorizes the Board of Trustees to issue an unlimited number of shares
and to classify or reclassify any unissued shares into one or more additional
classes by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized
the issuance of twenty-four classes of shares, each representing interests in
one of twenty-seven separate investment portfolios: Money Market Fund,
Government Fund, U.S. Treasury Fund, Tax-Exempt Fund, Connecticut Municipal
Money Market Fund, Massachusetts Municipal Money Market Fund, Institutional
Government Money Market Fund, Equity Value Fund, Equity Growth Fund, Equity
Income Fund, International Equity Fund, Small Company Equity Fund, MidCap
Equity Fund, Asset Allocation Fund, Growth and Income Fund, Small Cap Value
Fund, 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 CDSC
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<PAGE>
Funds) are offered under separate Prospectuses to different categories of
investors.
Shares have no preemptive rights and only such conversion or
exchange rights as the Board of Trustees may grant in its discretion. When
issued for payment as described in the Prospectuses, shares will be fully
paid and non-assessable. Except as noted below with respect to the
Shareholder Services Plan (which is currently applicable only to Retail A
Shares of a Fund), the Distribution and Services Plan for Retail B Shares of
a CDSC Fund, and differing transfer agency fees, Trust Shares, Retail A
Shares and Retail B Shares bear pro rata the same expenses and are entitled
equally to a Fund's dividends and distributions. In the event of a
liquidation or dissolution of Galaxy or an individual Fund, shareholders of a
particular Fund would be entitled to receive the assets available for
distribution belonging to such Fund, and a proportionate distribution, based
upon the relative asset values of Galaxy's respective Funds, of any general
assets of Galaxy not belonging to any particular Fund, which are available
for distribution. Shareholders of a Fund are entitled to participate in the
net distributable assets of the particular Fund involved in liquidation,
based on the number of shares of the Fund that are held by each shareholder,
except that currently each Fund's Retail A Shares would be solely responsible
for the Fund's payments to Service Organizations under the Shareholder
Services Plan and each CDSC Fund's Retail B Shares would be solely
responsible for the Fund's payments to FD Distributors and to Service
Organizations under the Distribution and Services Plan.
Holders of all outstanding shares of a particular Fund will vote
together in the aggregate and not by series on all matters, except that only
Retail A Shares and Trust Shares of a Fund will be entitled to vote on
matters submitted to a vote of shareholders pertaining to Galaxy's
Shareholder Services Plan for Retail A and Trust Shares and only Retail B
Shares of a CDSC Fund will be entitled to vote on matters submitted to a vote
of shareholders pertaining to Galaxy's Distribution and Services Plan for
Retail B Shares. Further, shareholders of all of the Funds, as well as those
of any other investment portfolio now or hereafter offered by Galaxy, will
vote together in the aggregate and not separately on a Fund-by-Fund basis,
except as otherwise required by law or when permitted by the Board of
Trustees. Rule 18f-2 under the 1940 Act provides that any matter required to
be submitted to the holders of the outstanding voting securities of an
investment company such as Galaxy shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each Fund affected by the matter. A particular Fund is
deemed to be affected by a matter unless it is clear that the interests of
each Fund in the matter are substantially identical or that the matter does
not affect any interest of the Fund. Under the Rule, the approval of an
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<PAGE>
investment advisory agreement or any change in an investment objective or a
fundamental investment policy would be effectively acted upon with respect to
a Fund only if approved by a majority of the outstanding shares of such Fund
(irrespective of series designation). However, the Rule also provides that
the ratification of the appointment of independent public accountants, the
approval of principal underwriting contracts, and the election of trustees
may be effectively acted upon by shareholders of Galaxy voting without regard
to class or series.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and, accordingly, the holders of more than 50% in the aggregate of Galaxy's
outstanding shares may elect all of the trustees, irrespective of the votes
of other shareholders.
Galaxy does not intend to hold annual shareholder meetings except as
may be required by the 1940 Act. Galaxy's Declaration of Trust provides that
a meeting of shareholders shall be called by the Board of Trustees upon a
written request of shareholders owning at least 10% of the outstanding shares
of Galaxy entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees,
without shareholder approval (unless otherwise required by applicable law),
to (a) sell and convey the assets of a Fund to another management investment
company for consideration which may include securities issued by the
purchaser and, in connection therewith, to cause all outstanding shares of
the Fund involved to be redeemed at a price which is equal to their net asset
value and which may be paid in cash or by distribution of the securities or
other consideration received from the sale and conveyance; (b) sell and
convert a Fund's assets into money and, in connection therewith, to cause all
outstanding shares of the Fund involved to be redeemed at their net asset
value; or (c) combine the assets belonging to a Fund with the assets
belonging to another Fund of Galaxy and, in connection therewith, to cause
all outstanding shares of any Fund to be redeemed at their net asset value or
converted into shares of another class of Galaxy's shares at the net asset
value. In the event that shares are redeemed in cash at their net asset
value, a shareholder may receive in payment for such shares, due to changes
in the market prices of the Fund's portfolio securities, an amount that is
more or less than the original investment. The exercise of such authority by
the Board of Trustees will be subject to the provisions of the 1940 Act, and
the Board of Trustees will not take any action described in this paragraph
unless the proposed action has been disclosed in writing to the Fund's
shareholders at least 30 days prior thereto.
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<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' 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
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extent that such income is attributable to items of income which would have been
qualifying income if realized by the Fund in the same manner as by the
partnership or trust.
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. Such long-term cpaital gain will be
20% or 28% rate gain, depending upon the Fund's holding period for the assets
the sale of which generated the capital gain.
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 18 months) or 28%
(for gains on capital assets held more than 12 months, but not more than 18
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 calender year at least
98% of their ordinary taxable income and capital gain net income (excess of
capital gains over capital losses) for the 1-year period ending on October 31 of
such calender year. The balance of such income must be distributed during the
next calender year. Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any capital gain net income
prior to the end of each calendar year to avoid liability for this excise tax.
The Funds will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends or gross sale proceeds paid
to any shareholder who (i) has failed to
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provide a correct tax identification number, (ii) is subject to backup
withholding for 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 backup withholding when required
to do so or that he or she is an "exempt recipient."
TAX-EXEMPT BOND FUNDS
As stated in the Prospectuses for the Tax-Exempt Bond Funds, an
investment in the respective Fund is not intended to constitute a balanced
investment program. Shares of the Funds would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and individual retirement accounts
because such plans and accounts are generally tax-exempt and, therefore, not
only would the shareholder not gain any additional benefit from the Funds'
dividends being tax-exempt, but such dividends would be ultimately taxable to
the beneficiaries when distributed. In addition, the Funds may not be an
appropriate investment for entities which are "substantial users" of facilities
financed by "private activity bonds" or "related persons" thereof. "Substantial
user" is defined under U.S. Treasury Regulations to include a non-exempt person
who (i) regularly uses a part of such facilities in his or her trade or business
and whose gross revenues derived with respect to the facilities financed by the
issuance of bonds are more than 5% of the total revenues derived by all users of
such facilities, (ii) occupies more than 5% of the usable area of such
facilities or (iii) are persons for whom such facilities or a part thereof were
specifically constructed, reconstructed or acquired. "Related persons" include
certain related natural persons, affiliated corporations, a partnership and its
partners and an S corporation and its shareholders.
In order for the Tax-Exempt Bond Funds to pay exempt-interest
dividends for any taxable year, at the close of each taxable quarter, at least
50% of the aggregate value of a Fund's portfolio must consist of exempt-interest
obligations. Within 60 days after the close of its taxable year, each Fund will
notify its shareholders of the portion of the dividends paid by the Fund which
constitutes exempt-interest dividends with respect to such taxable year.
However, the aggregate amount of dividends so designated by a Fund cannot exceed
the excess of the amount of interest exempt from tax under Section 103 of the
Code received by the Fund over any amounts disallowed as deductions under
Sections 265 and 171(a)(2) of the Code. The percentage of total dividends paid
by a Fund with respect to any taxable year that qualifies as federal
exempt-interest dividends will be the same for all shareholders receiving
dividends from the Fund for such year.
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<PAGE>
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 are imposed on the extent
to which the credit (but not the deduction) for foreign taxes may be claimed.
Shareholders who choose to utilize a credit (rather than a deduction)
for foreign taxes will be subject to the limitation that the credit may not
exceed the shareholder's United States tax (determined without regard to the
availability of the credit) attributable to his or her total foreign source
taxable income. For this purpose, the portion of dividends and distributions
paid by the Fund from its foreign source income will be treated as foreign
source income. A Fund's gains and losses from the sale of securities generally
will be treated as derived from United States sources and certain foreign
currency gains and losses likewise will be treated as derived from United States
sources. The limitation on the foreign tax credit is applied separately to
foreign source "passive income," such as the portion of dividends received from
a Fund which qualifies as foreign source income. Additional limitations apply to
using the foreign tax credit to offset the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, shareholders may be
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unable to claim a credit for the full amount of their proportionate shares of
the foreign income taxes paid by a Fund.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
Special rules govern the federal income tax treatment of financial
instruments that may be held by the Funds. These rules may have a particular
impact on the amount of income or gain that the Funds must distribute to their
respective shareholders to comply with the Distribution Requirement, and on the
income or gain qualifying under the Income Requirement.
Generally, futures contracts and options on futures contracts held by
the Funds and certain foreign currency contracts entered into by the Taxable
Bond Funds (as described above) (collectively, the "Instruments") at the close
of their taxable year are treated for federal income tax purposes as sold for
their fair market value on the last business day of such year, a process known
as "mark-to-market." Forty percent of any gain or loss resulting from such
constructive sales will be treated as short-term capital gain or loss, and 60%
of such gain or loss will be treated as long-term capital gain or loss without
regard to the period a Fund has held the Instruments ("the 40-60 rule"). The
amount of any capital gain or loss actually realized by a Fund in a subsequent
sale or other disposition of those Instruments is adjusted to reflect any
capital gain or loss taken into account by the Fund in a prior year as a result
of the constructive sale of the Instruments. Losses with respect to futures
contracts to sell related options, and certain foreign currency contracts, which
are regarded as parts of a "mixed straddle" because their values fluctuate
inversely to the values of specific securities held by the Funds, are subject to
certain loss deferral rules, which limit the amount of loss currently deductible
on either part of the straddle to the amount thereof that exceeds the
unrecognized gain, if any, with respect to the other part of the straddle, and
to certain wash sales regulations. With respect to certain Instruments,
deductions for interest and carrying charges may not be allowed. Notwithstanding
the rules described above, with respect to futures contracts that are part of a
"mixed straddle" to sell related options, and certain foreign currency contracts
that are properly identified as such, a Fund may make an election which will
exempt (in whole or in part) those identified futures contracts, options and
foreign currency contracts from the Rules of Section 1256 of the Code including
"the 40-60 rule" and "mark-to-market," but gains and losses will be subject to
such short sales, wash sales and loss deferral rules and the requirement to
capitalize interest and carrying charges. Under Temporary Regulations, a Fund
would be allowed (in lieu of the foregoing) to elect either (1) to offset gains
or losses from portions that are part of a mixed straddle by separately
identifying each mixed straddle to which such treatment applies, or (2) to
establish a
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mixed straddle account for which gains and losses would be recognized and offset
on a periodic basis during the taxable year. Under either election, "the 40-60
rule" will apply to the net gain or loss attributable to the Instruments, but in
the case of a mixed straddle account election, not more than 50% of any net gain
may be treated as long-term and no more than 40% of any net loss may be treated
as short-term.
A foreign currency contract must meet the following conditions in order
to be subject to the mark-to-market rules described above: (1) the contract must
require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts. As
of the date of this Statement of Additional Information, the Treasury Department
has not issued any such regulations. Other foreign currency contracts entered
into by a Fund may result in the creation of one or more straddles for federal
income tax purposes, in which case certain loss deferral, short sales, and wash
sales rules and the requirement to capitalize interest and carrying charges may
apply.
