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MONEY MANAGEMENT SERVICES PROGRAM
FEATURING...
THE GALAXY FUND
PRIME RESERVES
GOVERNMENT RESERVES
TAX-EXEMPT RESERVES
PROSPECTUS
AUGUST 14, 1998
U.S. CLEARING,
A DIVISION OF
FLEET SECURITIES, INC.
MEMBER NEW YORK STOCK EXCHANGE
MEMBER SIPC
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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 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.
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TABLE OF CONTENTS
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EXPENSE SUMMARY........................................................... 3
INVESTMENT OBJECTIVES AND POLICIES........................................ 4
In General.............................................................. 4
Quality Requirements.................................................... 4
Prime Reserves.......................................................... 4
Government Reserves..................................................... 5
Tax-Exempt Reserves..................................................... 5
INVESTMENTS, STRATEGIES AND RISKS......................................... 6
U.S. Government Obligations............................................. 6
Money Market Instruments................................................ 6
Municipal Securities.................................................... 7
Tender Option Bonds..................................................... 8
Variable and Floating Rate Instruments.................................. 8
Repurchase and Reverse Repurchase Agreements............................ 9
When-Issued and Delayed Settlement Transactions......................... 9
Investment Company Securities........................................... 9
Securities Lending--Prime Reserves and Government Reserves.............. 10
Guaranteed Investment Contracts-- Prime Reserves........................ 10
Asset-Backed Securities--Prime Reserves................................. 10
Other Investment Policies of the Tax-Exempt Reserves.................... 11
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INVESTMENT LIMITATIONS.................................................... 11
PRICING OF SHARES......................................................... 13
HOW TO PURCHASE AND REDEEM SHARES......................................... 14
Distributor............................................................. 14
Purchase of Shares...................................................... 14
Redemption of Shares.................................................... 15
Other Purchase and Redemption Information............................... 15
DIVIDENDS AND DISTRIBUTIONS............................................... 15
TAXES..................................................................... 16
Federal................................................................. 16
State and Local......................................................... 17
Miscellaneous........................................................... 17
MANAGEMENT OF THE FUNDS................................................... 17
Investment Adviser...................................................... 17
Authority to Act as Investment Adviser.................................. 18
Administrator........................................................... 18
DESCRIPTION OF GALAXY AND ITS SHARES...................................... 19
Distribution and Services Plan.......................................... 19
CUSTODIAN AND TRANSFER AGENT.............................................. 20
EXPENSES.................................................................. 20
PERFORMANCE REPORTING..................................................... 20
MISCELLANEOUS............................................................. 21
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THE GALAXY FUND
4400 Computer Drive Contact your Account Executive for an
Westboro, Massachusetts 01581-5108 application and information regarding
purchases, redemptions and other
shareholder services.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes three series of Galaxy's shares which represent
interests in three 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 PRIME RESERVES' investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund invests in "money market" instruments with remaining maturities of 397 days
or less, such as domestic and foreign bank certificates of deposit, bankers'
acceptances, commercial paper 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 RESERVES' 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 TAX-EXEMPT RESERVES' 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.
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Each of the Funds is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is
unaffiliated with Fleet and its parent, Fleet Financial Group, Inc., and
affiliates. The shares described in this Prospectus are offered to customers who
maintain qualified accounts with brokerage firms that are clients of U.S.
Clearing, a division of Fleet Securities, Inc. ("U.S. Clearing"). See
"Management of the Funds," "How to Purchase and Redeem Shares," and "Description
of Galaxy and Its Shares."
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 writing to Galaxy at its address shown above or by
contacting your Account Executive. 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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AUGUST 14, 1998
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EXPENSE SUMMARY
Set forth below is a summary of each Fund's operating expenses. Examples
based on the summary are also shown.
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ANNUAL FUND OPERATING EXPENSES PRIME GOVERNMENT TAX-EXEMPT
(AS A PERCENTAGE OF AVERAGE NET ASSETS) RESERVES RESERVES RESERVES
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Advisory Fees..................................... .36% .40% .40%
12b-1 Fees(1)..................................... .45% .40% .40%
Other Expenses.................................... .19% .20% .20%
--- --- ---
Total Fund Operating Expenses..................... 1.00% 1.00% 1.00%
--- --- ---
--- --- ---
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(1) 12b-1 fees (including fees for shareholder administrative support services)
may not exceed 1.00% (on an annualized basis) of each Fund's average daily
net assets. Long-term shareholders may pay more than the economic equivalent
of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc.
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
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1 YEAR 3 YEARS
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Prime Reserves.................................... $ 10 $ 31
Government Reserves............................... $ 10 $ 31
Tax-Exempt Reserves............................... $ 10 $ 31
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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 Funds bears
directly or indirectly. The information contained in the Expense Summary and
Example reflects the expenses which each Fund expects to incur during the
current fiscal year. For more complete descriptions of these costs and expenses,
see "Management of the Funds" and "Description of Galaxy and Its Shares" in this
Prospectus. Fees charged by U.S. Clearing for services related to an investment
in the Funds are in addition to and not reflected in the fees and expenses
described above. Such fees will be deducted each month from your Fund account(s)
and will reduce your yield.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. THE FUNDS ARE NEW AND ACTUAL EXPENSES AND
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN.
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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 Reserves" 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 Prime Reserves 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 Reserves 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 Reserves 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.
PRIME RESERVES
The Prime Reserves' 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 Prime Reserves include
obligations of domestic and foreign banks (including negotiable certificates of
deposit, non-negotiable time deposits, savings deposits and bankers'
acceptances); commercial paper (including variable and floating rate notes);
corporate bonds; obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; and repurchase
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agreements issued by financial institutions such as banks and broker/dealers.
These instruments have remaining maturities of 397 days or less (except for
certain variable and floating rate notes and securities underlying certain
repurchase agreements). For more information, including applicable quality
requirements, see "Quality Requirements" above and "Investments, Strategies and
Risks" below.
GOVERNMENT RESERVES
The Government Reserves' 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. Under normal market and economic conditions, the
Fund intends to invest substantially all (but not less than 65%) of its total
assets in such U.S. Government obligations and repurchase agreements for which
such obligations serve as collateral. 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.
TAX-EXEMPT RESERVES
The Tax-Exempt Reserves' 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 (including up to 100% of its total assets) as, in the opinion of
Fleet, prevailing market or economic conditions warrant. Uninvested cash
reserves will not earn income. Such taxable instruments may include (i)
obligations of the U.S. Treasury; (ii) obligations of agencies or
instrumentalities of the U.S. Government; (iii) "money market" instruments such
as certificates of deposit, commercial paper or bankers' acceptances; (iv)
repurchase agreements collateralized by U.S. Government obligations or other
"money market" instruments; or (v) securities issued by other 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 Reserves 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.
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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 397 days or less.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank that is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank that is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Investments in non-negotiable time
deposits are limited to no more than 5% of the Prime Reserves' 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
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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 Prime Reserves and Tax-Exempt
Reserves may also purchase Rule 144A securities. See "Investment Limitations."
MUNICIPAL SECURITIES
Municipal Securities are generally issued to finance public works, such as
airports, bridges, highways, housing, health-related entities,
transportation-related projects, educational programs, water and pollution
control and sewer works. They are also issued to repay outstanding obligations,
to raise funds for general operating expenses and to make loans to other public
institutions and for other facilities. Municipal Securities include private
activity bonds issued by or on behalf of public authorities to provide financing
aid to acquire sites or construct and equip facilities for privately or publicly
owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby increases
local employment.
The two principal classifications of Municipal Securities that may be held
by the Tax-Exempt Reserves 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
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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 Reserves 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 Reserves, 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 Reserves may purchase tender option bonds and similar
securities. A tender option bond generally has a long maturity and bears
interest at a fixed rate substantially higher than prevailing short-term
tax-exempt rates, and is coupled with an agreement by a third party, such as a
bank, broker-dealer or other financial institution, pursuant to which such
institution grants the security holders the option, usually upon not more than
seven days notice or at periodic intervals, to tender their securities to the
institution and receive the face value of the securities. In providing the
option, the financial institution receives a fee that reduces the fixed rate of
the underlying bond and results in the Fund effectively receiving a demand
obligation that bears interest at the prevailing short-term tax-exempt rate.
Fleet will monitor, on an ongoing basis, the creditworthiness of the issuer of
the tender option bond, the financial institution 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.
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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 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 each Fund's 10%
limitation on purchases of illiquid instruments described 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 Reserves' investment in repurchase agreements will be,
under normal market conditions, subject to the 20% overall limit on taxable
obligations.
The Prime Reserves and Government Reserves 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.
INVESTMENT COMPANY SECURITIES
Each Fund may invest in securities issued by other open-end investment
companies that (a) invest in high quality, short-term instruments in which the
Fund may invest directly (limited with respect to the Tax-Exempt Reserves to
high quality short-term Municipal Securities) and that meet the applicable
quality requirements described above under "Quality Requirements" and (b)
determine their net asset value per
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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 Investment Company Act of 1940, as amended,
(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.
SECURITIES LENDING--PRIME RESERVES AND GOVERNMENT RESERVES
The Prime Reserves and Government Reserves 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--PRIME RESERVES
The Prime Reserves 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--PRIME RESERVES
The Prime Reserves 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.
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OTHER INVESTMENT POLICIES OF THE TAX-EXEMPT RESERVES
The Tax-Exempt Reserves 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 25% or more of its total 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."
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 may enter into repurchase agreements with respect to portfolio
securities, and (iii) the Prime Reserves and Government Reserves 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.
3. Borrow money or issue senior securities, except that each 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,
provided, however, that the Prime Reserves and Government Reserves may
borrow pursuant to reverse repurchase agreements in accordance with their
respective investment policies and in amounts not in excess of 10% of the
value of their respective total assets at the time of such borrowings; or
mortgage, pledge, or hypothecate any assets except in connection with any
such
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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 any portfolio securities while
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding.
4. Knowingly 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.
In addition, the Prime Reserves and Government Reserves may not:
5. 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 Prime Reserves, 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 Prime Reserves,
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 Prime Reserves,
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).
In addition, the Tax-Exempt Reserves may not:
6. 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.
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. 3 above, each of the Prime
Reserves and Government Reserves 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. With respect to Investment Limitation No. 4 above, the Board of
Trustees of Galaxy will determine whether a later increase in the percentage
limitation with respect to illiquid securities adversely
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affects the level of liquidity being maintained by a Fund and will consider
whether the Fund should reduce its holdings of illiquid securities in order to
maintain adequate liquidity.
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, each of the Prime Reserves and
Tax-Exempt Reserves 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, each such 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 a Fund to the
diversification requirements of Rule 2a-7 is deemed to constitute adherence to
the diversification requirements of Investment Limitation No. 2 above. Each Fund
will determine the effective maturity of its respective investments, as well as
its ability to consider a security as having received the requisite short-term
ratings by Rating Agencies, according to Rule 2a-7. A Fund may change these
operating policies to reflect changes in the laws and regulations without the
approval of its shareholders.
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 Prime Reserves or Tax-Exempt Reserves 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, 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 12:00 Noon
(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 of a Fund for purposes of pricing sales and redemptions is calculated
by dividing the value of all securities and other assets of the Fund, less the
liabilities 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.
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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
Shares of the Funds are offered to customers who maintain qualified accounts
with brokerage firms that are clients of U.S. Clearing.
OPENING A FUND ACCOUNT. Contact your Account Executive to open a Fund
account. Account balances will appear on your monthly statement.
SUBSEQUENT INVESTMENTS. You may make a subsequent investment to an existing
Fund account using either of the methods described below:
BY CHECK. Mail or deliver your check (minimum $100) payable to U.S.
Clearing to your Account Executive who will deposit it into the Fund(s). Please
indicate the appropriate Fund(s) and indicate your brokerage account number on
the check or draft.
BY SWEEP. U.S. Clearing has available an automatic "sweep" for customers in
the Funds. If you request the sweep arrangement, all cash balances are moved
into one of the Funds on a daily basis by U.S. Clearing on your behalf. Sales
proceeds in total from trades will be swept into the designated Fund on
settlement date.
GENERAL PURCHASE INFORMATION. U.S. Clearing is responsible for transmitting
to FD Distributors orders for purchases of shares of the Funds 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 U.S. Clearing on behalf of customers of
its brokerage firm clients will normally be held of record by U.S. Clearing and
beneficial ownership of shares will be recorded by U.S. Clearing and reflected
in the account statements provided to such customers. Confirmations of share
purchases and redemptions will be sent directly by U.S. Clearing to customers.
Purchases of shares of the Funds will be effected only on days on which FD
Distributors, Galaxy's custodian and U.S. Clearing are open for business (a
"Business Day").
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 of the
Funds is recorded on the books of Galaxy and share certificates will not be
issued. Payment for shares of a Fund in the amount of $1,000,000 or more may be
made, at the discretion of the respective Fund, in the form of securities that
are permissible investments for the Fund. For further information, see the
Statement of Additional Information under "Additional Purchase and Redemption
Information" or contact your Account Executive.
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REDEMPTION OF SHARES
You may redeem your Fund shares using any of the methods described below:
BY CONTACTING YOUR ACCOUNT EXECUTIVE. Instruct your Account Executive to
order a withdrawal from your Fund and issue a check payable to you.
BY SWEEP. U.S. Clearing's automatic "sweep" moves money automatically from
your Fund for use by your brokerage account to cover security purchases or other
charges to your account.
BY CHECKWRITING. This service enables you to write checks made payable to
any payee. Checks cannot be written for more than the principal balance (not
including any accrued dividends) in your Fund account. To initiate this service,
you must fill out a signature card which can be obtained from your Account
Executive. There is no separate charge for the checkwriting service and your
checks are provided free of charge. THE CHECKWRITING SERVICE ENABLES YOU TO
RECEIVE THE DAILY DIVIDENDS DECLARED ON THE FUND SHARES TO BE REDEEMED UNTIL THE
DAY THAT THE CHECK IS PRESENTED FOR PAYMENT.
GENERAL REDEMPTION INFORMATION. It is the responsibility of U.S. Clearing
to transmit redemption orders to FD Distributors and credit customers' accounts
with redemption proceeds on a timely basis. No charge for wiring redemption
payments to U.S. Clearing is imposed by Galaxy, although U.S. Clearing may
charge customers' accounts for redemption services. Information relating to such
redemption services and charges, if any, is available from your Account
Executive.
Galaxy will make payment for all shares redeemed after receipt of a
redemption request in proper form, except as provided by the rules of the
Securities and Exchange Commission (the "SEC"). 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 1940 Act.
See the Statement of Additional Information under "Net Asset Value" for examples
of when such redemptions might be appropriate. The Funds impose no charge when
shares are redeemed.
OTHER PURCHASE AND REDEMPTION INFORMATION
The Funds have two transaction times each Business Day, 12:00 Noon (Eastern
Time) and the close of regular trading hours on the Exchange, currently 4:00
p.m. (Eastern Time). A purchase order for shares of a Fund received and accepted
by FD Distributors prior to 4:00 p.m. (Eastern Time) on a Business Day will be
executed at the net asset value next determined 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 prior to 4:00 p.m.
(Eastern Time) that day. Shares do not earn dividends on the day a redemption is
effected regardless of whether the redemption order is effected before or after
12:00 Noon (Eastern Time).
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the times at which purchase and redemption orders
must be received in order to be processed on that Business Day.
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
4:00 p.m. pricing of shares on the day of
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declaration. A Fund's net income for dividend purposes consists of all accrued
income, whether taxable or tax-exempt, plus discount earned on the Fund's
assets, less amortization of premium on such assets and accrued expenses. 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 reinvested in additional shares of a
Fund at the net asset value of such shares on the ex-dividend date. The
crediting and payment of dividends to customers will be in accordance with U.S.
Clearing's procedures. Contact your Account Executive for additional
information.
TAXES
FEDERAL
IN GENERAL. Each 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 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 Prime Reserves and
Government Reserves 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 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 RESERVES. The Tax-Exempt Reserves' 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 Reserves 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%
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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 Reserves 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 shares of
the Fund.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Tax-Exempt
Reserves 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.
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 June 30, 1998 of approximately $100.7
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, 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.
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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 annual rate of .40% of
the first $750,000,000 of each Fund's average daily net assets, plus .35% of
each Fund's average daily net assets 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 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 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
Service Organizations (as defined below) 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
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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.
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 Funds as follows: Class BB shares
representing interests in the Prime Reserves, Class CC shares representing
interests in the Government Reserves and Class DD shares representing interests
in the Tax-Exempt Reserves. 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 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.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act with respect to the Funds. Under the Distribution and
Services Plan, Galaxy may pay (i) FD Distributors or another person for
distribution services provided and expenses assumed and (ii) broker-dealers or
other financial institutions ("Service Organizations") for shareholder
administrative support services provided to shareholders of the Funds.
Payments to FD Distributors are to compensate it for distribution assistance
and expenses assumed and activities primarily intended to result in the sale of
shares, including compensating dealers and other sales personnel (which may
include U.S. Clearing and other affiliates of Fleet), direct advertising and
marketing expenses and expenses incurred in connection with preparing, printing,
mailing and distributing or publishing advertisements and sales literature, for
printing and mailing Prospectuses and Statements of Additional Information
(except those used for regulatory purposes or for distribution to existing
shareholders), and costs associated with implementing and operating the
Distribution and Services Plan.
The servicing agreements adopted under the Distribution and Services Plan
require the Service Organizations receiving such compensation (which may include
U.S. Clearing and other affiliates of Fleet) to perform certain services,
including providing administrative services with respect to the beneficial
owners of shares of the Funds, such as establishing and maintaining accounts and
records for their
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customers who invest in such shares, assisting customers in processing purchase,
exchange and redemption requests and/or in changing dividend options and account
descriptions, developing, maintaining and supporting systems necessary to
support cash management services, such as sweep arrangements, and responding to
customer inquiries concerning their investments.
Under the Distribution and Services Plan, payments by Galaxy for
distribution expenses may not exceed .75% (annualized) of the average daily net
assets of a Fund and payments for shareholder administrative support services
may not exceed .25% (annualized) of the average daily net asset value of a
Fund's outstanding shares which are owned of record or beneficially by a Service
Organization's customers for whom the Service Organization is the owner 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 payments under the
Distribution and Services Plan to an aggregate fee of not more than .45% (on an
annualized basis) of the average daily net assets of the Prime Reserves and not
more than .40% (on an annualized basis) of the average daily net assets of the
Government Reserves and Tax-Exempt Reserves.
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 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 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
20
<PAGE>
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 Prime Reserves and Government Reserves 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 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
Reserves may from time to time advertise a "tax-equivalent yield" to demonstrate
the level of taxable yield necessary to produce an after-tax yield equivalent to
that achieved by the Fund. The "tax-equivalent yield" will be computed by
dividing the tax-exempt portion of the Fund's yield by a denominator consisting
of one minus a stated federal income tax rate and adding the product to that
portion, if any, of the Fund's yield which is not tax-exempt.
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 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 Rule 12b-1 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 (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.
21
<PAGE>
YEAR 2000 RISKS. Like other investment companies, financial and business
organizations and individuals around the world, Galaxy could be adversely
affected if the computer systems used by Fleet and Galaxy's other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." Fleet is taking steps to address the Year 2000 Problem with respect to
the computer systems that it uses and to obtain assurance that comparable steps
are being taken by Galaxy's other major service providers. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on Galaxy as a result of the Year 2000 Problem.
22
<PAGE>
MONEY MANAGEMENT SERVICES PROGRAM
FEATURING...
THE GALAXY FUND
PRIME RESERVES
GOVERNMENT RESERVES
TAX-EXEMPT RESERVES
PROSPECTUS
AUGUST 14, 1998
U.S.CLEARING-SM-
----------------
A DIVISION OF FLEET SECURITIES, INC.
MEMBER NEW YORK STOCK EXCHANGE, INC.
FLT1
FN-131 8/98
<PAGE>
MONEY MANAGEMENT SERVICES PROGRAM
FEATURING...
THE GALAXY FUND
PRIME RESERVES
GOVERNMENT RESERVES
TAX-EXEMPT RESERVES
PROSPECTUS
AUGUST 14, 1998
ZIEGLER THRIFT TRADING, INC.
MEMBER NASD--SIPC
<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
INVESTMENT OBJECTIVES AND POLICIES........................................ 4
In General.............................................................. 4
Quality Requirements.................................................... 4
Prime Reserves.......................................................... 4
Government Reserves..................................................... 5
Tax-Exempt Reserves..................................................... 5
INVESTMENTS, STRATEGIES AND RISKS......................................... 6
U.S. Government Obligations............................................. 6
Money Market Instruments................................................ 6
Municipal Securities.................................................... 7
Tender Option Bonds..................................................... 8
Variable and Floating Rate Instruments.................................. 8
Repurchase and Reverse Repurchase Agreements............................ 9
When-Issued and Delayed Settlement Transactions......................... 9
Investment Company Securities........................................... 10
Securities Lending--Prime Reserves and Government Reserves.............. 10
Guaranteed Investment Contracts-- Prime Reserves........................ 10
Asset-Backed Securities--Prime Reserves................................. 11
Other Investment Policies of the Tax-Exempt Reserves.................... 11
<CAPTION>
PAGE
----
<S> <C>
INVESTMENT LIMITATIONS.................................................... 11
PRICING OF SHARES......................................................... 13
HOW TO PURCHASE AND REDEEM SHARES......................................... 14
Distributor............................................................. 14
Purchase of Shares...................................................... 14
Redemption of Shares.................................................... 15
Other Purchase and Redemption Information............................... 15
DIVIDENDS AND DISTRIBUTIONS............................................... 16
TAXES..................................................................... 16
Federal................................................................. 16
State and Local......................................................... 17
Miscellaneous........................................................... 17
MANAGEMENT OF THE FUNDS................................................... 17
Investment Adviser...................................................... 17
Authority to Act as Investment Adviser.................................. 18
Administrator........................................................... 18
DESCRIPTION OF GALAXY AND ITS
SHARES.................................................................. 19
Distribution and Services Plan.......................................... 19
CUSTODIAN AND TRANSFER AGENT.............................................. 20
EXPENSES.................................................................. 20
PERFORMANCE REPORTING..................................................... 21
MISCELLANEOUS............................................................. 21
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive Contact your Account Executive for an
Westboro, Massachusetts 01581-5108 application and information regarding
purchases, redemptions and other
shareholder services.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes three series of Galaxy's shares which represent
interests in three 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 PRIME RESERVES' investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund invests in "money market" instruments with remaining maturities of 397 days
or less, such as domestic and foreign bank certificates of deposit, bankers'
acceptances, commercial paper 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 RESERVES' 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 TAX-EXEMPT RESERVES' 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>
Each of the Funds is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is
unaffiliated with Fleet and its parent, Fleet Financial Group, Inc., and
affiliates. The shares described in this Prospectus are offered to customers who
maintain qualified accounts with Ziegler Thrift Trading, Inc., a client of U.S.
Clearing, a division of Fleet Securities, Inc. ("U.S. Clearing"). See
"Management of the Funds," "How to Purchase and Redeem Shares," and "Description
of Galaxy and Its Shares."
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 writing to Galaxy at its address shown above or by
contacting your Account Executive. The Statement of Additional Information, as
it may be amended from time to time, is incorporated by reference in its
entirety into this Prospectus.
------------------------
AUGUST 14, 1998
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of each Fund's operating expenses. Examples
based on the summary are also shown.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES PRIME GOVERNMENT TAX-EXEMPT
(AS A PERCENTAGE OF AVERAGE NET ASSETS) RESERVES RESERVES RESERVES
- -------------------------------------------------- ----------- --------------- -------------
<S> <C> <C> <C>
Advisory Fees..................................... .36% .40% .40%
12b-1 Fees(1)..................................... .45% .40% .40%
Other Expenses.................................... .19% .20% .20%
--- --- ---
Total Fund Operating Expenses..................... 1.00% 1.00% 1.00%
--- --- ---
--- --- ---
</TABLE>
- ---------
(1) 12b-1 fees (including fees for shareholder administrative support services)
may not exceed 1.00% (on an annualized basis) of each Fund's average daily
net assets. Long-term shareholders may pay more than the economic equivalent
of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc.