Some of the non-U.S. dollar denominated investments that a Fund may
make, such as foreign securities, European Depository Receipts and foreign
currency contracts, may be subject to the provisions of Subpart J of the Code,
which govern the federal income tax treatment of certain transactions
denominated in terms of a currency other than the U.S. dollar or determined by
reference to the value of one or more currencies other than the U.S dollar. The
types of transactions covered by these provisions include the following: (1) the
acquisition of, or becoming the obligor under, a bond or other debt instrument
(including, to the extent provided in Treasury regulations, preferred stock);
(2) the accruing of certain trade receivables and payables; and (3) the entering
into or acquisition of any forward contract, futures contract, option and
similar financial instrument. The disposition of a currency other than the U.S.
dollar by a U.S. taxpayer also is treated as a transaction subject to the
special currency rules. However, foreign currency-related regulated futures
contracts and nonequity options are generally not subject to the special
currency rules if they are or would be treated as sold for their fair market
value at year-end under the mark-to-market rules, unless an election is made to
have such currency rules apply. With respect to transactions covered by the
special rules, foreign currency gain or loss is calculated separately from any
gain or loss on the underlying transaction and is normally taxable as ordinary
gain or loss. A taxpayer may elect to treat as capital gain or
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loss foreign currency gain or loss arising from certain identified forward
contracts, futures contracts and options that are capital assets in the hands of
the taxpayer and which are not part of a straddle. In accordance with Treasury
regulations, certain transactions that are part of a "Section 988 hedging
transaction" (as defined in the Code and Treasury regulations) may be integrated
and treated as a single transaction or otherwise treated consistently for
purposes of the Code. "Section 988 hedging transactions" are not subject to the
mark-to-market or loss deferral rules under the Code. Gain or loss attributable
to the foreign currency component of transactions engaged in by the Funds, which
is not subject to the special currency rules (such as foreign equity investments
other than certain preferred stocks), is treated as capital gain or loss and is
not segregated from the gain or loss on the underlying transaction.
The Funds may be subject to U.S. federal income tax on a portion of any
"excess distribution" or a gain from the disposition of passive foreign
investment companies even if it distributes the income to its shareholders.
STATE TAXATION
Depending upon the extent of Galaxy's activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, each Fund may be subject to the tax laws of such states or
localities. In addition, in those states and localities that have income tax
laws, the treatment of a Fund and its shareholders under such laws may differ
from their treatment under federal income tax laws. Under state or local law,
distributions of net investment income may be taxable to shareholders as
dividend income even though a substantial portion of such distributions may be
derived from interest on U.S. Government obligations which, if realized
directly, would be exempt from such income taxes. Shareholders are advised to
consult their tax advisers concerning the application of state and local taxes.
TRUSTEES AND OFFICERS
The trustees and executive officers of Galaxy, their addresses,
principal occupations during the past five years, and other affiliations are as
follows:
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Positions Principal Occupations
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
Dwight E. Vicks, Jr. Chairman & President & Director,
Vicks Lithograph & Trustee Vicks Lithograph &
Printing Corporation Printing Corporation
Commercial Drive (book manufacturing and
P.O. Box 270 commercial printing);
Yorkville, NY 13495 Director, Utica Fire
Age 64 Insurance Company;
Trustee, Savings Bank of
Utica; Director, Monitor
Life Insurance Company;
Director, Commercial
Travelers Mutual
Insurance Company;
Trustee, The Galaxy VIP
Fund; Trustee, Galaxy
Fund II.
John T. O'Neill(1) President, Executive Vice President
Hasbro, Inc. Treasurer & and CFO, Hasbro, Inc.
200 Narragansett Trustee (toy and game
Park Drive manufacturer);
Pawtucket, RI 02862 Trustee, The Galaxy
Age 53 VIP Fund; Trustee, Galaxy
Fund II.
Louis DeThomasis Trustee President, Saint Mary's
Saint Mary's College College of Minnesota;
of Minnesota Director, Bright Day
Winona, MN 55987 Travel, Inc.; Trustee,
Age 57 Religious Communities
Trust; Trustee, The
Galaxy VIP Fund; Trustee,
Galaxy Fund II.
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Positions Principal Occupations
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
Donald B. Miller Trustee Chairman, Horizon Media,
10725 Quail Covey Road Inc. (broadcast
Boynton Beach, FL services);
33436 Director/Trustee,
Age 72 Lexington 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 Astra Ventures, The Astra Projects,
Inc. Incorporated (land
One Citizens Plaza development); President,
Providence, RI 02903 The Astra Ventures,
Age 56 Incorporated (previously,
Buffinton Box Company
manufacturer of cardboard
boxes); Trustee, The
Galaxy VIP Fund;
Commissioner, Rhode
Island Investment
Commission; Trustee,
Galaxy Fund II.
Bradford S. Wellman(1) Trustee Private Investor;
2468 Ohio Street Vice President and
Bangor, ME 04401 Director, Acadia
Age 66 Management Company
(investment 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.
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Positions Principal Occupations
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ---------------- ----------- ----------------------
W. Bruce McConnel, III Secretary Partner of the law firm
Philadelphia National Drinker Biddle & Reath
Bank Building LLP, Philadelphia,
1345 Chestnut Street Pennsylvania.
Philadelphia, PA 19107
Age 54
Jylanne Dunne Vice Vice President,
First Data Investor President First Data Investor
Services Group, Inc. and Services Group, Inc.,
4400 Computer Drive Assistant 1990 to present.
Westboro, MA 01581 Treasurer
Age 38
- -------------------------
1. An interested person within the definition set forth in Section
2(a)(19) of the 1940 Act.
Each trustee receives an annual aggregate fee of $29,000 for his
services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy VIP") and Galaxy
Fund II ("Galaxy II") (collectively, the "Trusts"), plus an additional $2,250
for each in-person Galaxy Board meeting attended and $1,500 for each in-person
Galaxy VIP or Galaxy II Board meeting attended not held concurrently with an
in-person Galaxy meeting, and is reimbursed for expenses incurred in attending
all meetings. Each trustee also receives $500 for each telephone Board meeting
in which the trustee participates, $1,000 for each in-person Board committee
meeting attended and $500 for each telephone Board committee meeting in which
the trustee participates. The Chairman of the Boards of the Trusts is entitled
to an additional annual aggregate fee in the amount of $4,000, and the President
and Treasurer of the Trusts is entitled to an additional annual aggregate fee of
$2,500 for their services in these respective capacities. The foregoing
trustees' and officers' fees are allocated among the portfolios of the Trusts
based on their relative net assets.
Effective March 1, 1996, each trustee became entitled to participate in
The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation
Plans (the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan").
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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.
===============================================================================
Pension or
Retirement Total
Benefits Compensation
Accrued as from Galaxy
Aggregate Part of and Fund
Name of Compensation Fund Complex*Paid
Person/Position from Galaxy Expenses to Trustees
- -------------------------------------------------------------------------------
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
===============================================================================
- ----------------
* The "Fund Complex" consists of The Galaxy Fund, The Galaxy VIP Fund and
Galaxy Fund II.
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** 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.
The Declaration of Trust states further that no trustee, officer or
agent of Galaxy shall be personally liable for or on account of any contract,
debt, claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
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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 $130,602, $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 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
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<PAGE>
$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.
The advisory agreement provides that Fleet shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of its duties under the advisory agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Fleet in the
performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. Unless sooner terminated, the advisory agreement will
continue in effect with respect to a particular Fund from year to year as
long as such continuance is approved at least annually (i) by the vote of a
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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
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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.
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
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<PAGE>
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 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
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<PAGE>
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.
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.
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.
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<PAGE>
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; $39,826, $45,938
and $35,749, respectively, with respect to Retail A Shares of the High
Quality Bond Fund; $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").
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.
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<PAGE>
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan (the "12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to Retail B Shares of the
Short-Term Bond, High Quality Bond and Tax-Exempt Bond Funds. The 12b-1 Plan is
described in the applicable Prospectuses.
Under the 12b-1 Plan for Retail B Shares, payments by Galaxy (i) for
distribution expenses may not exceed .65% (annualized) of the average daily net
assets attributable to such Funds' outstanding Retail B Shares, (ii) to an
Institution for shareholder liaison services and/or administrative support
services may not exceed .15% (annualized) and .15% (annualized), respectively,
of the average daily net assets attributable to each such Funds' outstanding
Retail B Shares which are owned of record or beneficially by that Institution's
Customers for whom the Institution is the dealer of record or shareholder of
record or with whom it has a servicing relationship. As of the date of this
Statement of Additional Information, Galaxy intends to limit the Funds' payments
for shareholder liaison and administrative support services under the 12b-1 Plan
to an aggregate fee of not more than .15% (on an annualized basis) of the
average daily net asset value of Retail B Shares owned of record or beneficially
by Customers of Institutions.
Payments for distribution expenses under the 12b-1 Plan are subject to
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule defines distribution
expenses to include the cost of "any activity which is primarily intended to
result in the sale of Galaxy shares." The Rule provides, among other things,
that an investment company may bear such expenses only pursuant to a plan
adopted in accordance with the Rule. In accordance with the Rule, the 12b-1 Plan
provides that a report of the amounts expended under the 12b-1 Plan, and the
purposes for which such expenditures were incurred, will be made to the Board of
Trustees for its review at least quarterly. The 12b-1 Plan provides that it may
not be amended to increase materially the costs which Retail B Shares of a Fund
may bear for distribution pursuant to the 12b-1 Plan without shareholder
approval, and that any other type of material amendment must be approved by a
majority of the Board of Trustees, and by a majority of the Trustees who are
neither "interested persons" (as defined in the 1940 Act) of Galaxy nor have any
direct or indirect financial interest in the operation of the 12b-1 Plan or in
any related agreements, by vote cast in person at a meeting called for the
purpose of considering such amendments (the "Disinterested Trustees").
For the fiscal year ended October 31, 1997, Retail B Shares of the
Short-Term Bond, High Quality Bond and Tax-Exempt Bond Funds bore the following
distribution and shareholder servicing fees under the 12b-1 Plan: $3,443 in
distribution fees and $788 in
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shareholder servicing fees with respect to Retail B Shares of the Short-Term
Bond Fund; $7,645 in distribution fees and $1,729 in shareholder servicing
fees with respect to Retail B Shares of the High Quality Bond Fund; and
$7,788 in distribution fees and $1,784 in shareholder servicing fees with
respect to Retail B Shares of the Tax-Exempt Bond Fund. For the fiscal year
ended October 31, 1997, all amounts paid under the 12b-1 Plan were
attributable to payments to broker-dealers. For the period from March 4, 1996
(date of initial public offering of Retail B Shares) through October 31,
1996, Retail B Shares of the Short-Term Bond, High Quality Bond and
Tax-Exempt Bond Funds bore the following distribution and shareholder
servicing fees under the 12b-1 Plan: $822 in distribution fees and $190 in
shareholder servicing fees with respect to Retail B Shares of the Short-Term
Bond Fund; $1,580 in distribution fees and $365 in shareholder servicing fees
with respect to Retail B Shares of the High Quality Bond Fund; and $300 in
distribution fees and $0 in shareholder servicing fees with respect to Retail
B Shares of the Tax-Exempt Bond Fund. For the fiscal year ended October 31,
1996, all amounts paid under the 12b-1 Plan were attributable to payments to
broker-dealers.
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Funds and holders of Retail B
Shares. The 12b-1 Plan is subject to annual reapproval by a majority of the
Disinterested Trustees and is terminable at any time with respect to any Fund by
a vote of a majority of such Trustees or by vote of the holders of a majority of
the Retail B Shares of the Fund involved. Any agreement entered into pursuant to
the 12b-1 Plan with a Service Organization is terminable with respect to any
Fund without penalty, at any time, by vote of a majority of the Disinterested
Trustees, by vote of the holders of a majority of the Retail B Shares of such
Fund, by FD Distributors or by the Service Organization. An agreement will also
terminate automatically in the event of its assignment.