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
---------- ----------
<S> <C> <C>
Prime Reserves.................................... $ 10 $ 31
Government Reserves............................... $ 10 $ 31
Tax-Exempt Reserves............................... $ 10 $ 31
</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 reflects the expenses which each Fund expects to incur during the
current fiscal year. For more complete descriptions of these costs and expenses,
see "Management of the Funds" and "Description of Galaxy and Its Shares" in this
Prospectus. Fees charged by U.S. Clearing for services related to an investment
in the Funds are in addition to and not reflected in the fees and expenses
described above. Such fees will be deducted each month from your Fund account(s)
and will reduce your yield.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. THE FUNDS ARE NEW AND ACTUAL EXPENSES AND
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN.
3
<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 Reserves" 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 Prime Reserves 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 Reserves 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 Reserves 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.
PRIME RESERVES
The Prime Reserves' 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 Prime Reserves include
obligations of domestic and foreign banks (including negotiable certificates of
deposit, non-negotiable time deposits, savings deposits and bankers'
acceptances); commercial paper (including variable and floating rate notes);
corporate bonds;
4
<PAGE>
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and repurchase agreements issued by financial institutions
such as banks and broker/dealers. These instruments have remaining maturities of
397 days or less (except for certain variable and floating rate notes and
securities underlying certain repurchase agreements). For more information,
including applicable quality requirements, see "Quality Requirements" above and
"Investments, Strategies and Risks" below.
GOVERNMENT RESERVES
The Government Reserves' 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. Under normal market and economic conditions, the
Fund intends to invest substantially all (but not less than 65%) of its total
assets in such U.S. Government obligations and repurchase agreements for which
such obligations serve as collateral. 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.
TAX-EXEMPT RESERVES
The Tax-Exempt Reserves' 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 (including up to 100% of its total assets) as, in the opinion of
Fleet, prevailing market or economic conditions warrant. Uninvested cash
reserves will not earn income. Such taxable instruments may include (i)
obligations of the U.S. Treasury; (ii) obligations of agencies or
instrumentalities of the U.S. Government; (iii) "money market" instruments such
as certificates of deposit, commercial paper or bankers' acceptances; (iv)
repurchase agreements collateralized by U.S. Government obligations or other
"money market" instruments; or (v) securities issued by other 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 Reserves 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.
5
<PAGE>
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 397 days or less.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank that is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank that is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Investments in non-negotiable time
deposits are limited to no more than 5% of the Prime Reserves' 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,
6
<PAGE>
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 Prime Reserves and Tax-Exempt
Reserves may also purchase Rule 144A securities. See "Investment Limitations."
MUNICIPAL SECURITIES
Municipal Securities are generally issued to finance public works, such as
airports, bridges, highways, housing, health-related entities,
transportation-related projects, educational programs, water and pollution
control and sewer works. They are also issued to repay outstanding obligations,
to raise funds for general operating expenses and to make loans to other public
institutions and for other facilities. Municipal Securities include private
activity bonds issued by or on behalf of public authorities to provide financing
aid to acquire sites or construct and equip facilities for privately or publicly
owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby increases
local employment.
The two principal classifications of Municipal Securities that may be held
by the Tax-Exempt Reserves 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
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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 Reserves 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 Reserves, 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 Reserves may purchase tender option bonds and similar
securities. A tender option bond generally has a long maturity and bears
interest at a fixed rate substantially higher than prevailing short-term
tax-exempt rates, and is coupled with an agreement by a third party, such as a
bank, broker-dealer or other financial institution, pursuant to which such
institution grants the security holders the option, usually upon not more than
seven days notice or at periodic intervals, to tender their securities to the
institution and receive the face value of the securities. In providing the
option, the financial institution receives a fee that reduces the fixed rate of
the underlying bond and results in the Fund effectively receiving a demand
obligation that bears interest at the prevailing short-term tax-exempt rate.
Fleet will monitor, on an ongoing basis, the creditworthiness of the issuer of
the tender option bond, the financial institution 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
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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 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 each Fund's 10%
limitation on purchases of illiquid instruments described 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 Reserves' investment in repurchase agreements will be,
under normal market conditions, subject to the 20% overall limit on taxable
obligations.
The Prime Reserves and Government Reserves 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.
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INVESTMENT COMPANY SECURITIES
Each Fund may invest in securities issued by other open-end investment
companies that (a) invest in high quality, short-term instruments in which the
Fund may invest directly (limited with respect to the Tax-Exempt Reserves to
high quality short-term Municipal Securities) and that meet the applicable
quality requirements described above under "Quality Requirements" and (b)
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
Investment Company Act of 1940, as amended, (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.
SECURITIES LENDING--PRIME RESERVES AND GOVERNMENT RESERVES
The Prime Reserves and Government Reserves 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--PRIME RESERVES
The Prime Reserves may invest in guaranteed investment contracts ("GICs")
issued by United States insurance companies. Pursuant to such contracts, the
Fund makes cash contributions to a deposit fund of the insurance company's
general account. The insurance company then credits to the Fund payments at
negotiated, floating or fixed interest rates. A GIC is a general obligation of
the issuing insurance company and not a separate account. The purchase price
paid for a GIC becomes part of the general assets of the insurance company, and
the contract is paid from the company's general assets. The Fund will only
purchase GICs that are issued or guaranteed by insurance companies that at the
time of purchase are rated in accordance with the applicable quality
requirements described above under "Quality Requirements." GICs are considered
illiquid securities and will be subject to the Fund's 10% limitation on illiquid
investments, unless there is an active and substantial secondary market for the
particular instrument and market quotations are readily available.
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ASSET-BACKED SECURITIES--PRIME RESERVES
The Prime Reserves 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.
OTHER INVESTMENT POLICIES OF THE TAX-EXEMPT RESERVES
The Tax-Exempt Reserves 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 25% or more of its total 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."
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 may enter into repurchase agreements with respect to portfolio
securities, and (iii) the Prime Reserves and Government Reserves 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
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U.S. Government obligations and as otherwise permitted in accordance with
Rule 2a-7 under the 1940 Act or any successor rule.
3. Borrow money or issue senior securities, except that each 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,
provided, however, that the Prime Reserves and Government Reserves may
borrow pursuant to reverse repurchase agreements in accordance with their
respective investment policies and in amounts not in excess of 10% of the
value of their respective total assets at the time of such borrowings; 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 any portfolio securities while
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding.
4. Knowingly 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.
In addition, the Prime Reserves and Government Reserves may not:
5. 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 Prime Reserves, 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 Prime Reserves,
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 Prime Reserves,
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).
In addition, the Tax-Exempt Reserves may not:
6. 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.
With respect to Investment Limitation No. 2 above: (a) a security is
considered to be issued by the governmental entity or entities whose assets and
revenues back the security or, with respect to a private activity bond that is
backed only by the assets and revenues of a non-governmental user, such non-
governmental user; (b) in certain circumstances, the guarantor of a guaranteed
security may also be considered to be an issuer in connection with such
guarantee; and (c) securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (including securities backed by the full faith and
credit of the United States) are deemed to be U.S. Government obligations.
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With respect to Investment Limitation No. 3 above, each of the Prime
Reserves and Government Reserves 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. With respect to Investment Limitation No. 4 above, the Board of
Trustees of Galaxy will determine whether a later increase in the percentage
limitation with respect to illiquid securities adversely affects the level of
liquidity being maintained by a Fund and will consider whether the Fund should
reduce its holdings of illiquid securities in order to maintain adequate
liquidity.
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, each of the Prime Reserves and
Tax-Exempt Reserves 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, each such 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 a Fund to the
diversification requirements of Rule 2a-7 is deemed to constitute adherence to
the diversification requirements of Investment Limitation No. 2 above. Each Fund
will determine the effective maturity of its respective investments, as well as
its ability to consider a security as having received the requisite short-term
ratings by Rating Agencies, according to Rule 2a-7. A Fund may change these
operating policies to reflect changes in the laws and regulations without the
approval of its shareholders.
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 Prime Reserves or Tax-Exempt Reserves 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, 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 12:00 Noon
(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 of a Fund for purposes of pricing sales and redemptions is calculated
by dividing the value of all securities and other assets of the Fund, less the
liabilities of the Fund, by the number of outstanding shares of the Fund.
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The assets in each Fund are valued based upon the amortized cost method.
Pursuant to this method, a security is valued by reference to a Fund's
acquisition cost as adjusted for amortization of premium or accretion of
discount. Although Galaxy seeks to maintain the net asset value per share of
each Fund at $1.00, there can be no assurance that the net asset value per share
will not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Funds are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
Shares of the Funds are offered to customers who maintain qualified accounts
with Ziegler Thrift Trading, Inc., a client of U.S. Clearing.
OPENING A FUND ACCOUNT. Contact your Account Executive to open a Fund
account. Account balances will appear on your monthly statement.
SUBSEQUENT INVESTMENTS. You may make a subsequent investment to an existing
Fund account using either of the methods described below:
BY CHECK. Mail or deliver your check payable to U.S. Clearing to your
Account Executive who will deposit it into the Fund(s). Please indicate the
appropriate Fund(s) and indicate your brokerage account number on the check or
draft.
BY SWEEP. Your brokerage firm has available an automatic "sweep" for
customers in the Funds. If you request the sweep arrangement, all cash balances
are moved into one of the Funds on a daily basis by your brokerage firm on your
behalf. Sales proceeds in total from trades will be swept into the designated
Fund on settlement date.
GENERAL PURCHASE INFORMATION. U.S. Clearing is responsible for transmitting
to FD Distributors orders for purchases of shares of the Funds 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 U.S. Clearing on behalf of customers of
its brokerage firm clients will normally be held of record by U.S. Clearing and
beneficial ownership of shares will be recorded by U.S. Clearing and reflected
in the account statements provided to such customers. Confirmations of share
purchases and redemptions will be sent directly by U.S. Clearing to customers.
Purchases of shares of the Funds will be effected only on days on which FD
Distributors, Galaxy's custodian and U.S. Clearing are open for business (a
"Business Day").
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 of the
Funds is recorded on the books of Galaxy and share certificates will not be
issued. Payment for shares of a Fund in the amount of $1,000,000 or more may be
made, at the discretion of the respective Fund, in the form of securities that
are permissible investments
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for the Fund. For further information, see the Statement of Additional
Information under "Additional Purchase and Redemption Information" or contact
your Account Executive.
REDEMPTION OF SHARES
You may redeem your Fund shares using any of the methods described below:
BY CONTACTING YOUR ACCOUNT EXECUTIVE. Instruct your Account Executive to
order a withdrawal from your Fund and issue a check payable to you.
BY SWEEP. Your brokerage firm's automatic "sweep" moves money automatically
from your Fund for use by your brokerage account to cover security purchases or
other charges to your account.
BY CHECKWRITING. This service enables you to write checks made payable to
any payee. Checks cannot be written for more than the principal balance (not
including any accrued dividends) in your Fund. To initiate this service, you
must fill out a signature card which can be obtained from your Account
Executive. There is no separate charge for the checkwriting service and your
checks are provided free of charge. THE CHECKWRITING SERVICE ENABLES YOU TO
RECEIVE THE DAILY DIVIDENDS DECLARED ON THE FUND SHARES TO BE REDEEMED UNTIL THE
DAY THAT THE CHECK IS PRESENTED FOR PAYMENT.
GENERAL REDEMPTION INFORMATION. It is the responsibility of U.S. Clearing
to transmit redemption orders to FD Distributors and credit customers' accounts
with redemption proceeds on a timely basis. No charge for wiring redemption
payments to U.S. Clearing is imposed by Galaxy, although U.S. Clearing may
charge customers' accounts for redemption services. Information relating to such
redemption services and charges, if any, is available from your Account
Executive.
Galaxy will make payment for all shares redeemed after receipt of a
redemption request in proper form, except as provided by the rules of the
Securities and Exchange Commission (the "SEC"). 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 1940 Act.
See the Statement of Additional Information under "Net Asset Value" for examples
of when such redemptions might be appropriate. The Funds impose no charge when
shares are redeemed.
OTHER PURCHASE AND REDEMPTION INFORMATION
The Funds have two transaction times each Business Day, 12:00 Noon (Eastern
Time) and the close of regular trading hours on the Exchange, currently 4:00
p.m. (Eastern Time). A purchase order for shares of a Fund received and accepted
by FD Distributors prior to 4:00 p.m. (Eastern Time) on a Business Day will be
executed at the net asset value next determined 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 prior to 4:00 p.m.
(Eastern Time) that day. Shares do not earn dividends on the day a redemption is
effected regardless of whether the redemption order is effected before or after
12:00 Noon (Eastern Time).
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the times at which purchase and redemption orders
must be received in order to be processed on that Business Day.
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DIVIDENDS AND DISTRIBUTIONS
The net investment income of each Fund is declared daily as a dividend to
the persons who are shareholders of the respective Funds immediately after the
4:00 p.m. pricing of shares on the day of declaration. A Fund's net income for
dividend purposes consists of all accrued income, whether taxable or tax-exempt,
plus discount earned on the Fund's assets, less amortization of premium on such
assets and accrued expenses. 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 reinvested in additional shares of a
Fund at the net asset value of such shares on the ex-dividend date. The
crediting and payment of dividends to customers will be in accordance with U.S.
Clearing's procedures. Contact your Account Executive for additional
information.
TAXES
FEDERAL
IN GENERAL. Each 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 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 Prime Reserves and
Government Reserves 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 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 RESERVES. The Tax-Exempt Reserves' 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.")
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If the Tax-Exempt Reserves 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 Reserves 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 shares of
the Fund.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Tax-Exempt
Reserves 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.
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 June 30, 1998 of approximately $100.7
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, 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,
17
<PAGE>
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 annual rate of .40% of
the first $750,000,000 of each Fund's average daily net assets, plus .35% of
each Fund's average daily net assets 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 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 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
Service Organizations (as defined below) 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.
18
<PAGE>
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.
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 Funds as follows: Class BB shares
representing interests in the Prime Reserves, Class CC shares representing
interests in the Government Reserves and Class DD shares representing interests
in the Tax-Exempt Reserves. 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 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.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act with respect to the Funds. Under the Distribution and
Services Plan, Galaxy may pay (i) FD Distributors or another person for
distribution services provided and expenses assumed and (ii) broker-dealers or
other financial institutions ("Service Organizations") for shareholder
administrative support services provided to shareholders of the Funds.
Payments to FD Distributors are to compensate it for distribution assistance
and expenses assumed and activities primarily intended to result in the sale of
shares, including compensating dealers and other sales personnel (which may
include U.S. Clearing and other affiliates of Fleet), direct advertising and
marketing expenses and expenses incurred in connection with preparing, printing,
mailing and distributing or publishing advertisements and sales literature, for
printing and mailing Prospectuses and Statements of
19
<PAGE>
Additional Information (except those used for regulatory purposes or for
distribution to existing shareholders), and costs associated with implementing
and operating the Distribution and Services Plan.
The servicing agreements adopted under the Distribution and Services Plan
require the Service Organizations receiving such compensation (which may include
U.S. Clearing and other affiliates of Fleet) to perform certain services,
including providing administrative services with respect to the beneficial
owners of shares of the Funds, such as establishing and maintaining accounts and
records for their customers who invest in such shares, assisting customers in
processing purchase, exchange and redemption requests and/or in changing
dividend options and account descriptions, developing, maintaining and
supporting systems necessary to support cash management services, such as sweep
arrangements, and responding to customer inquiries concerning their investments.
Under the Distribution and Services Plan, payments by Galaxy for
distribution expenses may not exceed .75% (annualized) of the average daily net
assets of a Fund and payments for shareholder administrative support services
may not exceed .25% (annualized) of the average daily net asset value of a
Fund's outstanding shares which are owned of record or beneficially by a Service
Organization's customers for whom the Service Organization is the owner 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 payments under the
Distribution and Services Plan to an aggregate fee of not more than .45% (on an
annualized basis) of the average daily net assets of the Prime Reserves and not
more than .40% (on an annualized basis) of the average daily net assets of the
Government Reserves and Tax-Exempt Reserves.
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 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 Funds also pay for any brokerage fees and
commissions in connection with the purchase of portfolio securities.
20
<PAGE>
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 Prime Reserves and Government Reserves 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 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
Reserves may from time to time advertise a "tax-equivalent yield" to demonstrate
the level of taxable yield necessary to produce an after-tax yield equivalent to
that achieved by the Fund. The "tax-equivalent yield" will be computed by
dividing the tax-exempt portion of the Fund's yield by a denominator consisting
of one minus a stated federal income tax rate and adding the product to that
portion, if any, of the Fund's yield which is not tax-exempt.
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 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.
21
<PAGE>
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 Rule 12b-1 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 (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.
YEAR 2000 RISKS. Like other investment companies, financial and business
organizations and individuals around the world, Galaxy could be adversely
affected if the computer systems used by Fleet and Galaxy's other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." Fleet is taking steps to address the Year 2000 Problem with respect to
the computer systems that it uses and to obtain assurance that comparable steps
are being taken by Galaxy's other major service providers. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on Galaxy as a result of the Year 2000 Problem.
22
<PAGE>
MONEY MANAGEMENT SERVICES PROGRAM
FEATURING...
THE GALAXY FUND
PRIME RESERVES
GOVERNMENT RESERVES
TAX-EXEMPT RESERVES
PROSPECTUS
AUGUST 14, 1998
[LOGO] ZIEGLER THRIFT TRADING, INC. -Registered Trademark-
MEMBER NASD-SIPC
FN-130 8/98
<PAGE>
THE GALAXY FUND
PRIME RESERVES
GOVERNMENT RESERVES
TAX-EXEMPT RESERVES
PROSPECTUS
AUGUST 14, 1998
QUICK & REILLY
MEMBER NEW YORK STOCK EXCHANGE
<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
INVESTMENT OBJECTIVES AND POLICIES........................................ 4
In General.............................................................. 4
Quality Requirements.................................................... 4
Prime Reserves.......................................................... 4
Government Reserves..................................................... 5
Tax-Exempt Reserves..................................................... 5
INVESTMENTS, STRATEGIES AND RISKS......................................... 6
U.S. Government Obligations............................................. 6
Money Market Instruments................................................ 6
Municipal Securities.................................................... 7
Tender Option Bonds..................................................... 8
Variable and Floating Rate
Instruments............................................................ 8
Repurchase and Reverse Repurchase
Agreements............................................................. 9
When-Issued and Delayed Settlement
Transactions........................................................... 9
Investment Company Securities........................................... 10
Securities Lending--Prime Reserves
and Government Reserves................................................ 10
Guaranteed Investment Contracts--
Prime Reserves......................................................... 10
Asset-Backed Securities--Prime
Reserves............................................................... 11
Other Investment Policies of the
Tax-Exempt Reserves.................................................... 11
<CAPTION>
PAGE
----
<S> <C>
INVESTMENT LIMITATIONS.................................................... 11
PRICING OF SHARES......................................................... 13
HOW TO PURCHASE AND REDEEM
SHARES.................................................................. 14
Distributor............................................................. 14
Purchase of Shares...................................................... 14
Redemption of Shares.................................................... 15
Other Purchase and Redemption
Information............................................................ 15
DIVIDENDS AND DISTRIBUTIONS............................................... 16
TAXES..................................................................... 16
Federal................................................................. 16
State and Local......................................................... 17
Miscellaneous........................................................... 17
MANAGEMENT OF THE FUNDS................................................... 17
Investment Adviser...................................................... 17
Authority to Act as Investment Adviser.................................. 18
Administrator........................................................... 18
DESCRIPTION OF GALAXY AND
ITS SHARES.............................................................. 19
Distribution and Services Plan.......................................... 19
CUSTODIAN AND TRANSFER AGENT.............................................. 20
EXPENSES.................................................................. 20
PERFORMANCE REPORTING..................................................... 20
MISCELLANEOUS............................................................. 21
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE GALAXY FUND
4400 Computer Drive Contact your Quick & Reilly Personal
Westboro, Massachusetts 01581-5108 Broker for an application and
information regarding purchases,
redemptions and other shareholder
services.
The Galaxy Fund ("Galaxy") is an open-end management investment company.
This Prospectus describes three series of Galaxy's shares which represent
interests in three 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 PRIME RESERVES' investment objective is to seek as high a level of
current income as is consistent with liquidity and stability of principal. The
Fund invests in "money market" instruments with remaining maturities of 397 days
or less, such as domestic and foreign bank certificates of deposit, bankers'
acceptances, commercial paper 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 RESERVES' 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 TAX-EXEMPT RESERVES' 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>
Each of the Funds is advised by Fleet Investment Advisors Inc. ("Fleet") and
sponsored and distributed by First Data Distributors, Inc., which is
unaffiliated with Fleet and its parent, Fleet Financial Group, Inc., and
affiliates. The shares described in this Prospectus are offered to customers of
Quick & Reilly, Inc. ("Quick & Reilly"), an affiliate of Fleet, who maintain a
Quick Asset-Registered Trademark- account with Quick & Reilly. See "Management
of the Funds," "How to Purchase and Redeem Shares," and "Description of Galaxy
and Its Shares."
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 writing to Galaxy at its address shown above or by
contacting your Quick & Reilly Personal Broker. The Statement of Additional
Information, as it may be amended from time to time, is incorporated by
reference in its entirety into this Prospectus.
------------------------
AUGUST 14, 1998
2
<PAGE>
EXPENSE SUMMARY
Set forth below is a summary of each Fund's operating expenses. Examples
based on the summary are also shown.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES PRIME GOVERNMENT TAX-EXEMPT
(AS A PERCENTAGE OF AVERAGE NET ASSETS) RESERVES RESERVES RESERVES
- -------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Advisory Fees..................................... .36% .40% .40%
12b-1 Fees(1)..................................... .45% .40% .40%
Other Expenses.................................... .19% .20% .20%
----------- ----------- -----------
Total Fund Operating Expenses..................... 1.00% 1.00% 1.00%
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ---------
(1) 12b-1 fees (including fees for shareholder administrative support services)
may not exceed 1.00% (on an annualized basis) of each Fund's average daily
net assets. Long-term shareholders may pay more than the economic equivalent
of the maximum front-end sales charges permitted by the rules of the
National Association of Securities Dealers, Inc.
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return, and (2) redemption of your investment at the end of the
following periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
---------- ----------
<S> <C> <C>
Prime Reserves.................................... $ 10 $ 31
Government Reserves............................... $ 10 $ 31
Tax-Exempt Reserves............................... $ 10 $ 31
</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 reflects the expenses which each Fund expects to incur during the
current fiscal year. For more complete descriptions of these costs and expenses,
see "Management of the Funds" and "Description of Galaxy and Its Shares" in this
Prospectus. Fees charged by Quick & Reilly for services related to an investment
in the Funds are in addition to and not reflected in the fees and expenses
described above. Such fees will be deducted each month from your Fund account(s)
and will reduce your yield.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. THE FUNDS ARE NEW AND ACTUAL EXPENSES AND
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN.
3
<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 Reserves" 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 Prime Reserves 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 Reserves 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 Reserves 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.
PRIME RESERVES
The Prime Reserves' 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 Prime Reserves include
obligations of domestic and foreign banks (including negotiable certificates of
deposit, non-negotiable time deposits, savings deposits and bankers'
acceptances); commercial paper (including variable and floating rate notes);
corporate bonds;
4
<PAGE>
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and repurchase agreements issued by financial institutions
such as banks and broker/dealers. These instruments have remaining maturities of
397 days or less (except for certain variable and floating rate notes and
securities underlying certain repurchase agreements). For more information,
including applicable quality requirements, see "Quality Requirements" above and
"Investments, Strategies and Risks" below.
GOVERNMENT RESERVES
The Government Reserves' 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. Under normal market and economic conditions, the
Fund intends to invest substantially all (but not less than 65%) of its total
assets in such U.S. Government obligations and repurchase agreements for which
such obligations serve as collateral. 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.