As long as the 12b-1 Plan is in effect, the nomination of the trustees
who are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of such Disinterested Trustees.
DISTRIBUTOR
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned
subsidiary of 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.
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Unless otherwise terminated, the Distribution Agreement between
Galaxy and FD Distributors, remains in effect until May 31, 1998, and
thereafter will continue from year to year upon annual approval by Galaxy's
Board of Trustees, or by the vote of a majority of the outstanding shares of
Galaxy and by the vote of a majority of the Board of Trustees of Galaxy who
are not parties to the Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such
approval. The Agreement will terminate in the event of its assignment, as
defined in the 1940 Act.
FD Distributors is entitled to the payment of a front-end sales
charge on the sale of Retail A Shares of the Funds as described in the
applicable Prospectuses. For the fiscal year ended October 31, 1997, the
Distributor received front-end sales charges in connection with Retail A
Share purchases as follows: Short-Term Bond Fund -- $15,074; Intermediate
Government Income Fund --$28,979; High Quality Bond Fund -- $43,211;
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 $15,074,
respectively, with respect to the Short-Term Bond Fund; $0 and $28,979,
respectively, with respect to the Intermediate Government Income Fund; $0 and
$43,211, respectively, with respect to the High Quality Bond Fund; $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.
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; High Quality Bond
Fund -- $5,970; and 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 during the fiscal year ended October 31, 1997:
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<TABLE>
<CAPTION>
Brokerage
Net Commissions in
Underwriting Compensation on Connection
Discounts and Redemption and with Fund Other
Fund Commissions(1) Repurchase(2) Transactions Compensation(3)
---- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Short-Term $ 18,735.01 $ 3,661.62 $ 0 $ 49,576
Bond
Intermediate $ 28,979.34 N/A $ 0 $ 105,181
Government
Income
High Quality $ 49,180.72 $ 5,969.93 $ 0 $ 49,750
Bond
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
Coopers & Lybrand L.L.P. 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
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Funds included in their 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 Coopers & Lybrand L.L.P. for the periods included in their report
thereon which appears therein.
COUNSEL
Drinker Biddle & Reath, LLP (of which W. Bruce McConnel, III,
Secretary of Galaxy, is a partner), 1345 Chestnut Street, Suite 1100,
Philadelphia, Pennsylvania 19107, are counsel to Galaxy, will pass upon
certain legal matters on its behalf, and has reviewed the portion of this
Statement of Additional Information and the Prospectuses with respect to the
New Jersey Municipal Bond Fund concerning New Jersey taxes and the
description of special considerations relating to New Jersey Municipal
Securities. The law firm of Willkie Farr & Gallagher, One Citicorp Center,
153 East 53rd Street, New York, New York 10022, serves as special New York
counsel to Galaxy and has reviewed the portion of this Statement of
Additional Information and the Prospectuses with respect to the New York
Municipal Bond Fund concerning New York taxes and the description of special
considerations relating to New York Municipal Securities. The law firm of
Day, Berry & Howard, Cityplace, Hartford, Connecticut 06103-3499 serves as
special Connecticut counsel to Galaxy and has reviewed the portion of this
Statement of Additional Information and the Prospectuses with respect to the
Connecticut Municipal Bond Fund concerning Connecticut taxes and the
description of special considerations relating to Connecticut Municipal
Securities. The law firm of Ropes & Gray, One International Place, Boston,
Massachusetts 02110-2624 serves as special Massachusetts counsel and special
Rhode Island counsel to Galaxy and has reviewed the portion of the
Prospectuses with respect to the Massachusetts Municipal Bond Fund concerning
Massachusetts taxes and the description of special considerations relating to
Massachusetts Municipal Securities and the portion of the Prospectuses with
respect to the Rhode Island Municipal Bond Fund concerning Rhode Island taxes
and the description of Special Considerations relating to Rhode Island
Municipal Securities.
PERFORMANCE AND YIELD INFORMATION
YIELD AND PERFORMANCE OF THE FUNDS
The Funds' 30-day (or one month) standard yields described in their
Prospectuses are calculated separately for each series
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of shares in each Fund in accordance with the method prescribed by the SEC
for mutual funds:
a - b 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.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the Fund. Except as noted below,
interest earned on debt obligations held by a Fund is calculated by computing
the yield to maturity of each obligation based on the market value of the
obligation (including actual accrued interest) at the close of business on
the last business day of each month, or, with respect to obligations
purchased during the month, the purchase price (plus actual accrued interest)
and dividing the result by 360 and multiplying the quotient by the market
value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the
subsequent month that the obligation is held by the Fund. For purposes of
this calculation, it is assumed that each month contains 30 days. The
maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date. With respect to debt obligations purchased at a discount or
premium, the formula generally calls for amortization of the discount or
premium. The amortization schedule will be adjusted monthly to reflect
changes in the market value of such debt obligations. Expenses accrued for
the period (variable "b" in the formula) include all recurring fees charged
by a Fund to all shareholder accounts in proportion to the length of the base
period and the Fund's mean (or median) account size. Undeclared earned income
will be subtracted from the offering price per share (variable "d" in the
formula).
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Interest earned on tax-exempt obligations that are issued without
original issue discount and have a current market discount is calculated by
using the coupon rate of interest instead of the yield to maturity. In the
case of tax-exempt obligations that are issued with original issue discount
but which have discounts based on current market value that exceed the
then-remaining portion of the original issue discount (market discount), the
yield to maturity is the imputed rate based on the original issue discount
calculation. On the other hand, in the case of tax-exempt obligations that
are issued with original issue discount but which have discounts based on
current market value that are less than the then-remaining portion of the
original issue discount (market premium), the yield to maturity is based on
the market value.
With respect to mortgage or other receivables-backed obligations
that are expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay downs are
accounted for as an increase or decrease to interest income during the
period, and (ii) each Fund may elect either (a) to amortize the discount and
premium on the remaining security, based on the cost of the security, to the
weighted average maturity date, if such information is available, or to the
remaining term of the security, if any, if the weighted average date is not
available or (b) not to amortize discount or premium on the remaining
security.
The "tax-equivalent" yield of the New Jersey Municipal Bond, New
York Municipal Bond, Connecticut Municipal Bond, Massachusetts Municipal Bond
and Rhode Island Municipal Bond Funds is computed by: (a) dividing the
portion of each Fund's yield (calculated as above) that is exempt from both
federal and state income taxes by one minus a stated combined federal and
state income tax rate; (b) by dividing the portion of the Fund's yield
(calculated as above) that is exempt from federal income tax only by one
minus a stated federal income tax rate; and (c) adding the figures resulting
from (a) and (b) above to that portion, if any, of the yield that is not
exempt from federal income tax. The tax-equivalent yield of the Tax-Exempt
Bond Fund is computed by (a) dividing the portion of the yield (calculated as
above) that is exempt from federal income tax by one minus a stated federal
income tax rate and (b) adding that figure to that portion, if any, of the
yield that is not exempt from federal income tax.
Based on the foregoing calculation, (i) the standard yields for
Retail A Shares of the Short-Term Bond, Intermediate Government Income, High
Quality Bond, Tax-Exempt Bond, New York Municipal Bond, Connecticut Municipal
Bond, Massachusetts Municipal Bond and Rhode Island Municipal Bond Funds for
the 30-day period ended October 31, 1997 were 4.82%, 5.15%, 5.32%, 3.97%,
-64-
<PAGE>
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 yields for
Retail B Shares of the Short-Term Bond, High Quality Bond and Tax-Exempt Bond
Funds for the 30-day period ended October 31, 1997 were 4.35%, 4.95% and
3.48%, respectively, and (ii) the tax-equivalent yield for Retail B Shares
of the Tax-Exempt Bond Fund for the 30-day period ended October 31, 1997 was
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:
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);
-65-
<PAGE>
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed
in years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment.
The formula for calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(-----) - l]
P
The calculations are made assuming that (1) all dividends and
capital gain distributions are reinvested on the reinvestment dates at the
price per share existing on the reinvestment date, (2) all recurring fees
charged to all shareholder accounts are included, and (3) for any account
fees that vary with the size of the account, a mean (or median) account size
in the Fund during the periods is reflected. The ending redeemable value
(variable "ERV" in the formula) is determined by assuming complete redemption
of the hypothetical investment after deduction of all nonrecurring charges at
the end of the measuring period. In addition, the Funds' average annual
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 returns for Retail A Shares of the Short-Term Bond,
Tax-Exempt Bond and New York Municipal Bond Funds from
-66-
<PAGE>
December 30, 1991 (inception) to October 31, 1997 were 29.95%, 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 Short-Term Bond,
Tax-Exempt Bond and New York Municipal Bond Funds were 4.59%, 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 Short-Term
Bond, Tax-Exempt Bond and New York Municipal Bond Funds were 1.67% and 4.32%,
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 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 return for Retail A Shares of the Rhode Island Municipal Bond Fund was
3.78%.
Aggregate total returns for Retail B Shares of the Short-Term Bond,
High Quality Bond and Tax-Exempt Bond Funds from March 4, 1996 (date of
initial public offering) through October 31, 1997 were 3.25%, 4.83% and
3.98%, respectively. From March 4, 1996 (date of initial public offering)
through October 31, 1997, average annual total returns for Retail B Shares of
the Short-Term Bond, High Quality Bond and Tax-Exempt Bond Funds were 1.95%,
2.88% and 2.38%, respectively. For the one-year period ended October 31,
1997, the average annual returns for Retail B Shares of the Short-Term Bond,
High Quality Bond and Tax-Exempt Bond Funds were -0.01%, 2.59% and 1.83%,
respectively.
Aggregate total return for Trust Shares of the Intermediate
Government Income Fund for the period September 1, 1988 (inception) to
October 31, 1997 was 93.76%. From September 1, 1988 (inception) to October
31, 1997, average annual total
-67-
<PAGE>
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 (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%.
-68-
<PAGE>
As stated in the Prospectuses, the Funds may also calculate total
return quotations without deducting the maximum sales load imposed in purchases
of Retail A Shares or redemptions of Retail B Shares. The effect of not
deducting the sales charge will be to increase the total return reflected.
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.
New Jersey Note: The tax brackets and related yield calculations are based on
the 1997 Federal and New Jersey marginal tax rates. The combined Federal and
state rate reflects an assumed deduction of the New Jersey tax liability. In
addition, because New Jersey uses graduated tax rates, some simplification was
necessary for purposes of compiling the chart.
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 1998 FEDERAL AND NEW JERSEY TAX RATES WERE NOT YET AVAILABLE
AS OF THE DATE OF COMPILATION OF THIS TABLE.