TAX-EXEMPT RESERVES
The Tax-Exempt Reserves' 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 (including up to 100% of its total assets) as, in the opinion of
Fleet, prevailing market or economic conditions warrant. Uninvested cash
reserves will not earn income. Such taxable instruments may include (i)
obligations of the U.S. Treasury; (ii) obligations of agencies or
instrumentalities of the U.S. Government; (iii) "money market" instruments such
as certificates of deposit, commercial paper or bankers' acceptances; (iv)
repurchase agreements collateralized by U.S. Government obligations or other
"money market" instruments; or (v) securities issued by other 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 Reserves 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.
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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 397 days or less.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits issued for a definite period of time
and earning a specified return by a U.S. bank that is a member of the Federal
Reserve System or is insured by the Federal Deposit Insurance Corporation
("FDIC"), or by a savings and loan association or savings bank that is insured
by the FDIC. Bank obligations also include U.S. dollar-denominated obligations
of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of
the same type as domestic bank obligations. Investments in bank obligations are
limited to the obligations of financial institutions having more than $1 billion
in total assets at the time of purchase. Investments in non-negotiable time
deposits are limited to no more than 5% of the Prime Reserves' 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,
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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 Prime Reserves and Tax-Exempt
Reserves may also purchase Rule 144A securities. See "Investment Limitations."
MUNICIPAL SECURITIES
Municipal Securities are generally issued to finance public works, such as
airports, bridges, highways, housing, health-related entities,
transportation-related projects, educational programs, water and pollution
control and sewer works. They are also issued to repay outstanding obligations,
to raise funds for general operating expenses and to make loans to other public
institutions and for other facilities. Municipal Securities include private
activity bonds issued by or on behalf of public authorities to provide financing
aid to acquire sites or construct and equip facilities for privately or publicly
owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby increases
local employment.
The two principal classifications of Municipal Securities that may be held
by the Tax-Exempt Reserves 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
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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 Reserves 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 Reserves, 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 Reserves may purchase tender option bonds and similar
securities. A tender option bond generally has a long maturity and bears
interest at a fixed rate substantially higher than prevailing short-term
tax-exempt rates, and is coupled with an agreement by a third party, such as a
bank, broker-dealer or other financial institution, pursuant to which such
institution grants the security holders the option, usually upon not more than
seven days notice or at periodic intervals, to tender their securities to the
institution and receive the face value of the securities. In providing the
option, the financial institution receives a fee that reduces the fixed rate of
the underlying bond and results in the Fund effectively receiving a demand
obligation that bears interest at the prevailing short-term tax-exempt rate.
Fleet will monitor, on an ongoing basis, the creditworthiness of the issuer of
the tender option bond, the financial institution 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
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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 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 each Fund's 10%
limitation on purchases of illiquid instruments described 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 Reserves' investment in repurchase agreements will be,
under normal market conditions, subject to the 20% overall limit on taxable
obligations.
The Prime Reserves and Government Reserves 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.
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INVESTMENT COMPANY SECURITIES
Each Fund may invest in securities issued by other open-end investment
companies that (a) invest in high quality, short-term instruments in which the
Fund may invest directly (limited with respect to the Tax-Exempt Reserves to
high quality short-term Municipal Securities) and that meet the applicable
quality requirements described above under "Quality Requirements" and (b)
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
Investment Company Act of 1940, as amended, (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.
SECURITIES LENDING--PRIME RESERVES AND GOVERNMENT RESERVES
The Prime Reserves and Government Reserves 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--PRIME RESERVES
The Prime Reserves may invest in guaranteed investment contracts ("GICs")
issued by United States insurance companies. Pursuant to such contracts, the
Fund makes cash contributions to a deposit fund of the insurance company's
general account. The insurance company then credits to the Fund payments at
negotiated, floating or fixed interest rates. A GIC is a general obligation of
the issuing insurance company and not a separate account. The purchase price
paid for a GIC becomes part of the general assets of the insurance company, and
the contract is paid from the company's general assets. The Fund will only
purchase GICs that are issued or guaranteed by insurance companies that at the
time of purchase are rated in accordance with the applicable quality
requirements described above under "Quality Requirements." GICs are considered
illiquid securities and will be subject to the Fund's 10% limitation on illiquid
investments, unless there is an active and substantial secondary market for the
particular instrument and market quotations are readily available.
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ASSET-BACKED SECURITIES--PRIME RESERVES
The Prime Reserves 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.
OTHER INVESTMENT POLICIES OF THE TAX-EXEMPT RESERVES
The Tax-Exempt Reserves 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 25% or more of its total 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."
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 may enter into repurchase agreements with respect to portfolio
securities, and (iii) the Prime Reserves and Government Reserves 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
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U.S. Government obligations and as otherwise permitted in accordance with
Rule 2a-7 under the 1940 Act or any successor rule.
3. Borrow money or issue senior securities, except that each 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,
provided, however, that the Prime Reserves and Government Reserves may
borrow pursuant to reverse repurchase agreements in accordance with their
respective investment policies and in amounts not in excess of 10% of the
value of their respective total assets at the time of such borrowings; 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 any portfolio securities while
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding.
4. Knowingly 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.
In addition, the Prime Reserves and Government Reserves may not:
5. 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 Prime Reserves, 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 Prime Reserves,
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 Prime Reserves,
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).
In addition, the Tax-Exempt Reserves may not:
6. 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.
With respect to Investment Limitation No. 2 above: (a) a security is
considered to be issued by the governmental entity or entities whose assets and
revenues back the security or, with respect to a private activity bond that is
backed only by the assets and revenues of a non-governmental user, such non-
governmental user; (b) in certain circumstances, the guarantor of a guaranteed
security may also be considered to be an issuer in connection with such
guarantee; and (c) securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (including securities backed by the full faith and
credit of the United States) are deemed to be U.S. Government obligations.
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With respect to Investment Limitation No. 3 above, each of the Prime
Reserves and Government Reserves 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. With respect to Investment Limitation No. 4 above, the Board of
Trustees of Galaxy will determine whether a later increase in the percentage
limitation with respect to illiquid securities adversely affects the level of
liquidity being maintained by a Fund and will consider whether the Fund should
reduce its holdings of illiquid securities in order to maintain adequate
liquidity.
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, each of the Prime Reserves and
Tax-Exempt Reserves 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, each such 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 a Fund to the
diversification requirements of Rule 2a-7 is deemed to constitute adherence to
the diversification requirements of Investment Limitation No. 2 above. Each Fund
will determine the effective maturity of its respective investments, as well as
its ability to consider a security as having received the requisite short-term
ratings by Rating Agencies, according to Rule 2a-7. A Fund may change these
operating policies to reflect changes in the laws and regulations without the
approval of its shareholders.
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 Prime Reserves or Tax-Exempt Reserves 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, 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 12:00 Noon
(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 of a Fund for purposes of pricing sales and redemptions is calculated
by dividing the value of all securities and other assets of the Fund, less the
liabilities of the Fund, by the number of outstanding shares of the Fund.
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The assets in each Fund are valued based upon the amortized cost method.
Pursuant to this method, a security is valued by reference to a Fund's
acquisition cost as adjusted for amortization of premium or accretion of
discount. Although Galaxy seeks to maintain the net asset value per share of
each Fund at $1.00, there can be no assurance that the net asset value per share
will not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Funds are sold on a continuous basis by Galaxy's distributor,
First Data Distributors, Inc. ("FD Distributors"), a wholly-owned subsidiary of
First Data Investor Services Group, Inc. FD Distributors is a registered
broker/dealer with principal offices located at 4400 Computer Drive, Westboro,
Massachusetts 01581-5108.
PURCHASE OF SHARES
Shares of the Funds are offered to customers of Quick & Reilly who maintain
a Quick Asset-Registered Trademark- account with Quick & Reilly.
OPENING A FUND ACCOUNT. Contact your Quick & Reilly Personal Broker to open
a Fund account. The minimum investment requirement is $500. Account balances
will appear on your Quick & Reilly monthly statement.
SUBSEQUENT INVESTMENTS. You may make a subsequent investment to an existing
Fund account using either of the methods described below:
BY CHECK THROUGH QUICK & REILLY. Mail or deliver your check payable to U.S.
Clearing, a division of Fleet Securities, Inc., to your Quick & Reilly Personal
Broker who will deposit it into the Fund(s). Please indicate the appropriate
Fund(s) and indicate your brokerage account number on the check or draft.
BY SWEEP. Quick & Reilly has available an automatic "sweep" for customers
in the Funds. If you request the sweep arrangement, all cash balances are moved
into one of the Funds on a daily basis by Quick & Reilly on your behalf. Sales
proceeds in total from trades will be swept into the designated Fund on
settlement date.
GENERAL PURCHASE INFORMATION. Quick & Reilly is responsible for
transmitting to FD Distributors orders for purchases of shares of the Funds 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 Quick & Reilly on behalf of its
customers will normally be held of record by Quick & Reilly and beneficial
ownership of shares will be recorded by Quick & Reilly and reflected in the
account statements provided to its customers. Confirmations of share purchases
and redemptions will be sent directly to Quick & Reilly. Purchases of shares of
the Funds will be effected only on days on which FD Distributors, Galaxy's
custodian and Quick & Reilly are open for business (a "Business Day").
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 of the
Funds is recorded on the books of Galaxy and share certificates will not be
issued. Payment for shares of a Fund in the amount of $1,000,000 or more may be
made, at the discretion of the respective Fund, in the form of securities that
are permissible investments
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for the Fund. For further information, see the Statement of Additional
Information under "Additional Purchase and Redemption Information" or contact
your Quick & Reilly Personal Broker.
REDEMPTION OF SHARES
You may redeem your Fund shares using any of the methods described below:
BY CONTACTING YOUR QUICK & REILLY PERSONAL BROKER. Instruct your Quick &
Reilly Personal Broker to order a withdrawal from your Fund and issue a check
payable to you.
BY SWEEP. Quick & Reilly's automatic "sweep" moves money automatically from
your Fund for use by your Quick & Reilly brokerage account to cover security
purchases or other charges to your account.
BY CHECKWRITING This service enables you to write checks made payable to
any payee. Checks cannot be written for more than the principal balance (not
including any accrued dividends) in your Fund. To initiate this service, you
must fill out a signature card which can be obtained from your Quick & Reilly
Personal Broker. There is no separate charge for the checkwriting service and
your checks are provided free of charge. THE CHECKWRITING SERVICE ENABLES YOU TO
RECEIVE THE DAILY DIVIDENDS DECLARED ON THE FUND SHARES TO BE REDEEMED UNTIL THE
DAY THAT THE CHECK IS PRESENTED FOR PAYMENT.
GENERAL REDEMPTION INFORMATION. It is the responsibility of Quick & Reilly
to transmit redemption orders to FD Distributors and credit its customers'
accounts with redemption proceeds on a timely basis. No charge for wiring
redemption payments to Quick & Reilly is imposed by Galaxy, although Quick &
Reilly may charge its customers' accounts for redemption services. Information
relating to such redemption services and charges, if any, is available from
Quick & Reilly.
Galaxy will make payment for all shares redeemed after receipt of a
redemption request in proper form, except as provided by the rules of the
Securities and Exchange Commission (the "SEC"). 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 1940 Act.
See the Statement of Additional Information under "Net Asset Value" for examples
of when such redemptions might be appropriate. The Funds impose no charge when
shares are redeemed.
OTHER PURCHASE AND REDEMPTION INFORMATION
The Funds have two transaction times each Business Day, 12:00 Noon (Eastern
Time) and the close of regular trading hours on the Exchange, currently 4:00
p.m. (Eastern Time). A purchase order for shares of a Fund received and accepted
by FD Distributors prior to 4:00 p.m. (Eastern Time) on a Business Day will be
executed at the net asset value next determined 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 prior to 4:00 p.m.
(Eastern Time) that day. Shares do not earn dividends on the day a redemption is
effected regardless of whether the redemption order is effected before or after
12:00 Noon (Eastern Time).
On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, Galaxy will advance the times at which purchase and redemption orders
must be received in order to be processed on that Business Day.