Taxable Yield Equivalent for 1997*
State of New Jersey
<TABLE>
<CAPTION>
Federal Tax Rate Bracket:*
15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State:*
16.26% 30.40% 35.00% 40.05% 43.44%
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Joint $0- $36,901- $89,151- $140,001- over
Return $36,900 $89,150 $140,000 $250,000 $250,001
Single $0- $22,101- $53,501- $115,001- over
Return $22,100 $53,500 $115,000 $250,000 $250,001
- -----------------------------------------------------------------------------------------------------
Tax-Exempt Yield:
Taxable Yield Equivalent
- -----------------------------------------------------------------------------------------------------
1.50% 1.79% 2.16% 2.31% 2.50% 2.65% 1.50%
2.00% 2.39% 2.87% 3.08% 3.34% 3.54% 2.00%
2.50% 2.99% 3.59% 3.85% 4.17% 4.42% 2.50%
3.00% 3.58% 4.31% 4.62% 5.00% 5.30% 3.00%
3.50% 4.18% 5.03% 5.38% 5.84% 6.19% 3.50%
4.00% 4.78% 5.75% 6.15% 6.67% 7.07% 4.00%
4.50% 5.37% 6.47% 6.92% 7.51% 7.96% 4.50%
5.00% 5.97% 7.18% 7.69% 8.34% 8.84% 5.00%
5.50% 6.57% 7.90% 8.46% 9.17% 9.72% 5.50%
6.00% 7.17% 8.62% 9.23% 10.01% 10.61% 6.00%
</TABLE>
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%
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Taxable Income* New York Tax Equivalent Yields:****
- ------------------------------ ----------------------------------------------------------------------------------------------
Single City 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>
0 - 8,000 3.08% 1.90% 2.53% 3.17% 3.80% 4.43% 5.06% 5.70% 6.33% 6.96% 7.60%
8,001 - 8,400 3.08% 1.91% 2.55% 3.18% 3.82% 4.46% 5.09% 5.73% 6.36% 7.00% 7.64%
8,401 - 11,000 3.66% 1.92% 2.56% 3.20% 3.84% 4.48% 5.12% 5.76% 6.41% 7.05% 7.69%
11,001 - 12,000 3.66% 1.94% 2.58% 3.23% 3.87% 4.52% 5.17% 5.81% 6.46% 7.10% 7.75%
12,001 - 13,000 4.34% 1.96% 2.60% 3.25% 3.90% 4.55% 5.21% 5.86% 6.51% 7.16% 7.81%
13,001 - 15,000 4.34% 1.97% 2.62% 3.28% 3.93% 4.59% 5.24% 5.90% 6.55% 7.21% 7.86%
15,001 - 20,000 4.39% 1.97% 2.62% 3.28% 3.93% 4.59% 5.25% 5.90% 6.56% 7.21% 7.87%
20,001 - 25,000 4.39% 1.99% 2.65% 3.31% 3.98% 4.64% 5.30% 5.96% 6.63% 7.29% 7.95%
25,001 - 25,350 4.40% 1.99% 2.65% 3.31% 3.98% 4.64% 5.30% 5.97% 6.63% 7.29% 7.95%
25,351 - 50,000 4.40% 2.35% 3.13% 3.91% 4.69% 5.48% 6.26% 7.04% 7.82% 8.61% 9.39%
50,001 - 61,400 4.46% 2.35% 3.13% 3.92% 4.70% 5.48% 6.26% 7.05% 7.83% 8.61% 9.40%
61,401 - 128,100 4.46% 2.45% 3.27% 4.09% 4.90% 5.72% 6.54% 7.35% 8.17% 8.99% 9.80%
128,101 - 278,450 4.46% 2.64% 3.52% 4.40% 5.29% 6.17% 7.05% 7.93% 8.81% 9.69% 10.57%
over 278,450 4.46% 2.80% 3.73% 4.67% 5.60% 6.53% 7.47% 8.40% 9.33% 10.27% 11.20%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
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**
- ----------------------------------------------------------------------------------------------------------
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>
Taxable Income* New York Tax Equivalent Yields:****
- ------------------------------ -----------------------------------------------------------------------------------------------
Joint City 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>
0 - 14,400 3.08% 1.90% 2.53% 3.17% 3.80% 4.43% 5.06% 5.70% 6.33% 6.96% 7.60%
14,401 - 16,000 3.66% 1.91% 2.55% 3.19% 3.82% 4.46% 5.10% 5.73% 6.37% 7.01% 7.64%
16,001 - 21,600 3.66% 1.92% 2.56% 3.20% 3.84% 4.48% 5.12% 5.76% 6.41% 7.05% 7.69%
21,601 - 22,000 4.34% 1.94% 2.58% 3.23% 3.87% 4.52% 5.16% 5.81% 6.45% 7.10% 7.74%
22,001 - 26,000 4.34% 1.95% 2.60% 3.25% 3.90% 4.55% 5.21% 5.86% 6.51% 7.16% 7.81%
26,001 - 27,000 4.34% 1.97% 2.62% 3.28% 3.93% 4.59% 5.24% 5.90% 6.55% 7.21% 7.86%
27,001 - 40,000 4.39% 1.97% 2.62% 3.28% 3.93% 4.59% 5.25% 5.90% 6.56% 7.21% 7.87%
40,001 - 42,350 4.39% 1.99% 2.65% 3.31% 3.98% 4.64% 5.30% 5.96% 6.63% 7.29% 7.95%
42,351 - 45,000 4.39% 2.35% 3.13% 3.91% 4.69% 5.48% 6.26% 7.04% 7.82% 8.61% 9.39%
45,001 - 90,000 4.40% 2.35% 3.13% 3.91% 4.69% 5.48% 6.26% 7.04% 7.82% 8.61% 9.39%
90,001 - 102,300 4.46% 2.35% 3.13% 3.92% 4.70% 5.48% 6.26% 7.05% 7.83% 8.61% 9.40%
102,301 - 155,950 4.46% 2.45% 3.27% 4.09% 4.90% 5.72% 6.54% 7.35% 8.17% 8.99% 9.80%
155,951 - 278,450 4.46% 2.64% 3.52% 4.40% 5.29% 6.17% 7.05% 7.93% 8.81% 9.69% 10.57%
over 278,450 4.46% 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.
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
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 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 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
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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,
Coopers & Lybrand L.L.P. 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.
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APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
The following is a description of the securities ratings of Duff &
Phelps Credit Rating Co. ("D&P"), Fitch IBCA, Inc. ("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 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
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conditions and circumstances, however, are more likely to have an adverse
impact on these bonds, and therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
The four highest ratings of S&P for tax-exempt and corporate bonds
are AAA, AA, A and BBB. Bonds rated AAA bear the highest rating assigned by
S&P to a debt obligation and the AAA rating indicates in its opinion an
extremely strong capacity to pay interest and repay principal. Bonds rated AA
by S&P are judged by it to have a very strong capacity to pay interest and
repay principal, and they differ from AAA issues only in small degree. Bonds
rated A are considered to have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds of a higher
rated category. Bonds rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Whereas such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest
and repay principal for debt in this category than for higher rated
categories. The AA, A and BBB ratings may be modified by an addition of a
plus (+) or minus (-) sign to show relative standing within these major
rating categories.
The four highest ratings of Moody's for tax-exempt and corporate
bonds are Aaa, Aa, A and Baa. Tax-exempt and corporate bonds rated Aaa are
judged to be of the "best quality." The rating of Aa is assigned to bonds
which are of "high quality by all standards." Aa bonds are rated lower than
Aaa bonds because margins of protection may not be as large or fluctuations
of protective elements may be of greater amplitude or there may be other
elements which make the long-term risks appear somewhat larger. Bonds that
are rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
that suggest a susceptibility to impairment sometime in the future. Bonds
that are rated Baa are considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. Moody's may modify a rating of Aa, A or
Baa by adding numerical modifiers of 1, 2 or 3 to show relative standing
within these categories. The foregoing ratings are sometimes presented in
parentheses preceded with a "con" indicating the bonds are rated
conditionally. Such parenthetical rating denotes the probable credit stature
upon
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completion of construction or elimination of the basis of the condition.
CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS
The highest rating of D&P for commercial paper is Duff 1. D&P
employs three designations, Duff 1 plus, Duff 1 and Duff 1 minus, within the
highest rating category. Duff 1 plus indicates highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors
are considered to be minor. Duff 1 minus indicates high certainty of timely
payment. Liquidity factors are strong and supported by good fundamental
protection factors. Risk factors are very small. Duff 2 indicates good
certainty of timely payment. Liquidity factors and company fundamentals are
sound. Although ongoing funding needs may enlarge total financing
requirements, access to capital markets is good. Risk factors are small. Duff
3 indicates satisfactory liquidity and other protection factors qualify such
issues as to investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected. Duff 4 indicates
speculative investment characteristics.
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Fitch's 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
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the characteristics of Prime-1 rated issues, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is maintained. Issuers
rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. Issuers rated
Not Prime do not fall within any of the Prime rating categories.
Thomson commercial paper ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of debt having a
maturity of one year or less, which is issued by a bank holding company or an
entity within the holding company structure. The designation TBW-1 represents
the highest rating category and indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis. The designation
TBW-2 represents the second highest rating category and indicates that while
the degree of safety regarding timely payment of principal and interest is
strong, the relative degree of safety is not as high as for issues rated
TBW-1. The designation TBW-3 represents the lowest investment grade category
and indicates that while more susceptible to adverse developments (both
internal and external) than obligations with higher ratings, the capacity to
service principal and interest in a timely fashion is considered adequate.
TAX-EXEMPT NOTE RATINGS
A S&P rating reflects the liquidity concerns and market access risks
unique to notes due in three years or less. Notes rated SP-1 are issued by
issuers that exhibit very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics are given a plus (+) designation. Notes rated SP-2 are issued
by issuers that exhibit satisfactory capacity to pay principal and interest.
Notes rated SP-3 are issued by issuers that exhibit speculative capacity to
pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated MIG and variable rate demand obligations are designated
VMIG. Such ratings recognize the
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differences between short-term credit risk and long-term risk. Loans bearing
the designation MIG-1 or VMIG-1 are of the best quality, enjoying strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing. Loans bearing
the designation MIG-2 or VMIG-2 are of high quality, with margins of
protection ample although not so large as with loans rated MIG-1 or VMIG-1.
Loans bearing the designation MIG-3 or VMIG-3 are of favorable quality with
all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established. Loans
bearing the designation MIG-4 or VMIG-4 are of adequate quality, carrying
specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
Fitch IBCA uses its short-term ratings described above under
"Corporate and Tax-Exempt Commercial Paper Ratings" for tax-exempt notes.
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APPENDIX B
As stated in the applicable Prospectuses, the Funds may enter into
futures transactions for hedging purposes. The following is a description of
such transactions.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established
in both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate
futures contracts as a defense, or hedge, against anticipated interest rate
changes and not for speculation. As described below, this would include the
use of futures contract sales to protect against expected increases in
interest rates and futures contract purchases to offset the impact of
interest rate declines.
The Funds presently could accomplish a similar result to that which
they hope to achieve through the use of futures contracts by selling bonds
with long maturities and investing in bonds with short maturities when
interest rates are expected to increase, or conversely, selling short-term
bonds and investing in long-term bonds when interest rates are expected to
decline. However, because of the liquidity that is often available in the
futures market, the protection is more likely to be achieved, perhaps at a
lower cost and without changing the rate of interest being earned by the
Funds, through using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract
at a specific future time for a specified price. A futures contract purchase
would create an obligation by the Fund, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at
settlement date, would not be determined until at or near that date. The
determination would be in accordance with the rules of the exchange on which
the futures contract sale or purchase was made.
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Although interest rate futures contracts by their terms call for
actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without the making or taking of
delivery of securities. Closing out a futures contract sale is effected by a
Fund's entering into a futures contract purchase for the same aggregate
amount of the specific type of financial instrument and the same delivery
date. If the price of the sale exceeds the price of the offsetting purchase,
the Fund immediately is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the
difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by a Fund entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain, and if the purchase price exceeds the offsetting sale price,
the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment
on the floors of several exchanges -- principally, the Chicago Board of
Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The
Funds would deal only in standardized contracts on recognized exchanges. Each
exchange guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any interest rate futures
contracts for which there exists a public market, including, without
limitation, the foregoing instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an
interest rate futures contract sale to maintain the income advantage from
continued holding of a long-term bond while endeavoring to avoid part or all
of the loss in market value that would otherwise accompany a decline in
long-term securities prices. Assume that the market value of a certain
security held by a particular Fund tends to move in concert with the futures
market prices of long-term United States Treasury bonds ("Treasury bonds").
The adviser wishes to fix the current market value of this portfolio security
until some point in the future. Assume the portfolio security has a market
value of 100, and the adviser believes that, because of an anticipated rise
in interest rates, the value will decline to 95. The Fund might enter into
futures contract sales of Treasury bonds for an equivalent of 98. If the
market value of the portfolio security does indeed decline from 100 to 95,
the equivalent futures market price for the Treasury bonds might also decline
from 98 to 93.