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<PAGE>
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
4:00 p.m. pricing of shares on the day of declaration. A Fund's net income for
dividend purposes consists of all accrued income, whether taxable or tax-exempt,
plus discount earned on the Fund's assets, less amortization of premium on such
assets and accrued expenses. 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 reinvested in additional shares of a
Fund at the net asset value of such shares on the ex-dividend date. The
crediting and payment of dividends to customers will be in accordance with the
procedures governing such customers' accounts at Quick & Reilly.
TAXES
FEDERAL
IN GENERAL. Each 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 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 Prime Reserves and
Government Reserves 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 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 RESERVES. The Tax-Exempt Reserves' 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 Reserves 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
16
<PAGE>
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 Reserves 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 shares of
the Fund.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Tax-Exempt
Reserves 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.
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 June 30, 1998 of approximately $100.7
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, 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.
17
<PAGE>
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 annual rate of .40% of
the first $750,000,000 of each Fund's average daily net assets, plus .35% of
each Fund's average daily net assets 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 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 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
Service Organizations (as defined below) 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.
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<PAGE>
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 Funds as follows: Class BB shares
representing interests in the Prime Reserves, Class CC shares representing
interests in the Government Reserves and Class DD shares representing interests
in the Tax-Exempt Reserves. 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 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.
DISTRIBUTION AND SERVICES PLAN
Galaxy has adopted a Distribution and Services Plan pursuant to Rule 12b-1
under the 1940 Act with respect to the Funds. Under the Distribution and
Services Plan, Galaxy may pay (i) FD Distributors or another person for
distribution services provided and expenses assumed and (ii) broker-dealers or
other financial institutions ("Service Organizations") for shareholder
administrative support services provided to shareholders of the Funds.
Payments to FD Distributors are to compensate it for distribution assistance
and expenses assumed and activities primarily intended to result in the sale of
shares, including compensating dealers and other sales personnel (which may
include Quick & Reilly and other affiliates of Fleet), direct advertising and
marketing expenses and expenses incurred in connection with preparing, printing,
mailing and distributing or publishing advertisements and sales literature, for
printing and mailing Prospectuses and Statements of Additional Information
(except those used for regulatory purposes or for distribution to existing
shareholders), and costs associated with implementing and operating the
Distribution and Services Plan.
The servicing agreements adopted under the Distribution and Services Plan
require the Service Organizations receiving such compensation (which may include
Quick & Reilly and other affiliates of Fleet) to perform certain services,
including providing administrative services with respect to the beneficial
owners of shares of the Funds, such as establishing and maintaining accounts and
records for their customers who invest in such shares, assisting customers in
processing purchase, exchange and redemption requests and/or in changing
dividend options and account descriptions, developing, maintaining and
supporting systems necessary to support cash management services, such as sweep
arrangements, and responding to customer inquiries concerning their investments.
19
<PAGE>
Under the Distribution and Services Plan, payments by Galaxy for
distribution expenses may not exceed .75% (annualized) of the average daily net
assets of a Fund and payments for shareholder administrative support services
may not exceed .25% (annualized) of the average daily net asset value of a
Fund's outstanding shares which are owned of record or beneficially by a Service
Organization's customers for whom the Service Organization is the owner 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 payments under the
Distribution and Services Plan to an aggregate fee of not more than .45% (on an
annualized basis) of the average daily net assets of the Prime Reserves and not
more than .40% (on an annualized basis) of the average daily net assets of the
Government Reserves and Tax-Exempt Reserves.
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 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 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 Prime Reserves and Government Reserves 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.
20
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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
Reserves may from time to time advertise a "tax-equivalent yield" to demonstrate
the level of taxable yield necessary to produce an after-tax yield equivalent to
that achieved by the Fund. The "tax-equivalent yield" will be computed by
dividing the tax-exempt portion of the Fund's yield by a denominator consisting
of one minus a stated federal income tax rate and adding the product to that
portion, if any, of the Fund's yield which is not tax-exempt.
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 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 Rule 12b-1 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 (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.
YEAR 2000 RISKS. Like other investment companies, financial and business
organizations and individuals around the world, Galaxy could be adversely
affected if the computer systems used by Fleet and Galaxy's other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." Fleet is taking steps to address the Year 2000 Problem with respect to
the computer systems that it uses and to obtain assurance that comparable steps
are being taken by Galaxy's other major service providers. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on Galaxy as a result of the Year 2000 Problem.
21
<PAGE>
QUICK
ASSETS
MANAGEMENT SERVICE
-----------------------------
THE GALAXY FUND
PRIME RESERVES
GOVERNMENT RESERVES
TAX-EXEMPT RESERVES
-----------------------------
Prospectus
August 14, 1998
QUICK & REILLY-Registered Trademark-
MEMBER NEW YORK STOCK EXCHANGE
ORFB1040 RW
FN-132 8/98
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED JUNE 30, 1998
THE GALAXY FUND
Statement of Additional Information
Prime Reserves
Government Reserves
Tax-Exempt Reserves
____________________, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
ANY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
<PAGE>
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the current prospectuses (collectively, the
"Prospectus") for the Prime Reserves, Government Reserves and Tax-Exempt
Reserves, dated _____________, 1998, of The Galaxy Fund ("Galaxy"), as it may
from time to time be supplemented or revised. This Statement of Additional
Information is incorporated by reference in its entirety into the Prospectus.
No investment in the Funds should be made without reading the Prospectus.
Copies of the Prospectus may be obtained by writing Galaxy c/o First Data
Distributors, Inc., 4400 Computer Drive, Westboro, Massachusetts 01581-5180 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 OF CONTENTS
PAGE
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . 9
Special Procedures Of In-Kind Payments . . . . . . . . . . . . . . . . . 10
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . 10
ADDITIONAL INFORMATION CONCERNING TAXES. . . . . . . . . . . . . . . . . 12
In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Tax-Exempt Reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
State Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . 15
Shareholder and Trustee Liability. . . . . . . . . . . . . . . . . . . . 4
ADVISORY, ADMINISTRATION, CUSTODIAN AND TRANSFER AGENCY AGREEMENTS . . . 5
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . 6
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 7
DISTRIBUTION AND SERVICES PLAN . . . . . . . . . . . . . . . . . . . . . 8
DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PERFORMANCE AND YIELD INFORMATION. . . . . . . . . . . . . . . . . . . . 10
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
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THE GALAXY FUND
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in thirty investment
portfolios.
This Statement of Additional Information relates to three of those
investment portfolios: the Prime Reserves, Government Reserves and Tax-Exempt
Reserves (the "Funds"). This Statement of Additional Information provides
additional investment information with respect to the Funds and should be read
in conjunction with the current Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
VARIABLE AND FLOATING RATE OBLIGATIONS
The Funds may purchase variable and floating rate instruments as described
in their Prospectus. If such an instrument is not rated, Fleet Investment
Advisors Inc. ("Fleet"), the investment adviser to the Funds, must determine
that such instrument is comparable to rated instruments eligible for purchase by
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.
Long-term variable and floating rate obligations held by the Funds may have
maturities of more than 397 days, provided the Funds are entitled to payment of
principal upon not more than 30 days' notice or at specified intervals not
exceeding one year (upon not more than 30 days' notice).
Variable and floating rate obligations with a demand feature held by the
Funds will be deemed to have a maturity equal to the longer of the period
remaining to the next interest rate adjustment or the demand notice period.
BANK OBLIGATIONS
For purposes of the Prime Reserves'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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<PAGE>
ASSET-BACKED SECURITIES
The Prime Reserves 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 Reserves 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
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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 Reserves'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 Prospectus 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 Reserves 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 multi-state
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information and the Prospectus. The
non-governmental user of facilities financed by private activity bonds is also
considered to be an "issuer." An issuer's obligations under its Municipal
Securities are subject to the provisions of bankruptcy, insolvency and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Code and laws, if any, which may be enacted by federal or state
legislatures extending the time for payment of principal or interest, or both,
or imposing other constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. The power or ability of an issuer to
meet its obligations for the payment of interest on and principal of its
Municipal Securities may be materially adversely affected by litigation or other
conditions.
Among other instruments, the Tax-Exempt Reserves may purchase short-term
general obligation notes, tax anticipation
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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 Reserves 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 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 Reserves 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 Reserves 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 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 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 Reserves may acquire "stand-by commitments" with respect to
Municipal Securities held by it. Under a stand-by commitment, a dealer agrees
to purchase from the Fund, at the Fund's option, specified Municipal Securities
at a specified price. Stand-by commitments are exercisable by the Fund at any
time before the maturity of the underlying Municipal Security, and may be sold,
transferred or assigned by the Fund only with respect to the underlying
instruments.
Although stand-by commitments are often available without the payment of
any direct or indirect consideration, if necessary or advisable, the Fund may
pay for a stand-by commitment either separately in cash or by paying a higher
price for securities acquired subject to the commitment. Where the Fund pays
any consideration directly or indirectly for a stand-by commitment, its cost
will be reflected as unrealized depreciation for the period during which the
commitment is held by the Fund.
The Fund will enter into stand-by commitments only with banks and
broker/dealers that present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, Fleet will review
periodically the issuer's assets,
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liabilities, contingent claims and other relevant financial information.
The Fund will acquire stand-by commitments solely to facilitate liquidity
and does not intend to exercise its rights thereunder for trading purposes.
Stand-by commitments will be valued at zero in determining the Fund's net asset
value.
REPURCHASE AGREEMENTS; REVERSE REPURCHASE AGREEMENTS; LOANS OF PORTFOLIO
SECURITIES
Each Fund 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").
The Prime Reserves and Government Reserves 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 Reserves 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
Prime Reserves would be invested in high quality, short-term "money market"
instruments.
U.S. GOVERNMENT SECURITIES
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage
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Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and
Maritime Administration.
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 Prospectus,
the Funds are subject to the following investment limitations, which may be
changed with respect to a particular Fund only by a vote of the holders of a
majority of such Fund's outstanding shares (as defined under "Miscellaneous" in
the Prospectus).
Each Fund may not:
1. Purchase securities on margin (except such short-term credits as
may be necessary for the clearance of purchases), make short
sales of securities, or maintain a short position.
2. Act as an underwriter within the meaning of the Securities Act of
1933, as amended; 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 a
Fund's investment objective, policies and limitations may be
deemed to be underwriting.
3. Purchase or sell real estate; except that each taxable Fund may
purchase securities that are secured by real estate, and the
Prime Reserves may purchase securities of issuers which deal in
real estate or interests therein; and except that the Tax-Exempt
Reserves 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.
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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.
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 Fund 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
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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 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
Prospectus, shares are sold without a sales charge.
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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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.
SPECIAL PROCEDURES OF IN-KIND PAYMENTS
Payments for shares of a Fund may, in the discretion of the respective
Fund, be made in the form of securities that are permissable investments for the
Fund as described in the Prospectus. For further information about this form of
payment, contact your broker-dealer representative. In connection with an
in-kind securities segment, a Fund will require, among other things, that the
securities be valued on the day of purchase in accordance with the pricing
procedures used by the Fund; that the Fund receive satisfactory assurances that
it will have good and marketable title to the securities received by it; that
the securities be in proper form for transfer of the Fund; that adequate
information be provided to the Fund concerning the basis and other tax matters
relating to the securities; and that the amount of the purchase be at least
$1,000,000.
DESCRIPTION OF SHARES
Galaxy is a Massachusetts business trust. Galaxy's Declaration of Trust
authorizes the Board of Trustees to issue an unlimited number of shares and to
classify or reclassify any unissued shares into one or more additional classes
by setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. Pursuant to
such authority, the Board of Trustees has authorized the issuance of thirty
classes of shares, each class representing interests in one of thirty separate
investment portfolios: Money Market Fund, Government Fund, U.S. Treasury Fund,
Tax-Exempt Fund, Prime Reserves, Government Reserves, Tax-Exempt Reserves,
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,
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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.
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 Prospectus, shares will be fully paid and
non-assessable. 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.
Holders of all outstanding shares of a particular Fund will vote together
in the aggregate on all matters. 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 a
Rule 12b-1 distribution plan 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.
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.
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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'
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or their shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning. Potential
investors should consult their tax advisers with specific reference to their own
tax situation.