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In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The adviser could be wrong in its forecast of interest rates, and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an
interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g., shorter
term securities whose yields are greater than those available on long-term
bonds. A Fund's basic motivation would be to maintain for a time the income
advantage from investing in the short-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or part of an
expected increase in market price of the long-term bonds that the Fund may
purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9 1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the 5
point increase in the price that the Fund pays for the long-term bond would be
offset
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by the 5 point gain realized by closing out the futures contract purchase.
The adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be incurred.
II. MUNICIPAL BOND INDEX FUTURES CONTRACTS
A municipal bond index assigns relative values to the bonds included in
the index and the index fluctuates with changes in the market values of the
bonds so included. The Chicago Board of Trade has designed a futures contract
based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term
revenue and general obligation bonds, and its composition is updated regularly
as new bonds meeting the criteria of the Index are issued and existing bonds
mature. The Index is intended to provide an accurate indicator of trends and
changes in the municipal bond market. Each bond in the Index is independently
priced by six dealer-to-dealer municipal bond brokers daily. The 40 prices then
are averaged and multiplied by a coefficient. The coefficient is used to
maintain the continuity of the Index when its composition changes. The Chicago
Board of Trade, on which futures contracts based on this Index are traded, as
well as other U.S. commodities exchanges, are regulated by the Commodity Futures
Trading Commission. Transactions on such exchange are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
The Tax-Exempt Bond Fund, New Jersey Municipal Bond, New York Municipal
Bond Fund, Connecticut Municipal Bond Fund, Massachusetts Municipal Bond Fund
and Rhode Island Municipal Bond Fund will sell index futures contracts in order
to offset a decrease in market value of their respective portfolio securities
that might otherwise result from a market decline. A Fund may do so either to
hedge the value of its portfolio as a whole, or to
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<PAGE>
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
The current value of the portfolio is $5,003,750.
</TABLE>
To hedge against a decline in the value of the portfolio, resulting
from a rise in interest rates, the portfolio manager can use the municipal bond
index futures contract. The current value of the Municipal Bond Index is 86-09.
Suppose the portfolio manager takes a position in the futures market opposite to
his or her cash market position by selling 50 municipal bond index futures
contracts (each contract represents $100,000 in principal value) at this price.
On March 23, the bonds in the portfolio have the following values:
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<PAGE>
Ohio HFA 81-28
NYS Power 98-26
San Diego, CA IDB 98-11
Muscatine, IA Elec 99-24
Mass Health & Ed 97-18
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>
<S> <C> <C>
Cash Market Futures Market
------------- ---------------
February 2 $5,003,750 long posi- Sell 50 Municipal Bond
tion in municipal futures contracts at
bonds 86-09
March 23 $4,873,438 long posi- Buy 50 Municipal Bond
tion in municipal futures contracts at
bonds 83-27
--------------------- ---------------------
$130,312 Loss $121,875 Gain
</TABLE>
While the gain in the futures market did not entirely offset the loss
in the cash market, the $8,437 loss is significantly lower than the loss which
would have been incurred without hedging.
The numbers reflected in this appendix do not take into account the
effect of brokerage fees or taxes.
III. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or cash equivalents, known as initial
margin, based on the value of the contract. The nature of initial margin in
futures transactions is different from that of margin in security transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions. Rather, the initial margin is in the
nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of
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<PAGE>
the underlying instruments fluctuates making the long and short positions in
the futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a
rise in the underlying instruments, that position will have increased in
value and the Fund will be entitled to receive from the broker a variation
margin payment equal to that increase in value. Conversely, where the Fund
has purchased a futures contract and the price of the future contract has
declined in response to a decrease in the underlying instruments, the
position would be less valuable and the Fund would be required to make a
variation margin payment to the broker. At any time prior to expiration of
the futures contract, the adviser may elect to close the position by taking
an opposite position, subject to the availability of a secondary market,
which will operate to terminate the Fund's position in the futures contract.
A final determination of variation margin is then made, additional cash is
required to be paid by or released to the Fund, and the Fund realizes a loss
or gain.
IV. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the
Funds as hedging devices. One risk arises because of the imperfect correlation
between movements in the price of the futures and movements in the price of the
instruments that are the subject of the hedge. The price of the futures may move
more than or less than the price of the instruments being hedged. If the price
of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, a Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Funds involved will
experience either a loss or gain on the futures, which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate
by the investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by
Fleet.
B-7
<PAGE>
It is also possible that, where a Fund had sold futures to hedge its portfolio
against a decline in the market, the market may advance and the value of
instruments held in the Fund may decline. If this occurred, the Fund would lose
money on the futures and also experience a decline in value in its portfolio
securities.
Where futures are purchased to hedge against a possible increase in
the price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may
decline instead; if the Fund then concludes not to invest its cash at that
time because of concern as to possible further market decline or for other
reasons, the Fund will realize a loss on the futures contract that is not
offset by a reduction in the price of the instruments that were to be
purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with Galaxy's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions that could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the adviser may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures
B-8
<PAGE>
only on exchanges or boards of trade where there appear to be active
secondary markets, there is no assurance that a liquid secondary market on
any exchange or board of trade will exist for any particular contract or at
any particular time. In such event, it may not be possible to close a futures
investment position, and in the event of adverse price movements, a Fund
would continue to be required to make daily cash payments of variation
margin. However, in the event futures contracts have been used to hedge
portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price
of the securities, if any, may partially or completely offset losses on the
futures contract. However, as described above, there is no guarantee that the
price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market
in a futures contract may be adversely affected by "daily price fluctuation
limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into
at a price beyond the limit, thus preventing the liquidation of open futures
positions. The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
Successful use of futures by the Funds is also subject to the
adviser's ability to predict correctly movements in the direction of the
market. For example, if a particular Fund has hedged against the possibility
of a decline in the market adversely affecting securities held by it and
securities prices increase instead, the Fund will lose part or all of the
benefit to the increased value of its securities which it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. Such sales of securities may be,
but will not necessarily be, at increased prices which reflect the rising
market. The Funds may have to sell securities at a time when it may be
disadvantageous to do so.
B-9
<PAGE>
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
<PAGE>
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectuses (the "Prospectuses") for the Equity
Value, Equity Growth, Equity Income, International Equity, Small Company Equity,
MidCap Equity, Asset Allocation and 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.
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
Page
THE GALAXY FUND...................................................... 1
INVESTMENT OBJECTIVES AND POLICIES................................... 1
Variable and Floating Rate Obligations......................... 1
Bank Obligations............................................... 1
Asset-Backed Securities........................................ 1
When-Issued Securities and Delayed Settlement Transactions..... 2
Repurchase Agreements; Reverse Repurchase Agreements;
Loans of Portfolio Securities............................ 3
U.S. Government Securities..................................... 3
Derivative Securities.......................................... 5
Swap Agreements-MidCap Equity and Strategic Equity Funds....... 11
Foreign Currency Exchange Transactions......................... 11
Additional Investment Limitations.............................. 13
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION....................... 14
DESCRIPTION OF SHARES................................................ 17
ADDITIONAL INFORMATION CONCERNING TAXES.............................. 19
In General..................................................... 19
Taxation of Certain Financial Instruments...................... 22
State Taxation................................................. 25
TRUSTEES AND OFFICERS................................................ 25
Shareholder and Trustee Liability.............................. 29
ADVISORY, SUB-ADVISORY, ADMINISTRATION,
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS....................... 30
Custodian and Transfer Agent................................... 33
PORTFOLIO TRANSACTIONS............................................... 34
SHAREHOLDER SERVICES PLAN............................................ 35
DISTRIBUTION AND SERVICES PLAN....................................... 37
DISTRIBUTOR.......................................................... 39
AUDITORS............................................................. 40
COUNSEL.............................................................. 41
PERFORMANCE AND YIELD INFORMATION.................................... 41
MISCELLANEOUS........................................................ 45
FINANCIAL STATEMENTS................................................. 46
APPENDIX A...........................................................A-1
APPENDIX B...........................................................B-1
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<PAGE>
THE GALAXY FUND
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in twenty-seven investment
portfolios.
This Statement of Additional Information relates to eight of those
investment portfolios: the Equity Value Fund, Equity Growth Fund, Equity Income
Fund, International Equity Fund, Small Company Equity Fund, MidCap Equity Fund,
Asset Allocation Fund and 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.
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
<PAGE>
instruments, which are also known as collateralized obligations, and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Asset-backed securities
are often backed by a pool of assets representing the obligations of a number of
different parties.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments will increase, while slower than expected prepayments, will
decrease, yield to maturity.
Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
WHEN-ISSUED SECURITIES AND DELAYED SETTLEMENT TRANSACTIONS
When a Fund agrees to purchase securities on a "when-issued" or "delayed
settlement" basis, the Fund's custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account. In the
event of a decline in the value of the securities that the custodian has set
aside, the Fund may be required to place additional assets in the separate
account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitment. A Fund's net assets may fluctuate to a greater
degree if it sets aside
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<PAGE>
portfolio securities to cover such purchase commitments than if it sets aside
cash.
When a Fund engages in when-issued or delayed settlement transactions, it
relies on the seller to consummate the trade. Failure of the seller to do so may
result in the Fund's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous for a security. For purposes of determining
the average weighted maturity of a Fund's portfolio, the maturity of when-issued
securities is calculated from the date of settlement of the purchase to the
maturity date.
REPURCHASE AGREEMENTS; REVERSE REPURCHASE AGREEMENTS; LOANS OF PORTFOLIO
SECURITIES
Each Fund may enter into repurchase agreements. The repurchase price under
a repurchase agreement generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement). Securities
subject to a repurchase agreement will be held by a Fund's custodian or
sub-custodian in a segregated account or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by a Fund
under the Investment Company Act of 1940, as amended, (the "1940 Act").
Each Fund may enter into reverse repurchase agreements. Whenever a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account liquid assets such as cash or liquid portfolio securities
equal to the repurchase price (including accrued interest). The Fund will
monitor the account to ensure such equivalent value is maintained. Reverse
repurchase agreements are considered to be borrowings by a Fund under the 1940
Act.
A Fund that loans portfolio securities would continue to accrue interest
on the securities loaned and would also earn income on the loans. Any cash
collateral received by the Funds would be invested in high quality, short-term
"money market" instruments.
U.S. GOVERNMENT SECURITIES
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal
-3-
<PAGE>
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.
-4-
<PAGE>
DERIVATIVE SECURITIES
PUT AND CALL OPTIONS -- EQUITY GROWTH, EQUITY INCOME,
SMALL COMPANY EQUITY AND ASSET ALLOCATION FUNDS
The Equity Growth, Equity Income, Small Company Equity and Asset
Allocation Funds may purchase put and call options issued by the Options
Clearing Corporation which are listed on a national securities exchange. Such
options may relate to particular securities or to various stock indexes, except
that a Fund may not write covered call options on an index. A Fund may not
purchase options unless immediately after any such transaction the aggregate
amount of premiums paid for put or call options does not exceed 5% of its total
assets. Purchasing options is a specialized investment technique that may entail
the risk of a complete loss of the amounts paid as premiums to the writer of the
option.
In order to close out call or put option positions, a Fund will be
required to enter into a "closing purchase transaction" -- the purchase of a
call or put option (depending upon the position being closed out) on the same
security with the same exercise price and expiration date as the option that it
previously wrote. When a portfolio security subject to a call option is sold, a
Fund will effect a closing purchase transaction to close out any existing call
option on that security. If a Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or a Fund delivers the underlying security upon exercise.
In contrast to an option on a particular security, an option on an index
provides the holder with the right to make or receive a cash settlement upon
exercise of the option. The amount of this settlement will be equal to the
difference between the closing price of the index at the time of exercise and
the exercise price of the option expressed in dollars, times a specified
multiple.
When a Fund purchases a put or call option, the premium paid by it is
recorded as an asset of the Fund. The amount of this asset will be subsequently
marked-to-market to reflect the current value of the option purchased. The
current value of the traded option is the last sale price or, in the absence of
a sale, the average of the closing bid and asked prices. If an option purchased
by a Fund expires unexercised, the Fund realizes a loss equal to the premium
paid. If a Fund enters into a closing sale transaction on an option purchased by
it, the Fund will realize a gain if the premium received by the Fund on the
closing transaction is more than the premium paid to purchase the option, or a
loss if it is less.
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<PAGE>
There are several risks associated with transactions in options on
securities. For example, there are significant differences between the
securities and options markets which could result in an imperfect correlation
between the markets, causing a given transaction not to achieve its objectives.
In addition, a liquid secondary market for particular options, whether traded
over-the-counter or on a national securities exchange may be absent for reasons
which include the following: there may be insufficient trading interest in
certain options; restrictions may be imposed by an exchange on opening
transactions, closing transactions or both; trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; unusual or unforeseen circumstances may
interrupt normal operations on an exchange; the facilities of an exchange or the
Options Clearing Corporation may not at all times be adequate to handle current
trading volume; or one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. A Fund will likely be unable to
control losses by closing its position where a liquid secondary market does not
exist. Moreover, regardless of how much the market price of the underlying
security increases or decreases, the option buyer's risk is limited to the
amount of the original investment for the purchase of the option. However,
options may be more volatile than their underlying securities, and therefore, on
a percentage basis, an investment in options may be subject to greater
fluctuation than an investment in the underlying securities.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
COVERED CALL OPTIONS -- EQUITY VALUE, EQUITY GROWTH, EQUITY INCOME,
INTERNATIONAL EQUITY, SMALL COMPANY EQUITY AND ASSET ALLOCATION FUNDS
The Equity Value, Equity Growth, Equity Income, International Equity,
Small Company Equity and Asset Allocation Funds may write listed covered call
options. A listed call option gives the purchaser of the option the right to buy
from a clearing corporation, and obligates the writer to sell to the clearing
corporation, the underlying security at the stated exercise price at any time
prior to the expiration of the option,
-6-
<PAGE>
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
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will be increased by the net premium originally received, and the Fund will
realize a gain or loss. Premiums from expired call options written by a Fund
and net gains from closing purchase transactions are treated as short-term
capital gains for federal income tax purposes, and losses on closing purchase
transactions are treated as short-term capital losses.
OPTIONS ON FOREIGN STOCK INDEXES -- INTERNATIONAL EQUITY FUND
The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price movements in the
portion of the securities portfolio of the International Equity Fund correlate
with price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund realizes a gain or loss from the purchase
or writing of options on an index is dependent upon movements in the level of
stock prices in the stock market generally or, in the case of certain indexes,
in an industry or market segment, rather than movements in the price of a
particular stock. Accordingly, successful use by the Fund of options on stock
indexes will be subject to Fleet's and/or Oechsle's ability to predict correctly
movements in the direction of the stock market generally or of a particular
industry. This requires different skills and techniques than predicting changes
in the price of individual stocks. There can be no assurance that such judgment
will be accurate or that the use of these portfolio strategies will be
successful. The Fund will engage in stock index options transactions that are
determined to be consistent with its efforts to control risk.
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
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reducing transactional costs. The Funds may not use stock index futures
contracts and options for speculative purposes.
As a means of reducing fluctuations in the net asset value of shares of
the Funds, the Funds may attempt to hedge all or a portion of their respective
portfolios through the purchase of listed put options on stocks, stock indices
and stock index futures contracts. These options will be used as a form of
forward pricing to protect portfolio securities against decreases in value
resulting from market factors, such as an anticipated increase in interest
rates. A purchased put option gives a Fund, in return for a premium, the right
to sell the underlying security to the writer (seller) at a specified price
during the term of the option. Put options on stock indices are similar to put
options on stocks except for the delivery requirements. Instead of giving a Fund
the right to make delivery of stock at a specified price, a put option on a
stock index gives the Fund, as holder, the right to receive an amount of cash
upon exercise of the option.
The Funds may also write covered call options. As the writer of a call
option, a Fund has the obligation upon exercise of the option during the option
period to deliver the underlying security upon payment of the exercise price.
The Funds may only: (1) buy listed put options on stock indices and
stock index futures contracts; (2) buy listed put options on securities held
in their respective portfolios; and (3) sell listed call options either on
securities held in their respective portfolios or on securities which they
have the right to obtain without payment of further consideration (or have
segregated cash in the amount of any such additional 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
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<PAGE>
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. 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.
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<PAGE>
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.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate exceeds
an agreed upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an agreed
upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from
one type of investment to another. For example, if a Fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement
would tend to decrease the Fund's exposure to U.S. interest rates and
increase its exposure to foreign currency and interest rates. Caps and floors
have an effect similar to buying or writing options. Depending on how 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.
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<PAGE>
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
In addition to the investment limitations disclosed in their Prospectuses,
the Funds are subject to the following investment limitations, which may be
changed with respect to a particular Fund only by a vote of the holders of a
majority of such Fund's outstanding shares (as defined under "Miscellaneous" in
the Prospectuses).
Each Fund may not:
1. Purchase securities on margin (except such short-term credits as may
be necessary for the clearance of purchases), make short sales of
securities, or maintain a short position.
2. Act as an underwriter within the meaning of the Securities Act of
1933; except insofar as a Fund might be deemed to be an underwriter
upon disposition of restricted portfolio securities; and except to
the extent that the purchase of securities directly from the issuer
thereof in accordance with the Fund's investment objective, policies
and limitations may be deemed to be underwriting.
3. Purchase or sell real estate; except that each Fund may purchase
securities that are secured by real estate, and the Funds may
purchase securities of issuers which deal in real estate or
interests therein; however, the Funds will not purchase or sell
interests in real estate limited partnerships.
4. Purchase or sell commodities or commodity contracts or invest in
oil, gas, or other mineral exploration or 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
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<PAGE>
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 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
applicable Prospectus, Retail A Shares of the Funds and Retail B Shares of
the Equity Value, Equity Growth, Small Company Equity, MidCap Equity, Asset
Allocation and 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 applicable Prospectus, Retail A Shares of the Funds and Retail B Shares
of the CDSC Funds may also be sold to individuals, corporations or other
entities, who submit a purchase application to Galaxy, purchasing either for
their own accounts or for the accounts of others ("Direct Investors"). As
described in the applicable Prospectuses, Trust Shares in the Funds are
offered to investors maintaining qualified accounts at bank and trust
institutions, including institutions affiliated with Fleet Financial Group,
Inc., and to participants in
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employer-sponsored defined contribution plans. Trust Shares of the
International Equity Fund are also available for purchase by clients,
partners and employees of Oechsle.
Retail A Shares of the Funds are sold to Direct Investors and Customers at
the public offering price based on a Fund's net asset value plus a front-end
sales charge as described in the applicable Prospectus. A deferred sales charge
of up to 1.00% is assessed on certain redemptions of Retail A Shares that are
purchased with no initial sales charge as part of an investment of $500,000 or
more. Retail B Shares of the CDSC Funds are sold to Direct Investors and
Customers at the net asset value next determined after a purchase order is
received, but are subject to a contingent deferred sales charge which is payable
on redemption of such shares as described in the applicable Prospectus.
Retail A Shares of the Funds are offered for sale with a maximum
front-end sales charge of 3.75%, with certain exemptions as described in the
applicable Prospectus. An illustration of the computation of the offering
price per share of Retail A Shares of the Funds, using the value of each
Fund's net assets attributable to such Shares and the number of outstanding
Retail A Shares of each Fund at the close of business on October 31, 1997
(with respect to the MidCap Equity Fund and 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
offered for sale to public investors) and the maximum front-end sales charge
of 3.75%, is as follows:
Equity Value Equity Growth
Fund Fund
------------ -------------
Net Assets.......................... $182,640,599 $226,330,087
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
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Equity International
Income Fund Equity Fund
------------ -------------
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
Small Company MidCap
Equity Fund Equity Fund
------------ -------------
Net Assets.......................... $135,593,454 $ 7,253,076
Outstanding Shares.................. 6,475,217 725,308
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
Asset Allocation Strategic Equity
Fund Fund
---------------- ----------------
Net Assets.......................... $177,238,812 $ 5,817,957
Outstanding Shares.................. 10,768,088 581,796
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
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.
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<PAGE>
Galaxy may suspend the right of redemption or postpone the date of payment
for shares for more than seven days during any period when (a) trading in the
markets the Funds normally utilize is restricted, or an emergency, as defined by
the rules and regulations of the Securities and Exchange Commission (the "SEC")
exists making disposal of a Fund's investments or determination of its net asset
value not reasonably practicable; (b) the New York Stock Exchange is closed
(other than customary weekend and holiday closings); or (c) the SEC by order has
permitted such suspension.
Galaxy may require any information reasonably necessary to ensure that a
redemption has been duly authorized.
DESCRIPTION OF SHARES
Galaxy is a Massachusetts business trust. Galaxy's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares and
to classify or reclassify any unissued shares into one or more additional
classes by setting or changing in any one or more respects their respective
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption. Pursuant to such authority, the Board of Trustees has authorized
the issuance of twenty-seven classes of shares, each representing interests
in one of twenty-seven separate investment portfolios: Money Market Fund,
Government Fund, U.S. Treasury Fund, Tax-Exempt Fund, Connecticut Municipal
Money Market Fund, Massachusetts Municipal Money Market Fund, Institutional
Government Money Market Fund, Equity Value Fund, Equity Growth Fund, Equity
Income Fund, International Equity Fund, Small Company Equity Fund, MidCap
Equity Fund, Asset Allocation Fund, Small Cap Value Fund, Growth and Income
Fund, 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 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
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a CDSC Fund, and differing transfer agency fees, Trust Shares, Retail A
Shares and Retail B Shares bear pro rata the same expenses and are entitled
equally to a Fund's dividends and distributions. In the event of a
liquidation or dissolution of Galaxy or an individual Fund, shareholders of a
particular Fund would be entitled to receive the assets available for
distribution belonging to such Fund, and a proportionate distribution, based
upon the relative asset values of Galaxy's respective Funds, of any general
assets of Galaxy not belonging to any particular Fund, which are available
for distribution. Shareholders of a Fund are entitled to participate in the
net distributable assets of the particular Fund involved in liquidation,
based on the number of shares of the Fund that are held by each shareholder,
except that currently each Fund's Retail A Shares would be solely responsible
for the Fund's payments to Service Organizations under the Shareholder
Services Plan and each CDSC Fund's Retail B Shares would be solely
responsible for the Fund's payments to FD Distributors and to Service
Organizations under the Distribution and Services Plan.
Holders of all outstanding shares of a particular Fund will vote
together in the aggregate and not by series on all matters, except that only
Retail A Shares and Trust Shares of a Fund will be entitled to vote on
matters submitted to a vote of shareholders pertaining to Galaxy's
Shareholder Services Plan for Retail A and Trust Shares and only Retail B
Shares of a CDSC Fund will be entitled to vote on matters submitted to a vote
of shareholders pertaining to Galaxy's Distribution and Services Plan for
Retail B Shares. Further, shareholders of all of the Funds, as well as those
of any other investment portfolio now or hereafter offered by Galaxy, will
vote together in the aggregate and not separately on a Fund-by-Fund basis,
except as otherwise required by law or when permitted by the Board of
Trustees. Rule 18f-2 under the 1940 Act provides that any matter required to
be submitted to the holders of the outstanding voting securities of an
investment company such as Galaxy shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each Fund affected by the matter. A particular Fund is
deemed to be affected by a matter unless it is clear that the interests of
each Fund in the matter are substantially identical or that the matter does
not affect any interest of the Fund. Under the Rule, the approval of an
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.