Each Fund 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
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eliminate or reduce to a nominal amount the federal income taxes to which it may
be subject. If for any taxable year a Fund does not qualify for the special
federal tax treatment afforded regulated investment companies, all of the Fund's
taxable income would be subject to tax at regular corporate rates without any
deduction for distributions to shareholders. In such event, a Fund's
distributions to shareholders (including amounts derived from interest on
Municipal Securities) would be taxable as ordinary income, to the extent of the
current and accumulated earnings and profits of the Fund, and would be eligible
for the dividends received deduction in the case of corporate shareholders.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that each Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its 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 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,
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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.
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 RESERVES
As stated in the Prospectus, an investment in the Tax-Exempt Reserves 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.
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In order for the Tax-Exempt Reserves to pay exempt-interest dividends for
any taxable year, at the close of each taxable quarter, at least 50% of the
aggregate value of the Fund's portfolio must consist of exempt-interest
obligations. Within 60 days after the close of its taxable year, the Fund will
notify its shareholders of the portion of the dividends paid by the Fund which
constitutes exempt-interest dividends with respect to such taxable year.
However, the aggregate amount of dividends so designated by the Fund cannot
exceed the excess of the amount of interest exempt from tax under Section 103 of
the Code received by the Fund over any amounts disallowed as deductions under
Sections 265 and 171(a)(2) of the Code. The percentage of total dividends paid
by the Fund with respect to any taxable year that qualifies as federal
exempt-interest dividends will be the same for all shareholders receiving
dividends from the Fund for such year.
Shareholders should note that, upon the sale or exchange of Fund shares, if
the shareholder has not held such shares for more than six months, any loss on
the sale or exchange of those shares will be disallowed to the extent of the
exempt dividends received with respect to the shares.
STATE TAXATION
Depending upon the extent of Galaxy's activities in states and localities
in which its offices are maintained, in which its agents or independent
contractors are located, or in which it is otherwise deemed to be conducting
business, each Fund may be subject to the tax laws of such states or localities.
In addition, in those states and localities that have income tax laws, the
treatment of a Fund and its shareholders under such laws may differ from their
treatment under federal income tax laws. Under state or local law,
distributions of net investment income may be taxable to shareholders as
dividend income even though a substantial portion of such distributions may be
derived from interest on U.S. Government obligations which, if realized
directly, would be exempt from such income taxes. Shareholders are advised to
consult their tax advisers concerning the application of state and local taxes.
TRUSTEES AND OFFICERS
The trustees and executive officers of Galaxy, their addresses, principal
occupations during the past five years, and other affiliations are as follows:
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<PAGE>
Positions Principal Occupation
With The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
----------------- ----------- ----------------------
Dwight E. Vicks, Jr. Chairman & President & Director, Vicks
Vicks Lithograph & Printing Trustee Lithograph & Printing Corporation
Corporation (book manufacturing and
Commercial Drive commercial printing); Director,
P.O. Box 270 Utica Fire Insurance Company;
Yorkville, NY 13495 Trustee, Savings Bank of Utica;
Age 64 Director, Monitor Life Insurance
Company; Director, Commercial
Travelers Mutual Insurance
Company; Trustee, The Galaxy VIP
Fund; Trustee, Galaxy Fund II.
John T. O'Neill(1) President, Executive Vice President and CFO,
Hasbro, Inc. Treasurer & Hasbro, Inc. (toy and game
1027 Newport Avenue Trustee manufacturer); Trustee, The
Pawtucket, RI 02862 Galaxy VIP Fund; Trustee, Galaxy
Age 53 Fund II.
Louis DeThomasis Trustee President, Saint Mary's College
Saint Mary's College of of Minnesota; Director, Bright
Minnesota Day Travel, Inc.; Trustee,
Winona, MN 55987 Religious Communities Trust;
Age 57 Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc.
10725 Quail Covey Road (broadcast services);
Boynton Beach, FL 33436 Director/Trustee, Lexington
Age 72 Funds; Chairman, Executive
Committee, Compton International,
Inc. (advertising agency);
Trustee, Keuka College; Trustee,
The Galaxy VIP Fund; Trustee,
Galaxy Fund II
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<PAGE>
Positions Principal Occupation
With The During Past 5 Years
Name and Address Galaxy Fund and Other Affiliations
---------------- ----------- ----------------------
James M. Seed
The Astra Ventures,Inc. Trustee Chairman and President, The Astra
One Citizens Plaza Projects, Incorporated (land
Providence, RI 02903 development); President, The
Age 56 Astra Ventures, Incorporated
(previously, Buffinton Box
Company - manufacturer of
cardboard boxes); Commissioner,
Rhode Island Investment
Commission; Trustee, The Galaxy
VIP Fund; Trustee, Galaxy Fund
II.
Bradford S. Wellman(1) Trustee Private Investor; Vice President
2468 Ohio Street and Director, Acadia Management
Bangor, ME 04401 Company (investment services);
Age 66 from 1974 until 1990; Director,
Essex County Gas Company, until
January 1994; Director, Maine
Mutual Fire Insurance Co.;
Member, Maine Finance Authority;
Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker
Philadelphia National Bank Biddle & Reath LLP, Philadelphia,
Building Pennsylvania.
1345 Chestnut Street
Philadelphia, PA 19107
Age 54
Jylanne Dunne Vice Vice President, First Data
First Data Investor President and Investor Services Group, Inc.,
Services Group, Inc. Assistant 1990 to present.
4400 Computer Drive Treasurer
Westboro, MA 01581
Age 38
- -----------------------
(1) An interested person within the definition set forth in Section 2(a)(19) of
the 1940 Act.
Effective March 5, 1998, each trustee receives an annual aggregate fee of
$40,000 for his services as a trustee of Galaxy,
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The Galaxy VIP Fund ("Galaxy VIP") and Galaxy Fund II ("Galaxy II")
(collectively, the "Trusts"), plus an additional $2,500 for each in-person
Galaxy Board meeting attended and $1,500 for each in-person Galaxy VIP or Galaxy
II Board meeting attended not held concurrently with an in-person Galaxy
meeting, and is reimbursed for expenses incurred in attending all meetings.
Each trustee also receives $750 for each telephone Board meeting in which the
trustee participates, $1,000 for each in-person Board committee meeting attended
and $500 for each telephone Board committee meeting in which the trustee
participates. The Chairman of the Boards of the Trusts is entitled to an
additional annual aggregate fee in the amount of $4,000, and the President and
Treasurer of the Trusts is entitled to an additional annual aggregate fee of
$2,500 for their services in these respective capacities. The foregoing
trustees' and officers' fees are allocated among the portfolios of the Trusts
based on their relative net assets. Prior to March , 1998, (i) each trustee
received an annual aggregate fee of $29,000 for his services as a trustee of the
Trusts, plus an additional $2,250 for each in-person Galaxy Board meeting
attended and $1,500 for each in-person Galaxy VIP or Galaxy II Board meeting
attended not held concurrently with an in-person Galaxy Board meeting, and (ii)
the President and Treasurer of the Trusts received the same fees as they are
currently paid for their services in these capacities.
Effective March 1, 1996, each trustee became entitled to participate in The
Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation Plans
(the "Original Plans"). Effective January , 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>
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.
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
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account of any contract, debt, claim, damage, judgment or decree arising out of
or connected with the administration or preservation of the trust estate or the
conduct of any business of Galaxy; nor shall any trustee be personally liable to
any person for any action or failure to act except by reason of his own bad
faith, willful misfeasance, gross negligence or reckless disregard of his duties
as trustee. The Declaration of Trust also provides that all persons having any
claim against the trustees or Galaxy shall look solely to the trust property for
payment.
With the exceptions stated, the Declaration of Trust provides that a
trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a trustee, and that the Board of Trustees
shall indemnify representatives and employees of Galaxy to the same extent to
which they themselves are entitled to indemnification.
ADVISORY, ADMINISTRATION,
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS
Fleet serves as investment adviser to the Funds. In its advisory
agreement, Fleet has agreed to provide investment advisory services to the Funds
as described in the Prospectus. Fleet has also agreed to pay all expenses
incurred by it in connection with its activities under the advisory agreement
other than the cost of securities (including brokerage commissions) purchased
for the Funds. See "Expenses" in the Prospectus.
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, 1999, 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
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<PAGE>
vote of the lesser of (i) 67% or more of the shares of the Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund. The advisory agreement may be terminated by Galaxy or by
Fleet on sixty days' written notice, and will terminate immediately in the event
of its assignment.
Investor Services Group serves as Galaxy's administrator. Under the
administration agreement, Investor Services Group has agreed to maintain office
facilities for Galaxy, furnish Galaxy with statistical and research data,
clerical, accounting, and bookkeeping services, certain other services such as
internal auditing services required by Galaxy, and compute the net asset value
and net income of the Funds. Investor Services Group prepares the Funds' annual
and semi-annual reports to the SEC, federal and state tax returns, and filings
with state securities commissions, arranges for and bears the cost of processing
share purchase and redemption orders, maintains the Funds' financial accounts
and records, and generally assists in all aspects of Galaxy's operations.
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 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)
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<PAGE>
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.
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
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<PAGE>
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.
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 the Funds. The 12b-1
Plan is described in the Prospectus.
Under the 12b-1 Plan, payments by Galaxy (i) for distribution expenses may
not exceed .75% (annualized) of each Fund's average daily net assets, and (ii)
to a broker-dealer or other financial institution ("Service Organization") for
shareholder administrative support services may not exceed .25% (annualized) of
the average daily net assets attributable to each Fund's outstanding shares
which are owned of record or beneficially by that Service Organization's
customers for whom the Service Organization 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
payments under the 12b-1 Plan to an aggregate fee of not more than .45% (on an
annualized basis) of the average daily net assets of the Prime Reserves and .40%
(on an annualized basis) of the average daily net assets of the Government
Reserves and Tax-Exempt Reserves. In addition, Fleet may make payments for
distribution assistance and for shareholder administrative support services from
its own resources, which may include the advisory fee paid by each Fund.
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 fund 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
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<PAGE>
it may not be amended to increase materially the costs which shares of the Funds
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").
Galaxy's Board of Trustees has concluded that there is a reasonable
likelihood that the 12b-1 Plan will benefit the Funds and their shareholders.
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 a Fund by a
vote of a majority of such Trustees or by vote of the holders of a majority of
the shares of the Fund. Any agreement entered into pursuant to the 12b-1 Plan
with a Service Organization is terminable with respect to a 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 shares of the Fund 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.
Unless otherwise terminated, the Distribution Agreement between Galaxy and
FD Distributors, remains in effect until May 31, 1999, and thereafter will
continue from year to year upon annual approval by Galaxy's Board of Trustees,
or by the vote of a majority of the outstanding shares of Galaxy and by the vote
of a majority of the Board of Trustees of Galaxy who are not parties to the
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Agreement will terminate
in the event of its assignment, as defined in the 1940 Act.
AUDITORS
Coopers & Lybrand LLP, independent certified public accountants, with
offices at One Post Office Square, Boston, Massachusetts 02109, serve as
auditors to Galaxy.
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<PAGE>
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.
PERFORMANCE AND YIELD INFORMATION
The standardized annualized seven-day yields for the Prime Reserves,
Government Reserves and Tax-Exempt Reserves 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 Prime Reserves, Government Reserves and
Tax-Exempt Reserves may be obtained by calling FD Distributors at
1-800-628-0414.
In addition, the Tax-Exempt Reserves 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%.
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<PAGE>
MISCELLANEOUS
As used in the Prospectus, "assets belonging to a particular Fund" means
the consideration received by Galaxy upon the issuance of shares in that 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 Fund. In
determining the net asset value of a particular Fund, assets belonging to the
Fund are charged with the direct liabilities in respect of that Fund and with a
share of the general liabilities of Galaxy, which are allocated in proportion to
the relative asset values of the respective 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 Fund, are
conclusive.