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<PAGE>
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Voting rights are not cumulative
and, accordingly, the holders of more than 50% in the aggregate of Galaxy's
outstanding shares may elect all of the trustees, irrespective of the votes of
other shareholders.
Galaxy does not intend to hold annual shareholder meetings except as may
be required by the 1940 Act. Galaxy's Declaration of Trust provides that a
meeting of shareholders shall be called by the Board of Trustees upon a written
request of shareholders owning at least 10% of the outstanding shares of Galaxy
entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another Fund of Galaxy and, in
connection therewith, to cause all outstanding shares of any Fund to be redeemed
at their net asset value or converted into shares of another class of Galaxy's
shares at the net asset value. In the event that shares are redeemed in cash at
their net asset value, a shareholder may receive in payment for such shares, due
to changes in the market prices of the Fund's portfolio securities, an amount
that is more or less than the original investment. The exercise of such
authority by the Board of Trustees will be subject to the provisions of the 1940
Act, and the Board of Trustees will not take any action described in this
paragraph unless the proposed action has been disclosed in writing to the Fund's
shareholders at least 30 days prior thereto.
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
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careful tax planning. Potential investors should consult their tax advisers
with specific reference to their own tax situation.
Each Fund is treated as a separate corporate entity under the Internal
Revenue Code of 1986, as amended, (the "Code"), and each Fund intends to qualify
as a "regulated investment company" under the Code. By following this policy,
each Fund expects to eliminate or reduce to a nominal amount the federal income
taxes to which it may be subject. If for any taxable year a Fund does not
qualify for the special federal tax treatment afforded regulated investment
companies, all of the Fund's taxable income would be subject to tax at regular
corporate rates without any deduction for distributions to shareholders. In such
event, a Fund's distributions to shareholders would be taxable as ordinary
income, to the extent of the current and accumulated earnings and profits of the
particular Fund, and would be eligible for the dividends received deduction in
the case of corporate shareholders.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its tax-exempt interest income, if any, net
of certain deductions for such year (the "Distribution Requirement"). In
addition, each Fund must satisfy certain requirements with respect to the
source of its income for a taxable year. At least 90% of the gross income of
each Fund must be derived from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock,
securities or 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 (20% or 28% rate gain, as applicable)
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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 18 months) or 28%
(for gain on capital assets held more than 12 months, but not more than 18
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 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
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<PAGE>
Fund's assets at the close of the taxable year consists of stock or
securities of foreign corporations, the Fund may elect, for U.S. federal
income tax purposes, to treat foreign income taxes paid by the Fund that can
be treated as income taxes under U.S. income tax principles as paid by its
shareholders. A Fund may qualify for and make this election in some, but not
necessarily all, of its taxable years. If a Fund were to make an election, an
amount equal to the foreign income taxes paid by the Fund would be included
in the income of its shareholders and each shareholder would be entitled
either (i) to credit their portions of this amount against their U.S. tax
due, if any, or (ii) if the shareholder itemizes deductions, to deduct such
portion from their U.S taxable income, if any, should the shareholder so
choose. Shortly after any year for which it makes such an election, a Fund
will report to its shareholders, in writing, the amount per share of such
foreign tax that must be included in each shareholder's gross income and the
amount which will be available for deduction or credit. Certain limitations
are imposed on the extent to which the credit (but not the deduction) for
foreign taxes may be claimed.
Shareholders who choose to utilize a credit (rather than a
deduction) for foreign taxes will be subject to the limitation that the
credit may not exceed the shareholder's U.S. tax (determined without regard
to the availability of the credit) attributable to his or her total foreign
source taxable income. For this purpose, the portion of dividends and
distributions paid by the Fund from its foreign source income will be treated
as foreign source income. A Fund's gains and losses from the sale of
securities generally will be treated as derived from United 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
-22-
<PAGE>
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 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
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<PAGE>
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 equity investments other than certain preferred stocks), is
treated as capital gain or
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<PAGE>
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 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 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.
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 Occupations
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ------------------ ----------- ----------------------
Dwight E. Vicks, Jr. Chairman & President & Director,
Vicks Lithograph & Trustee Vicks Lithograph &
Printing Corporation Printing Corporation
Commercial Drive (book manufacturing and
P.O. Box 270 commercial printing);
Yorkville, NY 13495 Director, Utica Fire
Age 64 Insurance Company;
Trustee, Savings Bank of
Utica; Director, Monitor
Life Insurance Company;
Director, Commercial
Travelers Mutual
Insurance Company;
Trustee, The Galaxy VIP
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<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupations
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ------------------ ----------- ----------------------
<S> <C> <C>
Fund; Trustee, Galaxy
Fund II.
John T. O'Neill(1) President, Executive Vice President
Hasbro, Inc. Treasurer & and CFO, Hasbro, Inc.
200 Narragansett Trustee (toy and game manufacturer);
Park Drive Trustee, The Galaxy
Pawtucket, RI 02862 VIP Fund; Trustee, Galaxy
Age 53 Fund II.
Louis DeThomasis Trustee President, Saint
Saint Mary's College Mary's College of
of Minnesota Minnesota;
Winona, MN 55987 Director, Bright
Age 57 Day Travel, Inc.;
Trustee, Religious
Communities Trust;
Trustee, The Galaxy
VIP Fund; Trustee,
Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media,
10725 Quail Covey Road Inc. (broadcast
Boynton Beach, FL 33436 services);
Age 72 Director/Trustee,
Lexington 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 Astra Ventures, The Astra Projects,
Inc. Incorporated (land
One Citizens Plaza development); President,
Providence, RI 02903 The Astra Ventures,
Age 56 Incorporated (previously,
Buffinton Box Company -
manufacturer of cardboard
boxes); Commissioner,
Rhode Island Investment
Commission; Trustee, The
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
Positions Principal Occupations
with The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
- ----------------- ----------- ----------------------
<S> <C> <C>
Galaxy VIP Fund; Trustee,
Galaxy Fund II.
Bradford S. Wellman(1) Trustee Private Investor;
2468 Ohio Street Vice President and
Bangor, ME 04401 Director, Acadia
Age 66 Management Company
(investment 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 &
Bank Building Reath LLP, Philadelphia,
1345 Chestnut Street Pennsylvania.
Philadelphia, PA 19107
Age 54
Jylanne Dunne Vice Vice President, First
First Data Investor President Data Investor Services
Services Group, Inc. and Group, Inc.
4400 Computer Drive Assistant 1990 to present.
Westboro, MA 01581-5108 Treasurer
Age 38
</TABLE>
- -------------------------
1. An interested person within the definition set forth in
Section 2(a)(19) of the 1940 Act.
Each trustee receives an annual aggregate fee of $29,000 for his
services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy VIP") and Galaxy
Fund II ("Galaxy II") (collectively, the "Trusts"), plus an additional $2,250
for each in-person Galaxy Board meeting attended and $1,500 for each in-person
Galaxy VIP or Galaxy II Board meeting attended not held concurrently with an
in-person Galaxy meeting, and is reimbursed for expenses incurred in attending
all meetings. Each trustee also receives $500 for each telephone Board meeting
in which the trustee participates, $1,000 for each in-person Board committee
meeting attended and $500 for each telephone Board committee meeting in which
the trustee participates. The Chairman of the
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<PAGE>
Boards of the Trusts is entitled to an additional annual aggregate fee in the
amount of $4,000, and the President and Treasurer of the Trusts is entitled
to an additional annual aggregate fee of $2,500 for their services in these
respective capacities. The foregoing trustees' and officers' fees are
allocated among the portfolios of the Trusts based on their relative net
assets.
Effective March 1, 1996, each trustee became entitled to participate
in The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred
Compensation Plans (the "Original Plans"). Effective January 1, 1997, the
Original Plans were merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy
Fund II Deferred Compensation Plan (together with the Original Plans, the
"Plan"). Under the Plan, a trustee may elect to have his deferred fees
treated as if they had been invested by the Trusts in the shares of one or
more portfolios in the Trusts, or other types of 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.
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<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued as from Galaxy
Aggregate Part of and Fund
Name of Compensation Fund Complex*Paid
Person/Position from Galaxy Expenses to Trustees
--------------- ------------- ------------ ------------
<S> <C> <C> <C>
Bradford S. Wellman $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
- ---------------
* 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.
</TABLE>
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
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<PAGE>
request, assume the defense of any claim made against any shareholder for any
act or obligation of Galaxy, and shall satisfy any judgment thereon. Thus, the
risk of shareholder liability is limited to circumstances in which Galaxy itself
would be unable to meet its obligations.
The Declaration of Trust states further that no trustee, officer or
agent of Galaxy shall be personally liable for or on account of any contract,
debt, claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of Galaxy; nor shall any trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties as trustee.
The Declaration of Trust also provides that all persons having any claim against
the trustees or Galaxy shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
ADVISORY, SUB-ADVISORY, ADMINISTRATION,
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS
Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the Funds
as described in the Prospectuses. Fleet has also agreed to pay all expenses
incurred by it in connection with its activities under the advisory agreement
other than the cost of securities (including brokerage commissions) purchased
for the Funds. See "Expenses" in the Prospectuses.
For the services provided and expenses assumed by Fleet, Galaxy paid
Fleet for the fiscal years ended October 31, 1995, October 31, 1996 and October
31, 1997 advisory fees (net of expense reimbursements) of $1,797,623, $2,220,230
and $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 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.
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<PAGE>
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.
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
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<PAGE>
Fund. The advisory agreement may be terminated by Galaxy or by Fleet on sixty
days' written notice, and will terminate immediately in the event of its
assignment.
Fleet Bank, an affiliate of Fleet, is paid a fee for sub-account and
administrative services performed with respect to Trust Shares of the Funds
held by defined contribution plans. Pursuant to an agreement between Fleet
Bank and 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.
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.
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.
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<PAGE>
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 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 $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, $165,070 and
$251,871, respectively, with respect to the Asset Allocation Fund. For the
fiscal year ended October 31, 1997, Investor Services Group waived
administration fees 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
-33-
<PAGE>
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.
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
The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
Transactions in equity securities on U.S. stock exchanges for the Funds involve
the payment of negotiated brokerage commissions. On U.S. stock exchanges on
which commissions are negotiated, the cost of transactions may vary among
different brokers. Transactions in the over-the-counter market are generally
principal transactions with dealers and the costs of such transactions involve
dealer spreads rather than brokerage commissions. With respect to
over-the-counter transactions, Fleet and Oechsle will normally deal directly
with the dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere or as
described below.
For the fiscal years ended October 31, 1995, October 31, 1996 and
October 31, 1997, the Equity Value Fund paid brokerage commissions aggregating
$588,613, $790,862 and $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
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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 56,800 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.
SHAREHOLDER SERVICES PLAN
As stated in the Prospectuses for each Fund, Galaxy may enter into
agreements ("Servicing Agreements") pursuant to its Shareholder Services Plan
("Services Plan") with Institutions and other organizations (including Fleet
Bank and its affiliates) (collectively, "Service Organizations") pursuant to
which Service
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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 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 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
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<PAGE>
must be approved by a majority of Galaxy's Board of Trustees (including a
majority of the Disinterested Trustees). So long as Galaxy's arrangements with
Service Organizations are in effect, the selection and nomination of the members
of Galaxy's Board of Trustees who are not "interested persons" (as defined in
the 1940 Act) of Galaxy will be committed to the discretion of such
Disinterested Trustees.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan (the "12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to Retail B Shares of the
Equity Value, Equity Growth, Small Company Equity, MidCap Equity, Asset
Allocation and 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
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<PAGE>
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 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 under the 12b-1 Plan:
$3,518 in distribution fees and $1,624 in shareholder servicing fees with
respect to Retail B Shares of the Equity Value Fund; $7,613 in distribution fees
and $3,514 in shareholder servicing fees with respect to Retail B Shares of the
Equity Growth Fund; $7,282 in distribution fees and $3,361 in shareholder
servicing fees with respect to Retail B Shares of the Small Company Equity Fund;
and $6,389 in distribution fees and $2,949 in shareholder servicing fees with
respect to Retail B Shares of the Asset Allocation Fund. For the fiscal year
ended October 31, 1996, all amounts paid under the 12b-1 Plan were attributable
to payments to broker-dealers.
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Funds and holders of Retail B
Shares. The 12b-1 Plan is subject to annual reapproval by a majority of the
Disinterested Trustees and is terminable at any time with respect to any Fund by
a vote of a majority of such Trustees or by vote of the holders of a majority of
the Retail B Shares of the Fund involved. Any agreement entered into pursuant to
the 12b-1 Plan with a Service Organization is terminable with respect to any
Fund without penalty, at any time, by vote of a majority of the Disinterested
Trustees, by vote of the holders of a majority of the Retail B Shares of such
Fund, by FD Distributors or by the Service
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<PAGE>
Organization. An agreement will also terminate automatically in the event of its
assignment.
As long as the 12b-1 Plan is in effect, the nomination of the trustees
who are not interested persons of Galaxy (as defined in the 1940 Act) must be
committed to the discretion of such Disinterested Trustees.
DISTRIBUTOR
First Data Distributors, Inc., a wholly-owned subsidiary of 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, 1998, and thereafter will
continue from year to year upon annual approval by Galaxy's Board of Trustees,
or by the vote of a majority of the outstanding shares of Galaxy and by the vote
of a majority of the Board of Trustees of Galaxy who are not parties to the
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Agreement will terminate
in the event of its assignment, as defined in the 1940 Act.
FD Distributors is entitled to the payment of a front-end sales charge
on the sale of Retail A Shares of the Funds as described in the applicable
Prospectus. For the fiscal year ended October 31, 1997, FD Distributors received
front-end sales charges in connection with Retail A Share purchases as follows:
Equity Value Fund -- $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
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<PAGE>
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:
<TABLE>
<CAPTION>
Brokerage
Net Commissions in
Underwriting Compensation on Connection
Discounts and Redemption and with Fund Other
Fund Commissions(1) Repurchase(2) Transactions Compensation(3)
---- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Equity Value $ 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
- -------------------
(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).
</TABLE>
AUDITORS
Coopers & Lybrand L.L.P., 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 their Prospectuses and the financial statements for the Funds
contained in Galaxy's Annual Report to Shareholders and
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<PAGE>
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 Coopers Lybrand L.L.P. for the periods included in their
report thereon which appears therein.
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III,
Secretary of Galaxy, is a partner), 1345 Chestnut Street, Suite 1100,
Philadelphia, Pennsylvania 19107, are counsel to Galaxy and will pass upon
certain legal matters on its behalf.
PERFORMANCE AND YIELD INFORMATION
The Funds' 30-day (or one month) standard yields described in their
Prospectuses are calculated separately for each series of shares in each Fund in
accordance with the method prescribed by the SEC for mutual funds:
a - b
YIELD = 2[( - - - - +1 )(6) - 1]
cd
Where: a = dividends and interest earned by a
Fund during the period;
b = expenses accrued for the period
(net of reimbursements);
c = average daily number of shares
outstanding during the period,
entitled to receive dividends; and
d = maximum offering price per share on
the last day of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued
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<PAGE>
interest) in order to determine the interest income on the obligation for each
day of the subsequent month that the obligation is held by the Fund. For
purposes of this calculation, it is assumed that each month contains 30 days.
The maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date. With respect to debt obligations purchased at a discount or
premium, the formula generally calls for amortization of the discount or
premium. The amortization schedule will be adjusted monthly to reflect changes
in the market value of such debt obligations. Expenses accrued for the period
(variable "b" in the formula) include all recurring fees charged by a Fund to
all shareholder accounts in proportion to the length of the base period and the
Fund's mean (or median) account size. Undeclared earned income will be
subtracted from the offering price per share (variable "d" in the formula).
With respect to mortgage or receivables-backed obligations that are
expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay-downs are
accounted for as an increase or decrease to interest income during the
period, and (ii) each Fund may elect either (a) to amortize the discount and
premium on the remaining security, based on the cost of the security, to the
weighted average maturity date, if such information is available, or to the
remaining term of the security, if any, if the weighted average date is not
available or (b) not to amortize discount or premium on the remaining
security.
Based on the foregoing calculation, the standard yield for Retail A
Shares of the Equity Value, Equity Growth, Equity Income, International
Equity, Small Company Equity and Asset Allocation Funds for the 30-day period
ended October 31, 1997 were 0.36%, 0.08%, 1.69%, -1.05%, -0.90% 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.
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.
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
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ending redeemable value of such investment according to the following formula:
ERV 1/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
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.
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 = [(-----) - 1]
P
The calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period. In addition, the Funds' Retail Shares average annual total
return and aggregate total return quotations will reflect the deduction of the
maximum sales load charged in connection with purchases of Retail A Shares or
redemptions of Retail B Shares.
Aggregate total return for Retail A Shares of the Equity Value Fund for
the period September 1, 1988 (inception) to October 31, 1997 was 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,
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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.
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.
Aggregate total returns for Trust Shares of the Equity Growth and
Equity Income Funds from December 14, 1990 (inception)
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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.
As stated in the Prospectus, the Funds may also calculate total return
quotations without deducting the maximum sales charge imposed on purchases of
Retail A Shares or redemptions of Retail B Shares. The effect of not deducting
the sales charge will be to increase the total return reflected.
MISCELLANEOUS
As used in the Prospectuses, "assets belonging to a particular series
of a Fund" means the consideration received by Galaxy upon the issuance of
shares in that particular series of the Fund, together with all income,
earnings, profits, and proceeds derived from the investment thereof, including
any proceeds from the sale of such investments, any funds or payments derived
from any reinvestment of such proceeds and a portion of any general assets of
Galaxy not belonging to a particular series or Fund. In determining the net
asset value of a particular series of a Fund, assets belonging to the particular
series of the Fund are charged with the direct liabilities in respect of that
series and with a share of the general liabilities of Galaxy, which are
allocated in proportion to the relative asset values of the respective series
and Funds at the time of allocation. Subject to the provisions of Galaxy's
Declaration of Trust, determinations by the Board of Trustees as to the direct
and allocable liabilities, and the allocable portion of any general assets with
respect to a particular series or Fund, are conclusive.
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<PAGE>
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 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 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 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, Coopers & Lybrand L.L.P., 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.
-46-
<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") 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
A-1
<PAGE>
conditions and circumstances, however, are more likely to have an adverse impact
on these bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
The four highest ratings of S&P for tax-exempt and corporate bonds are
AAA, AA, A and BBB. Bonds rated AAA bear the highest rating assigned by S&P to a
debt obligation and the AAA rating indicates in its opinion an extremely strong
capacity to pay interest and repay principal. Bonds rated AA by S&P are judged
by it to have a very strong capacity to pay interest and repay principal, and
they differ from AAA issues only in small degree. Bonds rated A are considered
to have a strong capacity to pay interest and repay principal although they are
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than bonds of a higher rated category. Bonds rated BBB are
regarded as having an adequate capacity to pay interest and repay principal.
Whereas such bonds normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than for higher rated categories. The AA, A and BBB ratings may be modified by
an addition of a plus (+) or minus (-) sign to show relative standing within
these major rating categories.
The four highest ratings of Moody's for tax-exempt and corporate bonds
are Aaa, Aa, A and Baa. Tax-exempt and corporate bonds rated Aaa are judged to
be of the "best quality." The rating of Aa is assigned to bonds which are of
"high quality by all standards." Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large or fluctuations of protective elements
may be of greater amplitude or there may be other elements which make the
long-term risks appear somewhat larger. Bonds that are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present that suggest a susceptibility to impairment
sometime in the future. Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Moody's
may modify a rating of Aa, A or Baa by adding numerical modifiers of 1, 2 or 3
to show relative standing within these categories. The foregoing ratings are
sometimes presented in parentheses preceded with a "con" indicating the bonds
are rated conditionally. Such parenthetical rating denotes the probable credit
stature upon
A-2
<PAGE>
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-3
<PAGE>
Fitch IBCA 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
A-4
<PAGE>
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
A-5
<PAGE>
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-6
<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
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate futures
contracts as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Funds presently could accomplish a similar result to that which
they hope to achieve through the use of futures contracts by selling bonds with
long maturities and investing in bonds with short maturities when interest rates
are expected to increase, or conversely, selling short-term bonds and investing
in long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market, the protection
is more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Funds, through using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
B-1
<PAGE>
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's entering
into a futures contract purchase for the same aggregate amount of the specific
type of financial instrument and the same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the Fund immediately is paid
the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by a Fund
entering into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges -- principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any interest rate futures
contracts for which there exists a public market, including, without limitation,
the foregoing instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security held by a particular
Fund tends to move in concert with the futures market prices of long-term United
States Treasury bonds ("Treasury bonds"). Fleet wishes to fix the current market
value of this portfolio security until some point in the future. Assume the
portfolio security has a market value of 100, and Fleet believes that, because
of an anticipated rise in interest rates, the value will decline to 95. The Fund
might enter into futures contract sales of Treasury bonds for an equivalent of
98. If the market value of the portfolio security does indeed decline from 100
to 95, the equivalent futures market price for the Treasury bonds might also
decline from 98 to 93.
B-2
<PAGE>
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
Fleet could be wrong in its forecast of interest rates, and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an
interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g., shorter
term securities whose yields are greater than those available on long-term
bonds. A Fund's basic motivation would be to maintain for a time the income
advantage from investing in the short-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or part of an
expected increase in market price of the long-term bonds that the Fund may
purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. Fleet wishes to fix the current market price
(and thus 10% yield) of the long-term bond until the time (four months away in
this example) when it may purchase the bond. Assume the long-term bond has a
market price of 100, and Fleet believes that, because of an anticipated fall in
interest rates, the price will have risen to 105 (and the yield will have
dropped to about 9 1/2%) in four months. The Fund might enter into futures
contracts purchases of Treasury bonds for an equivalent price of 98. At the same
time, the Fund would assign a pool of investments in short-term securities that
are either maturing in four months or earmarked for sale in four months, for
purchase of the long-term bond at an assumed market price of 100. Assume these
short-term securities are yielding 15%. If the market price of the long-term
bond does indeed rise from 100 to 105, the equivalent futures market price for
Treasury bonds might also rise from 98 to 103. In that case, the 5 point
increase in the price that the
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Fund pays for the long-term bond would be offset by the 5 point gain realized by
closing out the futures contract purchase.
Fleet could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase. In each transaction, expenses would also be incurred.
II. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with Galaxy's custodian an amount of cash or liquid portfolio securities, known
as initial margin, based on the value of the contract. The nature of initial
margin in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying instruments fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking-to-the-market. For example, when a particular Fund has purchased a
futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where the Fund has purchased a
futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to
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the broker. At any time prior to expiration of the futures contract, Fleet may
elect to close the position by taking an opposite position, subject to the
availability of a secondary market, which will operate to terminate the Fund's
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the Fund,
and the Fund realizes a loss or gain.
III. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the
MidCap Equity and 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.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern
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as to possible further market decline or for other reasons, the Fund will
realize a loss on the futures contract that is not offset by a reduction in the
price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and liquid portfolio securities, equal to the market value of the
futures contracts, will be deposited in a segregated account with Galaxy's
custodian and/or in a margin account with a broker to collateralize the position
and thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions that could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the adviser may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
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contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by the Funds is also subject to Fleet's
ability to predict correctly movements in the direction of the market. For
example, if a particular Fund has hedged against the possibility of a decline in
the market adversely affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. The Funds may have to
sell securities at a time when it may be disadvantageous to do so.
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