As of June 16, 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 Investmetn Services, 159 East Main Street,
NY/RO/TO3C, Rochester, NY 14638, Account 00000150286 (99.65%); Tax-Exempt
Money Market Fund -- Fleet New York, Fleet Investment Services, 159 East Main
Street, NY/RO/TO3C, Rochester, NY 14638, Account 00000007717 (99.51%);
Government Money Market Fund -- Fleet New York, Fleet Investment Services,
159 East Main Street, NY/RO/TO3C, Rochester, NY 14368, Account 00000012621
(98.60%); U.S. Treasury Money Market Fund -- Fleet New York, Fleet Investment
Services, 159 East Main Street, NY/RO/TO3C, Rochester, NY 14638, Account
00000015922 (92.50%); Institutional Treasury Money Market Fund -- Fleet New
York, Fleet Investment Services, 159 East Main Street, NY/RO/TO3C, Rochester,
NY 14638, Account 00000000019 (97.71%); Equity Value Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit, 159 East Main Street,
NY/RO/TO4A, Rochester, NY 14683, Account 00000000064 (76.66%); Gales & Co.,
Fleet Investment Services, Mutual Funds Unit, 159 East Main Street,
NY/RO/TO4A, Rochester, NY 14683, Account 00000003294 (17.67%); Gales & Co.,
Fleet Investment Services, Mutual Funds Unit, 159 East Main Street,
NY/RO/T04A, Rochester, NY 14683, Account 00000011551 (5.80%); Equity Growth
Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East
Main Street, NY/RO/TO4A, Rochester, NY 14683, Account 00000000082 (69.56%);
Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main
Street, NY/RO/TO4A, Rochester, NY 14683, Account 00000010017 (15.81%); Gales
& Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main Street,
NY/RO/TO4A, Rochester, NY 14683, Account 00000030718 (14.59%); Equity Income
Fund -- Gales & Co., Fleet Investment Services,
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Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14683,
Account 00000015771 (51.12%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14683, Account
00000003748 (34.38%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14683, Account
00000000037 (14.33%); International Equity Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A,
Rochester, NY 14638, Account 00000000073 (44.80%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A,
Rochester, NY 14638, Account 00000000876 (40.46%); Gales & Co., Fleet
Investment Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A,
Rochester, NY 14638, Account 00000004088 (13.59%); Growth and Income Fund --
Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main
Street, NY/RO/TO4A, Rochester, NY 14638, Account 05000503793 (68.01%); Gales
& Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main Street,
NY/RO/TO4A, Rochester, NY 14638, Account 05000503873 (28.46%); Asset
Allocation Fund -- Gales & Co., Fleet Investment Services, Mutual Funds Unit,
159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000000073
(21.31%). Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159
East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 00000002698
(14.30%); Small Company Equity -- Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000000046 (67.15%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000001492 (23.49%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000006102 (8.77%); Small Cap Value Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 05000503999 (65.37%); Gates & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 05000503917 (19.98%); Gates & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
05000503953 (14.20%); Intermediate Government Income Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit, NY/RO/TO4A, Rochester, NY
14638, Account 00000038408 (41.54%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000007183 (31.64%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000000037 (26.82%); High Quality Bond Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 00000000037 (66.41%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000001465 (21.01%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000006095 (12.58%); Short-Term Bond Fund -- Gales & Co., Fleet Investment
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Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 00000008627 (42.68%); Gales & Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000000064 (40.78%); Gales & Co., Fleet Investment Services, Mutual
Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000001090 (14.44%); Tax-Exempt Bond Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY
14638, Account 00000005899 (40.23%); Gales & Co, Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000000028 (38.26%); Gales and Co., Fleet Investment Services,
Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638,
Account 00000000670 (21.51%); Connecticut Municipal Bond Fund -- Gales & Co.,
Fleet Investment Services, Mutual Funds Unit, 159 East Main Street,
NY/RO/TO4A, Rochester, NY 14638, Account 00000000019 (76.80%); Gales & Co.,
Fleet Investment Services, Mutual Funds Unit, 159 East Main Street,
NY/RO/TO4A, Rochester, NY 14638, Account 00000000037 (22.55%); Massachusetts
Municipal Bond Fund -- Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000000019 (56.41%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000000073 (43.59%); Corporate Bond Fund -- Gales & Co., Fleet Investment
Services, Mutual Funds Unit, NY/RO/TO4A, Rochester, NY 14638, Account
00000000046 (48.38%); Gales Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000006102 (38.44%); Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 East Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
00000001492 (13.18%); New York Municipal Bond Fund -- Gales & Co., Fleet
Investment Services, Mutual Funds Unit, 159 East Main Street, NY/RO/TO4A,
Rochester, NY 14638, Account 00000000019 (13.66%); Gales & Co., Fleet
Investment Services, Mutual Fund Unit, 159 East Main Street, NY/RO/TO4A,
Rochester, NY 14638, Account 00000001107 (75.75%); Gales & Co., Fleet
Investment Services, Mutual Fund Unit, 159 East Main Street, NY/RO/TO4A,
Rochester, NY 14638, Account 00000005292 (10.59%); New Jersey Municipal Bond
Fund -- Gales & Co., Fleet Investment Services, Mutual Fund Unit, 159 East
Main Street, NY/RO/TO4A, Rochester, NY 14638, Account 05100115489 (71.30%);
Gales & Co., Fleet Investment Services, Mutual Funds Unit, 159 East Main
Street, NY/RO/TO4A, Rochester, NY 14638, Account 05100115504 (28.70%); and
Strategic Equity Fund -- Gales & Co., Fleet Investment Services, Mutual Funds
Unit, 159 Esat Main Street, NY/RO/TO4A, Rochester, NY 14638, Account
05100115522 (98.64%).
As of June 16, 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: Money Market Fund -- US Clearing, A Division of Fleet
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Securities Inc., 26 Broadway, New York, NY 10004, Account 05100115664 (5.88%);
Tax-Exempt Money Market Fund -- Hope H. Van Beuren, P.O. Box 4098, Middletown,
RI 02842, Account 00000025010 (6.93%); U.S. Treasury Money Market Fund -- US
Clearing, a Division of Fleet Securities Inc., 26 Broadway, New York, NY 10004,
Account 06100115884 (11.24%); Massachusetts Municipal Money Market Fund -- Fleet
New York, Fleet Investment Services, 159 East Main St., NY/RO/TO3C, Rochester,
NY 14638, Account 05100058503 (48.51%); Connecticut Municipal Money Market Fund
- -- Fleet New York, Fleet Investment Services, 159 East Main St., NY/RO/TO3C,
Rochester, NY 14638, Account 05100068521 (28.69%); Massachusetts Municipal Bond
Fund -- New England Realty Associates, Robert Bline, Ronald Brown, Howard Brown
& Carl Vajeri, 39 Brighton Ave., Boston, MA 02128, Account 06100587013 (5.53%);
and New Jersey Municipal Bond Fund -- Jeffery W Goldman, 7 Hampton Ridge CT, Old
Tappan, NJ 07675, Account 05100780704 (88.60%); NFSC FEBO # AAR-769763, William
H. & Margaret M. Wheeler, 68 Laurel Street, Carteret, NY 07008, Account
7000057096 (8.46%);
As of June 16, 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, (19.24%); Thomas A. Dowd, Myrna L. Dowd(JTWROS) 9 Cypress Ave.,
Shrewsbury, MA 01546, Account 06100563501, (12.83%); Stuart Harris & Patricia N.
Harris(JTWROS) 174 Mayfield Dr., Tumbull, CT 06611-2358, Account 06100220114,
(6.74%); Bruce Hamilton & Sonya D. Hamilton(JTWROS), HC 76 Box 58, Greenville,
ME 04446, Account 06100649581, (6.00%); Steven R. Schwanze, 2393 Lake Elmo Ave.
N., Lake Elmo, MN 5604-8407, Account 06100583213 (22.01%); High Quality Bond
Fund -- E.L. Bradley and Co., Inc., 16 Helen Rd., Needham, MA 02192, Account
05100649206, (5.63%); Short-Term Bond Fund -- Gabriella Dulac & Alain
Dulac(JTWROS) 40 Dix Road, Wethersfield, CT 06109, Account 05100818032, (5.96%);
Elizabeth Mugar, 10 Chesnut St. Apt. 1808, Springfield, MA 01103, Account
06100760012; Tax-Exempt Bond Fund -- David Fendler & Sylvia Fendler(JTWROS), 72
Brinkerhoff Ave., Stamford, CT 06905, Account 05100255354, (9.64%); Doria M.
Peloguin, 43 Kaene Street, Providence, RI 02906-1520, Account 05100506413,
(5.70%); NFSC FEBO # AAD-181030, Carol & Alle Guy, 14 Thomas Street, Scaredale,
NY 10583, Account 07000076164, (5.30%); and Strategic Equity Fund -- Yuet Kum
Ku, 7 Mason Street, Malden, MA 02148, Account 05100918601, (10.30%); Wei Chen,
87 State Creek Drive, Apt. #11, Cheekrowaga, NY 14227, Account 05100564011,
(6.76%); Donald R. Kelly, 116 Balaam Drive, Bangor, ME 04401, Account
06100880133, (6.08%).
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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 ("Thomson").
CORPORATE AND TAX-EXEMPT BOND RATINGS
The four highest ratings of D&P for tax-exempt and corporate fixed-income
securities are AAA, AA, A and BBB. Securities rated AAA are of the highest
credit quality. The risk factors are considered to be negligible, being only
slightly more than for risk-free U.S. Treasury debt. Securities rated AA are of
high credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions. Securities that
are rated "A" have protection factors that are average but adequate. However,
risk factors are more variable and greater in periods of economic stress.
Securities that are rated "BBB" have below average protection factors but are
still considered sufficient for prudent investment. Considerable variability in
risk is present during economic cycles. The AA, A and BBB ratings may be
modified by an addition of a plus (+) or minus (-) sign to show relative
standing within these major rating categories.
The four highest ratings of Fitch IBCA for tax-exempt and corporate bonds
are AAA, AA, A and BBB. Plus (+) and minus (-) signs are used with a rating
symbol to indicate the relative position of a credit within the rating category.
AAA bonds are considered to be investment grade and of the highest credit
quality. The obligor is judged to have an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. AA bonds are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+. A bonds are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. BBB bonds
are considered to be investment grade and of satisfactory credit quality. The
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have an adverse impact on these bonds, and therefore, impair
timely
A-1
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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 completion of construction or elimination of the basis of
the condition.
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CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS
The highest rating of D&P for commercial paper is Duff 1. D&P employs
three designations, Duff 1 plus, Duff 1 and Duff 1 minus, within the highest
rating category. Duff 1 plus indicates highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is judged to be "outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations." Duff 1 indicates very
high certainty of timely payment. Liquidity factors are excellent and supported
by good fundamental protection factors. Risk factors are considered to be
minor. Duff 1 minus indicates high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small. Duff 2 indicates good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small. Duff 3 indicates satisfactory liquidity and other
protection factors qualify such issues as to investment grade. Risk factors are
larger and subject to more variation. Nevertheless, timely payment is expected.
Duff 4 indicates speculative investment characteristics.
Fitch IBCA's short-term ratings apply to tax-exempt and corporate debt
obligations that are payable on demand or have original maturities of up to
three years. The four highest ratings of Fitch 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
A-3
<PAGE>
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- (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-erm 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-erm 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 lieklihoodthat 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-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-XEMPT 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
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<PAGE>
given a plus (+) designation. Notes rated SP-2 are issued by issuers that
exhibit satisfactory capacity to pay principal and interest. Notes rated
SP-3 are issued by issuers that exhibit speculative capacity to pay principal
and interest.
Moody's ratings for state and municipal notes and other short-term loans
are designated MIG and variable rate demand obligations are designated VMIG.
Such ratings recognize the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG-1 or VMIG-1 are of the
best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing. Loans bearing the designation MIG-2 or VMIG-2 are of high
quality, with margins of protection ample although not so large as with loans
rated MIG-1 or VMIG-1. Loans bearing the designation MIG-3 or VMIG-3 are of
favorable quality with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be
less well established. Loans bearing the designation MIG-4 or VMIG-4 are of
adequate quality, carrying specific risk but having protection commonly
regarded as required of an investment security and not distinctly or
predominantly speculative.
Fitch IBCA uses its short-term ratings described above under "Corporate and
Tax-Exempt Commercial Paper Ratings" for tax-exempt notes.
A-5
